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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, 1995
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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
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Fairwood Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3472113
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Center
1201 N. Orange Street, Suite 790
Wilmington, DE 19801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302-884-6749
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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None Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (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, 1996.
On February 28, 1996, 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.
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PART I
ITEM 1. BUSINESS
Fairwood Corporation ("Fairwood"), 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 Consolidated
Furniture Corporation, formerly named Mohasco Corporation ("Consolidated
Furniture"). At the date of acquisition, Consolidated Furniture's operations
were diversified to include the manufacture of residential furniture and
carpet, and the rental of residential and office furniture. Consolidated
Furniture sold its carpet and rental operations in 1988.
The principal executive offices of Fairwood are located at One Commerce
Center, 1201 Orange St., Suite 790, Wilmington, Delaware 19801. Fairwood is a
holding company with no independent operations: its primary asset is all of the
common stock of Consolidated Furniture.
On March 10, 1992, Consolidated Furniture 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 Consolidated Furniture to repay long-term debt owed to
Court Square Capital Limited ("CSCL"), an affiliate of CVCL, under Consolidated
Furniture's Credit Agreement with CSCL (the "Credit Agreement").
On July 29, 1994, substantially all of the assets and liabilities of
Super Sagless Corporation ("Super Sagless"), a wholly-owned subsidiary of
Consolidated Furniture, were sold to a third party for $40 million cash. Of
the total sales price, $24.25 million was received in cash upon closing, $15
million was received six months and $.75 million was received one year after
closing. After considering the estimated costs of disposition, Super Sagless
has recognized a gain before income taxes of approximately $21 million. The
net proceeds from the sale were used to repay long-term debt owed to CSCL under
the Credit Agreement.
Fairwood's subsidiary Consolidated Furniture is the parent of Furniture
Comfort Corporation ("Furniture Comfort") whose two operating divisions
manufacture upholstered stationary and motion furniture, such as modular
living room groups, recliners, rockers and sleepers.
Operations
Furniture Comfort, formerly named Mohasco Upholstered Furniture
Corporation, Consolidated Furniture's primary operating subsidiary, serves
selected segments of the highly diversified $19+ billion residential furniture
market. Consolidated Furniture entered the furniture industry through a series
of acquisitions commencing in 1964. Furniture Comfort's current operations
engage in the manufacture and sales of a diversified line of upholstered
furniture under several brand names. While most of its products are
moderately priced and designed to appeal to a wide range of furniture buyers,
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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.
Furniture Comfort's two divisions operate as separate independent
companies. 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.
The furniture industry is affected to a substantial degree by style,
value and fashion. Stratford and Barcalounger 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. Each Division frequently reviews their 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
divisions 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.
Stratford and Barcalounger operate in a highly competitive segment of the
motion furniture business. Many new competitors and existing stationary
manufacturers have entered this particular market, as well as existing
competitors which have expanded their lines. New entrants at mid price points
have eroded Stratford's market share. In many cases this increased competitive
activity has led to a lowering of selling prices and the extension of liberal
credit terms in order to maintain market share. Despite the inroads of these
competitors over the past five years, Stratford and Barcalounger remain
positioned among the largest manufacturers of upholstered stationary and motion
furniture in the United States. For the years ended December 31, 1995, 1994,
and 1993, net sales, including intercompany sales, by Stratford were $142.6
million, $176.6 million and $178.2 million, respectively, and net sales by
Barcalounger were $36.9 million, $36.5 million and $35.4 million, respectively.
The furniture market is highly competitive and includes a large number of
manufacturers, none of which dominates the market. Certain of these
manufacturers produce a broader range of furniture than Stratford and
Barcalounger, and many of them have greater financial and other resources. In
addition, there are relatively few barriers to entry into the industry.
Competition could require Stratford and Barcalounger to reduce prices, offer
better credit terms, or increase spending on product development, marketing or
sales, which could adversely affect the Company.
Stratford targets a broad market for it mid-priced recliner, motion and
stationary upholstered furniture. Stratford sells mainly to large national
retail furniture and department stores and has significant brand recognition.
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Barcalounger targets a selected market for its high-end recliner chair
and motion upholstered furniture. Barcalounger sells mainly to furniture
stores 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 its furniture is apparent as hardwood
frames are emphasized and only the finest leather and fabric coverings 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 higher priced segment of the motion furniture industry.
In November 1995, Stratford entered into a manufacturing agreement
("Agreement") with Simmons Upholstered Furniture Corporation ("Simmons"), an
affiliate of the Company. Under this Agreement, Stratford manufactures product
for and supplies product on behalf of Simmons, provides sales services and
provides new product development services to Simmons. The products are
manufactured using Stratford's equipment and various plant facilities and the
other services are provided using Stratford's personnel. The term on the
Agreement is for one year with automatic one-year renewals, unless terminated
by either party. This agreement resulted in approximately $2.4 million of new
revenues in 1995 and the reimbursement of $343,000 of expenses incurred to
provide the other services in 1995.
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, Klausner, Natuzzi, and Bassett, many of which
have greater financial resources than the Company. 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, Furniture Comfort 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, Furniture Comfort conducts
research and development activities which are decentralized and directed by its
individual operating divisions.
The Stratford and Barcalounger operating divisions expended a total of
$12,260,000 in the past five years for research and development programs of
which $2,149,000, $2,467,000, and $2,623,000 was expended in 1995, 1994 and
1993, respectively.
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Employees
Fairwood and its subsidiaries employed 2,374 persons at December 31,
1995. Fairwood has a long record of generally harmonious relations with
employees.
Backlog
The backlog of orders among Furniture Comfort's furniture operations was
approximately $13,401,000 at December 31, 1995 and approximately $21,306,000 at
December 31, 1994. It is expected that the backlog at December 31, 1995 will
be filled in the current year. Furniture Comfort does not consider backlog to
be a significant indicator of the sales outlook for its products beyond the
period of a few months.
Seasonality, Major Customers and Export Sales
There are seasonal factors which affect Furniture Comfort'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
Furniture Comfort'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 Furniture Comfort's activities for
vacation periods of one or two weeks in July has a limiting effect on
production as well as sales. Furniture Comfort maintains adequate levels of
inventory to meet seasonal demands.
Sears, Roebuck & Co. accounted for approximately nineteen, twenty and
sixteen percent of Furniture Comfort's furniture sales during the years 1995,
1994 and 1993, respectively. Export sales for 1995 and 1994 were approximately
two and one percent of sales, respectively, and were not significant in 1993.
Environmental and Raw Materials
In 1995, there were no significant effects upon the capital expenditures,
earnings and competitive position of Furniture Comfort and its divisions
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 Furniture Comfort 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
Furniture Comfort's products. Furniture Comfort does not believe that its
operating income is materially dependent on any one patent or license or group
of related patents or licenses.
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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 primary operating subsidiary of Consolidated
Furniture.
Furniture Comfort's divisions also lease showroom and warehouse space
throughout the United States for display and storage of products. Until March
1993, Consolidated Furniture owned an office building located in Fairfax,
Virginia. Office space is now leased.
Furniture Comfort believes that its plants and facilities, in the
aggregate, are adequate, suitable and of sufficient capacity for purposes of
conducting its current business.
As of December 31, 1995, Furniture Comfort's divisions have furniture
facilities as follows:
<TABLE>
<CAPTION>
Location Use Square Footage
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<S> <C> <C>
Stratford
Leased
New Albany, MS Manufacturing plant 1,060,786
Okolona, MS Manufacturing plant 613,233
Eupora, MS Manufacturing plant 314,693
Ontario, CA Manufacturing plant 185,000
Guntown, MS Warehouse 216,000
High Point, NC Showroom 27,386
San Francisco, CA Showroom 10,390
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2,427,488
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Owned
New Albany, MS Manufacturing plant 32,463
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Barcalounger
Leased
Rocky Mount, NC Manufacturing plant 364,000
High Point, NC Showroom 5,725
San Francisco, CA Showroom 2,945
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372,670
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2,832,621
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</TABLE>
Substantially all of the assets of Consolidated Furniture and its
subsidiaries are subject to a lien in favor of CSCL granted in connection with
the Credit Agreement (See Note 5 to the Company's Consolidated Financial
Statements set forth in item 10).
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Furniture Comfort believes that its properties are adequate to serve the
current and anticipated needs of Stratford and Barcalounger without making
capital expenditures materially higher than historical levels.
ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed the audit examination
of the consolidated Federal income tax returns of Fairwood and its
subsidiaries, including Consolidated Furniture (the "Consolidated Group"), for
the years ended July 11, 1988 through December 31, 1991, and has delivered to
the Company a "30-day letter" and Revenue Agent's Report ("RAR") proposing to
adjust Fairwood'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 $70 million, before applicable statutory interest.
Fairwood estimates that the aggregate proposed liability would, together with
statutory interest and state income tax through the year ended December 31,
1995, and net of any applicable deduction for such interest and state income
tax, total approximately $106 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 Consolidated Furniture by Fairwood
under the theory that such debt should be recharacterized as equity for tax
purposes, (ii) the proposed disallowance of approximately $19 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 $5 million of compensation expense deducted by the Consolidated
Group under the theory that such expense constitutes non-deductible "golden
parachute" payments. Fairwood believes that the proposed adjustments are in
error and intends to contest vigorously this matter. Under available
administrative procedures, Fairwood has protested the proposed adjustments and
has had several conferences with IRS Appeals division and expects to have
additional conferences with the IRS Appeals division. Depending upon the
outcome of discussions of the issues with the IRS Appeals division, Fairwood
may litigate one or more of the issues.
On October 4, 1994, Consolidated Furniture was served with a complaint
filed in U.S. District Court in Philadelphia by third party plaintiffs against
Consolidated Furniture and its former subsidiary, Sloane Blabon Corporation,
which engaged in the linoleum business, U.S. vs. Berks Associates, et al., Civ.
No. 91-4868, E.D. PA. 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 Consolidated Furniture)
for costs incurred or to be incurred in connection with the investigation and
remediation of a Super Fund site in Douglasville, Pennsylvania. 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 its relevant assets to
Congoleum Corporation. During the period in question, Sloane Blabon disposed
of substantial quantities of benzine to Berks Associates at the Douglasville
site. However, Fairwood does not believe its disposals were toxic as alleged.
The damages sought from Sloane Blabon
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and Consolidated Furniture are unspecified. On August 28, 1995 Consolidated
Furniture joined with five other Potentially Responsible Parties and made an
offer of settlement to the EPA. Consolidated Furniture's share of the offer is
approximately $190,000. The EPA has not rejected or accepted the offer.
An involuntary Chapter 7 petition, under U.S. Bankruptcy law, was filed
on January 3, 1996 in the United States Bankruptcy Court for the Southern
District of New York against Fairwood Corporation by certain bondholders. On
consent of the parties, Fairwood's time to answer or otherwise move with
respect to the petition has been extended to April 17, 1996. Fairwood intends
to seek to have the petition dismissed. If Fairwood is unsuccessful in
obtaining dismissal of the petition, Fairwood may convert the Chapter 7 case to
a Chapter 11 case or permit a trustee to be appointed as part of a Chapter 7
proceeding.
As of the date hereof, there are certain other legal proceedings pending,
which arise out of the normal course of the Fairwood's business, the financial
risk of which is not considered material in relation to the consolidated
financial position of Fairwood.
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
Fairwood's common stock is privately held. At December 31, 1995 and
1994, there were three shareowners of Fairwood's common stock. No dividends
were declared on Fairwood's common stock in 1995 and 1994. The ability of
Fairwood to pay dividends and make distributions in respect of its common stock
is restricted by instruments relating to Fairwood's debt. Furthermore, the
ability of Consolidated Furniture and its subsidiaries to transfer monies to
Fairwood (including without limitation by dividend or distribution) is
restricted by instruments relating to Consolidated Furniture'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 5 to Fairwood's
Consolidated Financial Statements set forth in Item 8.
Common stock purchase warrants issued by Fairwood in connection with the
1989 Fairwood merger were held by the public. The common stock purchase
warrants became exercisable in September 1994. See Note 5 to Fairwood's
Consolidated Financial Statements set forth in Item 8. The warrant exercise
price was $1 per share (subject to adjustment). In October 1994, Fairwood
notified the holders of the warrants that the warrants may be exercised at any
time before the close of business on September 21, 1995. During the first
fiscal quarter of 1995, the exercise of the Warrants was suspended pursuant to
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the terms of the Warrant Agreement (such period of suspension being the
"suspension period"). On September 19, 1995, the holders of record of Fairwood
Corporation common stock purchase Warrants ("Warrants") were notified in
writing by the Warrant Agent that the suspension had been lifted.
Thereafter, pursuant to the terms of the Warrant Agreement, the
exercisability of the Warrants expired at 5:00 P.M. Pittsburgh, Pennsylvania
time on September 22, 1995.
ITEM 6. SELECTED FINANCIAL DATA
FAIRWOOD CORPORATION AND SUBSIDIARIES
Five Year Summary of Consolidated Financial Data
(Dollar Amounts in Millions)
<TABLE>
<CAPTION>
Years ended December 31,
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C>
Net sales $ 176.8 244.9 261.5 267.0 341.4
Operating income (loss) ( 11.8) ( 8.2) 1.9 ( 18.4) ( 11.9)
Interest expense, net ( 58.6) ( 53.4) ( 46.6) ( 43.6) ( 44.5)
Gain on sale of subsidiary - 20.8 - - -
Loss before extraordinary
items ( 70.7) ( 39.4) ( 46.9) (159.1) ( 49.9)
Extraordinary items - - - 1.9 -
Net loss ( 70.7) ( 39.4) ( 46.9) (157.2) ( 49.9)
Total assets 53.4 95.6 113.6 105.1 277.8
Long-term debt, including
current maturities 420.7 415.4 386.0 330.8 370.8
Redeemable preferred stock .1 .1 .1 .1 .1
</TABLE>
Fairwood acquired Consolidated Furniture 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 Consolidated Furniture 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 from January 1 through April 23, 1992. In
1994, operations data includes the activities of Super Sagless for the period
from January 1 through July 29, 1994. Accordingly, the data presented for 1995,
1994 and 1993 is not comparable with one another or prior periods.
For additional information, see the Company's Consolidated Financial
Statements included with this report, including Notes 4 and 13 thereto
regarding certain tax and liquidity matters.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
1995 vs 1994 Results of Operations
Consolidated net sales of approximately $176.8 million for 1995 decreased
27.8% from 1994 net sales of approximately $244.9 million, due primarily to the
disposition of Super Sagless in July 1994 and the significant reduction of
sales at Stratford. Excluding Super Sagless, net sales of approximately $176.8
million for 1995 decreased 17.0% from 1994 net sales of approximately $213.6
million.
Net sales (including intercompany sales) for 1995 by Stratford decreased
19.2% to approximately $142.6 million as compared to $176.6 million for 1994.
Total volume in 1995 decreased 22.6%, while average selling prices increased by
approximately 3.9%. Sales in 1995 to Stratford's larger, national retail
customers decreased 30.7%, while sales to smaller retail customers decreased
13.3%. The decrease in sales at Stratford was the result of internal and
external factors. In 1995 Stratford changed its market strategy and
discontinued all styles with insufficient profit margins and all styles with
low sales quantities. This change in market strategy was the primary factor
causing the decrease in sales to the smaller retail customers. Sales to the
larger national retail customers decreased primarily because of an overall
industry wide slow-down in sales combined with (1) customers' organizational
realignment lowering customers' overall inventory levels, (2) the consolidating
of customers' stores and the subsequent delayed opening of the new consolidated
stores, (3) discontinuance of furniture sales by certain customers, and (4)
Stratford's price increases conflicted with the retailers' pricing policies.
Net sales for 1995 by Barcalounger increased 1.2% to approximately $36.9
million as compared to $36.5 million for 1994. This increase in sales reflects
an decrease of 0.4% in the number of pieces sold in 1995 versus 1994, and a
2.0% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994 and 1995, Barcalounger added to their product offerings of
higher-priced recliner and motion upholstered furniture through an emphasis on
more expensive leather and fabric coverings. Concurrent with these new
offerings, Barcalounger discontinued certain lower-priced products. By offering
a finer, more exclusive product, Barcalounger was able to increase sales in
1994 and 1995 with those retail furniture store customers who specialize in
higher-priced, better quality furniture. This change led to a sales mix which
resulted in increases in average prices.
Consolidated cost of sales decreased 25.7% in 1995 to approximately
$161.1 million, or 91.1% of net sales as compared to $216.8 million, or 88.6%
of net sales, in 1994. Excluding Super Sagless, cost of sales were
approximately $161.1 million and $191.1 million for 1995 and 1994,
respectively, or 91.1% and 89.7% of net sales, respectively.
Stratford Company cost of sales increased to 94.0% of net sales in 1995,
as compared to 91.3% in 1994. Barcalounger cost of sales decreased to 80.9% of
net sales in 1995 from 81.4% of net sales in 1994. Stratford cost of sales as
a percentage of sales increased in 1995 mainly because of under absorbing
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overhead resulting from lower sales volume, increases in prices of certain raw
materials that could not be passed on as price increases, and unfavorable
manufacturing variances caused by the need for smaller quantity and shorter
manufacturing time. Barcalounger cost of sales as a percentage of net sales
continued to decrease in 1995 due to the continued impact of the cost reduction
and quality improvement programs implemented during 1994.
Consolidated selling, administrative and general expenses decreased 24.1%
to approximately $27.5 million in 1995 from approximately $36.2 million in
1994. Excluding Super Sagless, selling, administrative and general expenses
were approximately $27.5 million and $30.0 million for 1995 and 1994,
respectively, a decrease of approximately 8.3%, primarily due to the continued
organization-wide downsizing, where appropriate, and continued reduction of
corporate expense through increased controls resulting from the
decentralization and transfers of corporate functions to the operating
companies completed during 1993 and 1994.
Other income (expenses), net, decreased approximately $2.2 million, or
79.7% to approximately $(.3) million in 1995 from approximately $1.9 million in
1994. The $1.9 million recorded in 1994 resulted primarily from a gain of
approximately $1.4 million recognized on the sale of Stratford's Clinton, NC
plant. The other expenses, net, in 1994 reflects certain losses on the sales
of property and costs incurred associated with divested operations.
A gain of approximately $20.8 million was recognized in 1994 as a result
of the sale of substantially all of the assets of Super Sagless.
Interest expense increased 9.5% to $58.9 million from $53.8 million due
primarily to additional borrowings under the Revolving Credit Agreement.
1994 vs 1993 Results of Operations
Consolidated net sales of approximately $244.9 million for 1994 decreased
6.3% from 1993 net sales of approximately $261.4 million, due to the
disposition of Super Sagless in July 1994. Excluding Super Sagless, net sales
for 1994 were essentially flat at $213.1 million as compared to approximately
$213.6 million for 1993.
Net sales (including intercompany sales) for 1994 by the Stratford
Company decreased 0.9% to approximately $176.6 million as compared to $178.2
million for 1993. Total volume was flat in 1994, while average selling prices
increased by approximately 1%. Sales in 1994 to Stratford's larger, national
retail customers increased 19.7%, while sales to smaller retail customers
decreased 13.3%. Stratford's concentration of sales to these national
retailers was expected to result in greater volume of similar products and
styles, reducing Stratford's design and production costs. The increased volume
during 1994 for the products was reflective of Stratford's strategy to increase
its mix towards the national retailers. This strategy assumed no change in
national retailer's policies.
Net sales for 1994 by Barcalounger increased 3.0% to approximately $36.5
million as compared to $35.4 million for 1993. This increase in sales reflects
an increase of 0.8% in the number of pieces sold in 1994 versus 1993, and a
2.5% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994, Barcalounger added to their product offerings of
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higher-priced recliner and motion upholstered furniture through an emphasis on
more expensive leather and fabric coverings. Concurrent with these new
offerings, Barcalounger discontinued certain lower-priced products. By
offering a finer, more exclusive product, Barcalounger was able to increase
sales in 1994 with those retail furniture store customers who specialize in
higher-priced, better quality furniture. This change led to a sales mix which
resulted in both increases in sales and average prices.
Consolidated Cost of sales decreased 2.1% in 1994 to approximately $216.8
million, or 88.6% of net sales, as compared to $221.5 million, or 87.6% of net
sales, in 1993. Excluding Super Sagless, cost of sales were approximately
$191.1 million and $182.7 million for 1994 and 1993, respectively, or 89.7% and
85.6% of net, respectively.
Stratford Company cost of sales increased to 91.3% of net sales in 1994,
as compared to 86.1% in 1993. Barcalounger cost of sales decreased to 81.4% of
net sales in 1994 from 82.7% of net sales in 1993. The Stratford Company's
cost of sales as a percentage of net sales increased as a result of increased
raw materials costs due to design changes which resulted in an upgraded product
content; however, the implementation of most price increases for Stratford's
product lines in 1994 were delayed. Barcalounger cost of sales as a percentage
of net sales continued to decrease in 1994 due to continued impact of the cost
reduction and quality improvement programs implemented during 1993.
Consolidated selling, administrative and general expenses decreased 4.6%
to approximately $36.2 million in 1994 from approximately $38.0 million in
1993. Excluding Super Sagless, selling, administrative and general expenses
were approximately $30.0 million and $31.4 million in 1994 and 1993,
respectively, a decrease of approximately 4.5%, primarily due to the continued
organization-wide downsizing, where appropriate, and the decentralization and
transfer of corporate functions to the operating companies.
Other income (expenses), net, increased approximately $6.2 million,
or 143.3% to approximately $1.9 million in 1994 from approximately $(4.3)
million in 1993. During 1994, The Company recognized a gain of approximately
$1.4 million on the sale of Stratford's Clinton, NC plant. The other expenses,
net, in 1993 reflects certain losses on the sales of property and costs incurred
associated with divested operations.
A gain of approximately $20.8 million was recognized in 1994 as a result
of the sale of substantially all of the assets of Super Sagless.
Provision for Income Taxes
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. Please
refer to Note 4, Income Taxes, in the Notes to Company's Consolidated Financial
Statements.
- 12 -
<PAGE> 13
Liquidity and Capital Resources
Capital requirements for operations during 1995 and 1994 were provided
primarily by financing channels, sale of Super Sagless and operating cash flows
at certain operating divisions.
Fairwood had working capital of approximately $(190.8) million and $43.5
million at December 31, 1995 and 1994, respectively. At December 31, 1995,
Fairwood had long-term debt of approximately $420.7 million of which $169.0
million was current. Long-term debt at December 31, 1994 was approximately
$415.4 million of which $.2 million was current.
In conjunction with Fairwood's acquisition by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with
loans under a credit agreement with CSCL (the "Credit Agreement") and senior
subordinated pay-in-kind debentures due to CSCL. In exchange for the
approximately 6.85% of Consolidated Furniture common stock then outstanding,
Fairwood issued $33.5 million of subordinated pay-in-kind merger debentures and
918,170 warrants to purchase, in the aggregate, 142,900 shares of
Fairwood's Class A common stock. The assets of Consolidated Furniture and its
subsidiaries are pledged as security for the amounts due under the Credit
Agreement. Certain instruments related to the Credit Agreement have been
amended at various times through January 1996. In April, 1995, CSCL waived
provisions of the Credit Agreement prohibiting sale by Consolidated Furniture
of certain real property that had been operated as, and related equipment
located on, a saw mill in Pontotoc, Mississippi. In November 1995,
Consolidated Furniture entered into the Twelfth Amendment to the Credit
Agreement which extended the maturity date to January 2, 1997 and waived
compliance of various covenants through December 31, 1995. In January 1996,
Consolidated Furniture entered into the Thirteenth Amendment to the Credit
Agreement which increase the overadvance amount to $200,000,000 for the first
fiscal quarter of 1996 and thereafter. In January 1996, Consolidated Furniture
entered into the Fifth Amendment to the Increasing Rate Senior Subordinated
Debentures due January 2, 1996, which extended the due date to January 2, 1997.
Throughout 1995, 1994 and 1993, Consolidated Furniture funded interest
obligations related to long-term indebtedness through increased borrowings from
CSCL. Borrowings from CSCL during the years ended December 31, 1995, 1994 and
1993 were approximately $32.5 million, $31.2 million and $48.2 million,
respectively. However, during 1995 and 1994 a portion of the proceeds to
Consolidated Furniture from the factoring of Stratford's trade accounts
receivable and the sale of substantially all of the assets of Super Sagless of
approximately $15 million and $40 million, respectively, were used to repay
debt of Consolidated Furniture and its subsidiaries. All outstanding debt at
December 31, 1995, excluding the $62.9 million of outstanding merger debentures
and $0.5 million of capitalized lease obligations, is payable to CSCL, which is
an indirect subsidiary of Citicorp, a bank holding company, and an affiliate of
CVCL. Consolidated Furniture has obtained an extension of the debt payable to
CSCL to January 1997. Interest on the revolving credit loan of Consolidated
Furniture and its subsidiaries is payable quarterly at 1-1/2% above the
applicable prime rate, which prime rate was 8.75% at December 31, 1995.
Interest on the senior subordinated debentures of Consolidated Furniture 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.
- 13 -
<PAGE> 14
In July 1994, a portion of the proceeds to Consolidated Furniture from
the disposition of Super Sagless were used to repay secured, senior debt of
Consolidated Furniture and its subsidiaries in the approximate amount of $24.25
million. The remainder of the total sales consideration of $15 and $.75
million, which was primarily used to repay $13 million of secured, senior debt
of Consolidated Furniture were received in January and July of 1995.
In July 1995, a portion of the proceeds to Consolidated Furniture from
the sale of trade receivables of Stratford to a factor were used to repay
secured, senior debt of Consolidated Furniture. At December 31, 1995, $14.4
million was the amount of the advance due to the Factor.
Interest payments during the years ended December 31, 1995, 1994 and 1993
of approximately $31.9 million, $52.9 million and $43.1 million, respectively
were primarily made through increased borrowings and the issue of additional
pay-in-kind debentures. Principal payments of approximately $27.2 million,
$25.9 million and $13.7 million were made during the years ended December 31,
1995, 1994 and 1993, respectively.
Annual maturities on debt for the years ended December 31, 1996, 1997 and
1998, approximately $169.0 million, $251.5 million and $0.2 million,
respectively. Interest payments expected to be made for the years ended
December 31, 1996, 1997 and 1998 are estimated to be approximately $33.1
million, $36.5 million and $40.3 million.
On April 1 and October 1, 1995, Fairwood failed to make the required
interest payments due on the senior subordinated pay-in-kind debentures and
merger debentures (collectively, the "Fairwood Debentures") and Fairwood does
not expect to make the cash interest payments required under the Fairwood
Debentures on any future semi-annual interest payment dates. Accrued interest
of $33.8 million on the Fairwood Debentures, which includes $20.5 million due
to CSCL, is included in accrued expenses on the accompanying consolidated
balance sheet as of December 31, 1995. See Note 5 to the accompanying
Consolidated Financial Statements.
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995, interest payment constitutes an event of default which permits
the acceleration of the Fairwood Debentures by the demand of the holders of the
requisite aggregate principal amount of the debentures. Upon acceleration,
the Fairwood debentures and all accrued interest would be due and payable.
Accordingly, the Fairwood Debentures totaling $105.9 million have been
classified as current liabilities in the accompanying Consolidated Financial
Statements as of December 31, 1995.
Capital additions were approximately $2.4 million, $3.4 million and $4.2
million for the years 1995, 1994 and 1993, respectively. The Company
anticipates making capital expenditures of approximately $2.4 million during
1996, primarily for the purpose of maintaining and upgrading the Company's
manufacturing equipment, machinery and facilities. The Company has no firm
commitments for the purchase of capital equipment or facilities. It is
anticipated that necessary capital expenditures will be funded through cash
flow generated from operations, available credit facilities under the Company's
revolving credit agreement with CSCL, and other financing arrangements. The
Company intends to pursue other sources of financing to the extent available
and cost effective.
- 14 -
<PAGE> 15
Consolidated Furniture and the operating companies are 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 December 1995 to
provide more favorable terms to Consolidated Furniture and, in certain
instances, to avoid defaults thereunder. Under the Credit Agreement,
Consolidated Furniture and its subsidiaries are generally restricted from
transferring moneys to Fairwood (including without limitation by dividend or
distribution) with the exception of amounts for (a) specified administrative
expenses of the Company and (b) payment of income taxes. Furthermore,
Consolidated Furniture is subject to additional restrictions on transferring
moneys to Fairwood (including without limitation by dividend or distribution)
under the indenture for its senior subordinated debentures, which generally
requires the satisfaction of certain financial conditions for such transfers.
Fairwood is subject to additional restrictions on payment or transfer of moneys
(including without limitation by dividend or distribution) under the indentures
for its senior subordinated pay-in-kind debentures and merger debentures, which
generally require the satisfaction of certain financial conditions for such
transfers.
Consolidated Furniture anticipates that funds provided by operations and
available credit facilities under the Credit Agreement will be adequate in 1996
to support the operations of Stratford and Barcalounger. However, as discussed
above, funds provided by operations and available credit facilities cannot be
expected to be adequate to make cash interest payments due in 1996 on the
Fairwood senior subordinated pay-in-kind debentures and merger debentures.
Consolidated Furniture's obligations under the Credit Agreement are secured by
substantially all of the assets of Consolidated Furniture and its subsidiaries.
On January 3, 1996, certain bondholders filed an involuntary Chapter 7
case against Fairwood in the United States Bankruptcy Court for the Southern
District of New York. Pursuant to agreement of the parties, Fairwood's time to
answer or otherwise move with respect to the petition has been extended to
April 17, 1996. It is Fairwood's present intention to have the petition
dismissed. If Fairwood is unsuccessful in obtaining dismissal of the petition,
Fairwood may convert the Chapter 7 case to a Chapter 11 case or permit a
trustee to be appointed as part of a Chapter 7 proceeding.
- 15 -
<PAGE> 16
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, 1995 and 1994
Consolidated Statements of Operations for the Years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareowners' Equity (Deficit) for the Years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
- 16 -
<PAGE> 17
Independent Auditors' Report
The Shareowners and Board of Directors
Fairwood Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Fairwood
Corporation and subsidiaries ("Fairwood") as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareowners' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1995. We also have audited the financial statement schedule as
listed in the index for Item 14(a)2 on page 49. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fairwood
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
- 17 -
<PAGE> 18
The accompanying consolidated financial statements and financial
statement schedule have been prepared assuming that Fairwood will continue as a
going concern. As discussed in Note 4 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 of approximately
$106 million, including interest, through the year ended December 31, 1995.
Fairwood Corporation has indicated that it disagrees with the proposed
adjustments and is vigorously contesting the positions taken by the Internal
Revenue Service. As discussed in Notes 5 and 13 to the consolidated financial
statements, Fairwood has failed to make the required interest payments on its
senior subordinated pay-in-kind and merger debentures when due in 1995 and does
not expect to be able to be able to make such payments in the future. Further,
an involuntary Chapter 7 case was filed against Fairwood by certain
bondholders. These matters, raise substantial doubt about the ability of
Fairwood to continue as a going concern. Management's plans in regard to these
matters are described in Notes 4, 5 and 13. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Notes 1 and 4 to the consolidated financial statements,
Fairwood adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, as of January 1, 1993.
KPMG Peat Marwick, LLP
Washington, D.C.
February 9, 1996
- 18 -
<PAGE> 19
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands except share data)
<TABLE>
<CAPTION>
Assets (note 5) 1995 1994
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,264 4,615
-------- -------
Accounts and notes receivable:
Trade (note 3) 29,545 38,034
Due from affiliate (note 9) 1,293 -
Escrows receivable from sale of subsidiary (note 2) - 15,750
Other 1,542 1,812
-------- -------
32,380 55,596
Less allowance for discounts and doubtful accounts 1,857 2,756
Less advances from Factor (note 3) 14,443 -
-------- -------
16,080 52,840
-------- -------
Inventories (note 1) 14,394 18,813
Prepaid expenses and other current assets (note 4) 2,524 2,499
-------- -------
Total current assets 37,262 78,767
-------- -------
Property, plant and equipment, at cost:
Land 84 137
Buildings and improvements 12,591 13,034
Machinery and equipment 15,717 14,218
Leasehold improvements 2,334 2,345
Construction in progress 149 540
-------- -------
30,875 30,274
Less accumulated depreciation and amortization 16,841 16,209
-------- -------
14,034 14,065
-------- -------
Other assets 2,125 2,732
-------- -------
$ 53,421 95,564
======== =======
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareowners' equity (deficit) 1995 1994
- --------------------------------------------- ---- ----
<C> <C> <C>
Current liabilities:
Current maturities of long-term debt (notes 5 and 10):
Senior subordinated pay-in-kind debentures $ 105,853 -
Merger debentures 62,928 -
Other 170 160
Accounts payable:
Trade 3,659 6,084
Other (includes claims payable of $1,750 in
1995 and $1,991 in 1994) 2,928 2,537
Accrued expenses (includes interest of $37,388 in
1995 and $10,357 in 1994) 46,820 20,740
Federal and state income taxes 5,719 5,725
------- -------
Total current liabilities 228,077 35,246
------- -------
Long-term debt, less current maturities (notes 5 and 10):
Revolving credit 171,369 165,870
Senior subordinated debentures 80,000 80,000
Senior subordinated pay-in-kind debentures - 105,853
Merger debentures - 62,928
Capitalized lease obligations 370 540
------- -------
251,739 415,191
------- -------
Deferred Federal income taxes (note 4) 1,318 1,359
Other liabilities (note 8) 3,222 4,346
------- -------
4,540 5,705
------- -------
Redeemable preferred stock (note 6):
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
------- -------
Shareowners' equity (deficit):
Common stock, par value $.01 per share (notes 5 and 7):
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
Minimum pension liability (Note 8) ( 956) ( 1,367)
Accumulated deficit (486,027) (415,259)
------- -------
(431,035) (360,678)
------- -------
Commitments and contingencies (notes 4, 5, 8, 9, 10,
12 and 13)
$ 53,421 95,564
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 19 -
<PAGE> 20
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1995 1994 1993
----------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Net sales (note 9) $ 176,834 244,869 261,451
------- ------- -------
Cost of sales (note 9) 161,091 216,834 221,519
Selling, administrative
and general expenses (note 9) 27,508 36,247 37,985
------- ------- -------
188,599 253,081 259,504
------- ------- -------
Operating income (loss) ( 11,765) ( 8,212) 1,947
Interest income 316 498 205
Interest on indebtedness (notes 3 and 5) ( 58,893) ( 53,852) ( 46,846)
Gain on sale of subsidiary (note 2) - 20,847 -
Other income (expenses), net ( 378) 1,859 ( 4,296)
------- ------- -------
Loss before income taxes,
cumulative effect of change
in accounting principle ( 70,720) ( 38,860) ( 48,990)
Provision for income
taxes (note 4) - 532 -
------- ------- -------
Loss before cumulative
effect of change in accounting
principle ( 70,720) ( 39,392) ( 48,990)
Cumulative effect of change in
accounting principle (note 4) - - 2,100
------- ------- -------
Net loss $ ( 70,720) ( 39,392) ( 46,890)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 20 -
<PAGE> 21
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareowners' Equity (Deficit)
Years Ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Minimum Shareowners'
---------------- Paid-in Pension Accumulated Equity
Class A Class B Capital Liability deficit (Deficit)
------- ------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ - 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)
Net loss ( 39,392) ( 39,392)
Adjustment to minimum
pension liability (note 8) ( 1,367) ( 1,367)
Preferred stock dividends ( 40) ( 40)
----- ----- ------ ------ ------- -------
Balance, December 31, 1994 - 10 55,938 ( 1,367) (415,259) (360,678)
Net loss ( 70,720) ( 70,720)
Adjustment to minimum
pension liability (note 8) 411 411
Preferred stock dividends ( 48) ( 48)
----- ----- ------ ------ ------- -------
Balance, December 31, 1995 - 10 55,938 ( 956) (486,027) (431,035)
===== ===== ====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 21 -
<PAGE> 22
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1995 1994 1993
----------- ---------- -----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before cumulative effect of accounting change $ ( 70,720) ( 39,392) ( 48,990)
Cumulative effect of change in accounting principle - - 2,100
------- ------- -------
Net loss ( 70,720) ( 39,392) ( 46,890)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,075 2,974 3,905
Gain on sale of Super Sagless assets - ( 20,847) -
Loss (gain) on sale of property, plant and equipment ( 58) ( 1,636) 431
Loss, recognized in 1992, on sale of property - - 4,562
Current period conversions of PIK debentures - 18,300 15,686
Changes in assets and liabilities:
Accounts receivable 6,567 3,079 ( 9,490)
Inventories 4,419 5,700 ( 7,217)
Prepaid expenses and other current assets ( 66) 849 ( 3,280)
Accounts payable ( 2,082) ( 1,646) ( 323)
Accrued expenses 26,080 5,119 ( 847)
Federal and state income taxes ( 6) 16 3,789
Other, net ( 106) ( 69) 3,323
------- ------- -------
Cash used - operating activities ( 33,897) ( 27,553) ( 36,351)
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment ( 2,413) ( 3,401) ( 4,206)
Proceeds from disposition of property,
plant and equipment 427 3,929 3,980
Proceeds from sale of Super Sagless assets 15,750 22,379 -
------- ------- -------
Cash provided (used) - investing activities 13,764 22,907 ( 226)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt 32,499 31,193 48,202
Proceeds from sale of receivables to Factor 14,443 - -
Repayment of long-term debt ( 27,160) ( 25,900) ( 13,650)
------- ------- -------
Cash provided (used) - financing activities 19,782 5,293 34,552
------- ------- -------
Increase (decrease) in cash and cash equivalents ( 351) 647 ( 2,025)
Cash and cash equivalents:
Beginning of period 4,615 3,968 5,993
------- ------- -------
End of period $ 4,264 4,615 3,968
======= ======= =======
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $ 31,866 28,835 25,372
Income taxes 6 506 978
Conversion of accrued interest to PIK debentures - 24,091 17,697
Adjustment to minimum pension liability ( 411) 1,367 -
</TABLE>
See accompanying notes to consolidated financial statements.
- 22 -
<PAGE> 23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
Principles of Consolidation and Description of Business
The consolidated financial statements represent a consolidation of the
financial statements of Fairwood Corporation ("Fairwood" or the "Company"), and
Consolidated Furniture Corporation ("Consolidated Furniture", formerly named
Mohasco Corporation) and all of its subsidiaries. All significant intercompany
balances, transactions and profits have been eliminated in consolidation.
Through its wholly-owned subsidiary, Consolidated Furniture, the Company
manufactures and sells mid- and high-priced upholstered and motion furniture
under the brand names Stratford, Stratolounger, Stratopedic, Avon and
Barcalounger. The products are sold nationally to furniture retailers and
department stores mainly through commissioned sales force.
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 1995 which resulted in a reduction of cost of sales
of approximately $2.3 million.
The components of inventory at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Raw materials $ 12,857 14,696
In process 3,532 4,193
Finished goods 8,063 11,914
------ ------
Inventories at first-in, first-out 24,452 30,803
LIFO reserve 10,058 11,990
------ ------
Inventories at LIFO $ 14,394 18,813
====== ======
</TABLE>
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 the related leases.
Manufacturing and warehousing facilities under long-term leases which
were constructed by various local governmental bodies have been capitalized.
- 23 -
<PAGE> 24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Revenue Recognition
Revenue is recognized when title to furniture passes to the customer. The
Company provides a reserve against estimated future customer returns under the
warranty terms of sale.
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.
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 the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates 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.
Financial Statement Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform with the 1995 financial statement presentation.
- 24 -
<PAGE> 25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Divestiture
On July 29, 1994, substantially all of the assets and liabilities of
Super Sagless Corporation ("Super Sagless"), a wholly-owned subsidiary of
Consolidated Furniture, were sold to a third party for $40 million cash. Of
the total sales price, $24.25 million was received upon closing, $15 million
was received six months after closing and the remaining $0.75 million was
received one year after closing. After considering the estimated costs of
disposition, the Company recognized a gain before income taxes of approximately
$21 million in 1994. The net proceeds from the sale were used to pay existing
debt owed Court Square Capital Limited ("CSCL"), an affiliate of the Company's
principal shareowner.
During the period January 1 through July 29, 1994, Super Sagless
generated operating earnings before income taxes, exclusive of the gain on
sale, of approximately $2,300,000. During 1993, Super Sagless generated
operating earnings before income taxes of approximately $2,400,000.
(3) Trade accounts receivable
On July 25 1995, Stratford Company, an operating division of the
Consolidated Furniture, entered into a factoring agreement to sell certain
trade receivables on a recourse and nonrecourse basis. Receivables sold for
which Stratford has not received written approval from the factor are with
recourse. Only those receivables sold for which Stratford has received written
credit approval from the factor are nonrecourse. Stratford retains credit risk
for all recourse receivables and transfers the credit risk to the factor for
all nonrecourse receivables.
Under the factoring agreement, advances may be made to Stratford for up
to 75% of the aggregate purchase price of outstanding non-recourse receivables
less the factoring commission and other fees. All advances are payable upon
demand and are settled with the factor's collection of the purchased
receivables or the passing of 120 days after the due date of nonrecourse
receivables. Stratford pays interest on the balance of the outstanding
advances. The interest rate is the greater of 9% or the factor's prime rate
plus 1 percent. As of December 31, 1995, receivables sold which remain to be
collected approximated $20,190,000 of which approximately $3,899,000 were sold
with recourse.
- 25 -
<PAGE> 26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) 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.
Components of the provision for income taxes are summarized, in
thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ - - -
State and local - 532 -
------ ------ -------
Deferred - - -
------ ------ -------
Total provision for income
taxes $ - 532 -
====== ====== =======
</TABLE>
The differences between the actual taxes and taxes computed at the U.S.
Federal Income tax rate of 34% are summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Expected tax benefit computed
at U.S. rate $ (24,045) (13,393) (16,657)
Increase in valuation
allowance 26,865 15,467 19,320
State taxes, net of
Federal benefit ( 2,820) ( 1,542) ( 1,940)
Other - - ( 723)
------ ------- ------
Total provision for income taxes $ - 532 -
====== ====== ======
</TABLE>
- 26 -
<PAGE> 27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
The tax effects of temporary differences as of December 31, 1995 and
1994, in thousands, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 59,713 31,978
Accounts receivable 813 1,077
Vacation and holiday pay 421 420
Accrued expenses 4,166 4,983
Interest on merger debentures 4,904 4,735
Valuation allowance (68,699) (41,834)
------ ------
$ 1,318 1,359
====== ======
Deferred tax liabilities:
Property, plant and equipment $ 1,318 1,359
====== ======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$26,367,000. The net changes in the total valuation allowance for the years
ended December 31, 1995 and 1994 were increases of $26,865,000 and $15,467,000,
respectively.
At December 31, 1995, the Company's net operating loss carryforwards of
approximately $157,305,000 expire in various years through 2010.
Net current deferred income tax benefits of $1,318,000 and $1,359,000 at
December 31, 1995 and 1994, respectively, are included in other current assets
in the accompanying consolidated balance sheets.
The Internal Revenue Service ("IRS") has completed the audit examination
of the consolidated Federal income tax returns of Fairwood and its
subsidiaries, including Consolidated Furniture (the "Consolidated Group"), for
the years ended July 11, 1988 through December 31, 1991 and has delivered to
Fairwood a "30-day letter" and Revenue Agent's Report ("RAR") proposing to
adjust Fairwood'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 $70 million, before applicable statutory interest.
Fairwood estimates that the aggregate proposed liability would, together with
statutory interest and state income tax through the year ended December 31,
1995, and net of any applicable deduction for such interest and state income
tax, total approximately $106 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
- 27 -
<PAGE> 28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
debt incurred in connection with the 1988 acquisition of Consolidated
Furniture by Fairwood under the theory that such debt should be recharacterized
as equity for tax purposes, (ii) the proposed disallowance of approximately $19
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 $5 million of compensation expense
deducted by the Consolidated Group under the theory that such expense
constitutes non-deductible "golden parachute" payments. Fairwood believes that
the proposed adjustments are in error and is vigorously contending this matter.
Under available administrative procedures, Fairwood has protested the proposed
adjustments and has had several conferences with IRS Appeals division and
expects to have additional conferences with the IRS Appeals division. Depending
upon the outcome of discussions of the issues with the IRS Appeals division,
Fairwood may litigate one or more of the issues. The Company cannot predict
the ultimate outcome nor the impact on its financial statements, if any.
(5) Long-term Debt
In conjunction with the Company's acquisition by merger of Consolidated
Furniture on September 22, 1989, certain bridge loans were refinanced with
loans under a credit agreement with CSCL (the "Credit Agreement") and senior
subordinated pay-in-kind debentures due to CSCL. In exchange for the
approximately 6.85% of Consolidated Furniture common stock then outstanding,
the Company issued $33.5 million of subordinated pay-in-kind merger debentures
and 918,170 warrants to purchase, in the aggregate, 142,900 shares of
Fairwood's Class A common stock. The exercise period for the warrants issued
with the merger debentures expired on September 22, 1995. The assets of
Consolidated Furniture and its subsidiaries are pledged as security for the
amounts due under the Credit Agreement. Certain instruments related to the
Credit Agreement have been amended at various times through January 1996. In
April 1995, CSCL waived provisions of the Credit Agreement prohibiting sale by
Consolidated Furniture of certain real property that had been operated as, and
related equipment located on, a saw mill in Pontotoc, Mississippi. In November
1995, Consolidated Furniture entered into the Twelfth Amendment to the Credit
Agreement which extended the maturity date to January 2, 1997 and waived
compliance of various covenants through December 31, 1995. In January 1996,
Consolidated Furniture entered into the Thirteenth Amendment to the Credit
Agreement which increased the overadvance amount to $200,000,000 for the first
fiscal quarter of 1996 and thereafter. In January 1996, Consolidated Furniture
entered into the Fifth Amendment to the Increasing Rate Senior Subordinated
Debentures due January 2, 1996, which extended the due date to January 2, 1997.
Proceeds from the disposition of
- 28 -
<PAGE> 29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
certain operating companies, including the sale of substantially all the assets
and liabilities of Super Sagless and proceeds from the factoring of Stratford's
trade accounts receivable were used to repay a portion of the debts due under
the Credit Agreement with CSCL.
The outstanding debt at December 31, 1995 and 1994 was as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1995
Interest
Debt 1995 1994 Rates
---- -------- -------- ---------
<S> <C> <C> <C>
Revolving credit, due 1997 $ 171,369 165,870 10-1/4%
Senior subordinated
debentures, due 1997 80,000 80,000 18%
Senior subordinated pay-
in-kind debentures, due 2001 105,853 105,853 15-1/2%
Merger debentures, due 2004 62,928 62,928 16-7/8%
Other, due 1998 540 700 6%
------- -------
420,690 415,351
Less current maturities 168,951 160
------- -------
$ 251,739 415,191
======= =======
</TABLE>
Substantially all of the Company's debt instruments restrict the payment
of dividends and the Credit Agreement with CSCL, relating to Consolidated
Furniture'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.
On April 1 and October 1, 1995, Fairwood failed to make the required
interest payments due on the senior subordinated pay-in-kind debentures and
merger debentures (collectively, the "Fairwood Debentures") and Fairwood does
not expect to make the cash interest payments required under the Fairwood
Debentures on any future semi-annual interest payment dates. Accrued interest
of $33.8 million on the Fairwood Debentures, which includes $20.5 million due
to CSCL, is included in accrued expenses on the accompanying consolidated
balance sheet as of December 31, 1995. An involuntary Chapter 7 petition,
under U.S. Bankruptcy law, was filed on January 3, 1996 in the United States
Bankruptcy Court for the Southern District of New York against Fairwood
Corporation by certain bondholders. On consent of the parties, Fairwood's time
to answer or otherwise move with respect to the petition has been extended to
April 17, 1996. Fairwood intends to seek to have the petition dismissed. If
Fairwood is unsuccessful in obtaining dismissal, Fairwood may convert the
Chapter 7 case to a Chapter 11 case or permit a trustee to be appointed as part
of a Chapter 7 proceeding. (Note 13).
- 29 -
<PAGE> 30
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995 interest payment constitutes an event of default which permits
the acceleration of the Fairwood Debentures by the demand of the holders of the
requisite aggregate principal amount of the debentures. Upon acceleration, the
Fairwood Debentures and all accrued interest would be due and payable.
Accordingly, the Fairwood Debentures have been classified as current
liabilities in the accompanying Consolidated Balance Sheets as of December 31,
1995.
The fair market value of the debentures and revolving credit debt cannot
be reasonably estimated considering Fairwood's ongoing financial difficulties
(Note 13).
The aggregate maturities of long-term debt (including capitalized lease
obligations) during the next five years and thereafter are as follows:
$168,951,000 in 1996; $251,549,000 in 1997; and $190,000 in 1998.
(6) Redeemable Preferred Stock
The Company issued 1,000 shares of junior preferred stock, par value $.01
per share, for $100,000, which shares are held by CSCL. Dividends accrue at
$18 per share annually. As of December 31, 1995 and 1994, dividends payable
were approximately $200,000 and $150,000, respectively.
(7) 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.
(8) 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-contributory defined benefit retirement plans through May 31, 1993, at
which time further benefit accruals ceased and the plans were "frozen."
Benefits for the plans are determined based on length of service and certain
average annual employee earnings. 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, as amended.
- 30 -
<PAGE> 31
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
Pension expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Current service cost $ - - 1,506
Interest cost 954 892 956
Return on assets ( 808) ( 829) ( 630)
Amortization of prior service cost - - 99
Special curtailment charge due to
cessation of benefit accruals as of
May 31, 1993. - - 927
----- ----- ------
$ 146 63 2,858
===== ===== ======
</TABLE>
Information with respect to the retirement plans for 1995 and 1994 has
been determined by consulting actuaries. The following table sets forth the
plans' funded status at December 31, 1995 and 1994, respectively, and
reconciles amounts recognized in the consolidated balance sheets at December
31, 1995 and 1994, respectively (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of obligations:
Vested $ 14,251 12,326
Nonvested 253 689
------ ------
Accumulated and projected benefit obligation 14,504 13,015
Assets at fair value at December 31 11,629 9,079
------ ------
Accumulated and projected benefit obligation
in excess of assets 2,875 3,936
Unrecognized net gain (loss) ( 631) ( 1,367)
------ ------
Accrued pension cost at December 31 2,244 2,569
Adjustment for minimum liability 956 1,367
------ ------
Pension liability at December 31 $ 3,200 3,936
====== ======
Assumptions:
Interest rates for obligations 7.00% 7.25%
Long-term rate of return 9.00% 9.00%
Salary increase rate N/A N/A
</TABLE>
- 31 -
<PAGE> 32
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies:
Barcalounger Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Barcalounger employees with at least one year of service. Annual
company contributions are based on individual participant's earnings and length
of service. For the years ended December 31, 1995 and 1994 and the period June
1, 1993 to December 31, 1993, company contributions were $133,000, $120,000 and
$115,000, respectively.
Barcalounger Savings Plan
This plan is designed to provide a savings vehicle for Barcalounger
employees with at least one year 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. Annual company contributions match 25% of participants' contributions
of up to four percent of earnings. For the years ended December 31, 1995 and
1994 and the period June 1, 1993 to December 31, 1993, company matching
contributions were $38,000, $36,000 and $21,000, respectively.
Stratford Retirement Plan
This non-contributory plan is designed to provide income at retirement
and covers all Stratford employees with at least one year of service. Annual
company contributions are based on individual participant's earnings and length
of service. For the years ended December 31, 1995 and 1994 and the period June
1, 1993 to December 31, 1993, company contributions were $648,000, $1,039,000
and $630,000, respectively.
Prior to the sale of Super Sagless, $252,500 and $492,000 was incurred
for the year ended December 31, 1994 and the period June 1, 1993 to December
31, 1993, respectively, under the Super Sagless Retirement-Savings Plan, which
covered Super Sagless employees with at least one year of service. No future
contributions to the Super Sagless Plan by the Company are required.
The Company also sponsors an investment plan. The plan previously
covered all employees but, subsequent to the adoption of the Barcalounger and
Super Sagless plans, noted above, this plan covers all employees not covered
by such plans. At the date 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 $2,000 in 1995, $39,000 in 1994 and
$50,000 in 1993.
- 32 -
<PAGE> 33
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Related party transactions
In November 1995, Stratford entered into a manufacturing agreement
("Agreement") with Simmons Upholstered Furniture Corporation ("Simmons"), an
affiliate of the Company. Under this Agreement Stratford manufactures
product for and supplies product on behalf of Simmons. The products are
manufactured utilizing Stratford's equipment and various plant facilities. The
term of the Agreement is for one year with automatic annual one-year renewals,
unless terminated by either party.
Under the terms of the agreement, in 1995, Stratford was paid from
Simmons a standard predetermined labor and overhead rate for time and materials
utilized for the benefit of Simmons. In 1996, Stratford will earn a percentage
of the Simmons gross margin on products manufactured in addition to monthly
services charges for new product development and selling activities performed
by Stratford.
As a result of this agreement, Stratford recognized approximately
$2,400,000 of new revenues in 1995 from the manufacture and supply of product
and was reimbursed by Simmons $243,000 for new product development and $100,000
for selling expenses. The new product development and selling expense
reimbursements are recognized as a reduction to selling, administrative and
general expenses in the accompanying 1995 consolidated statement of operations.
The revenues and related cost for the manufacture and supply of product are
included in net sales and cost of sales, respectively, in the accompanying 1995
consolidated statement of operations. At December 31, 1995, approximately
$1,293,000 was due from Simmons under this Agreement.
(10) Rental Commitments
The Company and its subsidiaries lease certain manufacturing and
warehousing facilities (capitalized leases), equipment (primarily
transportation equipment), and warehouse and showroom facilities (operating
leases).
- 33 -
<PAGE> 34
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Rental Commitments (continued)
Future minimum lease payments at December 31, 1995, under all
non-cancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Period Capital Operating
------ ------- ---------
<S> <C> <C>
1996 197 1,041
1997 197 985
1998 196 928
1999 - 724
2000 - 426
----- ------
Total minimum lease payments 590 4,104
======
Less amounts representing interest 50
-----
Total capitalized lease
obligations 540
Less current maturities of
capitalized lease obligations 170
-----
Capitalized lease obligations
net of current maturities $ 370
=====
</TABLE>
It is expected that, in the normal course of business, non-cancelable
leases that expire will be renewed or replaced.
Rental expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Minimum Rentals
(including cancel-
able leases) $ 1,946 4,314 4,276
Contingent rentals
(principally mileage
charges) - - 362
Sublease rentals ( 203) ( 285) ( 425)
------ ------ ------
$ 1,743 4,029 4,213
====== ====== =======
</TABLE>
(11) Significant Customer
The Company is engaged in only one segment of business, the manufacture
of furniture. Sears Roebuck and Co. accounted for approximately nineteen
percent, twenty percent and sixteen percent of the Company's sales in each of
the years 1995, 1994 and 1993, respectively.
- 34 -
<PAGE> 35
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Contingencies
Consolidated Furniture was served a complaint by third party plaintiffs
against Consolidated Furniture and a former subsidiary. The original complaint
in the case was filed by the Environmental Protection Agency to recover over
$200 million from 12 defendants (not including Consolidated Furniture), for
costs incurred in connection with the investigation and remediation of a Super
Fund site. On August 28, 1995 Consolidated Furniture joined with 5 other
Potentially Responsible Parties and made an offer of settlement to the EPA.
Consolidated Furniture's share of the offer is approximately $1,900,000. The
EPA has not rejected or accepted the offer.
There were other contingent liabilities at December 31, 1995 consisting
of purchase commitments and legal proceedings arising in the ordinary course of
business including environmental litigation. Fairwood believes that the
financial risk involved in connection with all other contingent liabilities,
except the proposed adjustments delivered by the IRS, see note 4, and the
involuntary bankruptcy petition filed by certain holders of the Fairwood
Debentures, see note 5 and 13, is not material in relation to the consolidated
financial position of the Company.
(13) Liquidity
Consolidated Furniture 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. As discussed in Note 5, interest on Fairwood's senior subordinated
pay-in-kind debentures and merger debentures was not paid on April 1, 1995 an
October 1, 1995 and Fairwood does not expect to make the cash interest payments
required under the Fairwood Debentures on any future semi-annual interest
payment date. Fairwood has substantially no assets other than the common stock
of Consolidated Furniture, and Consolidated Furniture and its primary
operating subsidiary have pledged substantially all of their assets to secure
their obligations under the Credit Agreement. Certain instruments related to
the Credit Agreement have been amended at various times through January 1996.
Throughout portions of 1995, 1994, and 1993, Consolidated Furniture did
not generate sufficient funds from operations to fully meet its interest
obligations related to its long-term indebtedness. Consolidated Furniture
funded these interest obligations through increased borrowings from CSCL under
the Credit Agreement. However, during 1994 and 1995 the proceeds from the
disposition of certain operating companies, including the sale of substantially
all of the assets and liabilities of Super Sagless were used to repay a portion
of the debt due under the Credit Agreement with CSCL. Additionally, during 1995
a substantial portion of the $15 million in proceeds from the factoring of
Stratford's trade account receivables was used to repay debt of Consolidated
Furniture due under the Credit Agreement with CSCL.
- 35 -
<PAGE> 36
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Liquidity (continued)
Consolidated Furniture is dependent upon CSCL for funding of its debt
service costs. CSCL has in the past increased its revolving line of credit
line to Consolidated Furniture under the Credit Agreement which has enabled
Consolidated Furniture to meet its debt service obligations. Under the Credit
Agreement, Consolidated Furniture and its subsidiaries are generally restricted
from transferring monies to the Company with the exception of amounts for (a)
specified administrative expenses of Fairwood and (b) payment of income taxes.
Management believes that cash flow from operations and funding from CSCL will
be adequate for Consolidated Furniture's working capital requirements and any
cash payments due on the debt of Consolidated Furniture through December 31,
1996.
However, the Company's cash flow from operations will not be sufficient
to permit the Company to make cash interest payments on Fairwood's senior
subordinated pay-in-kind debentures and merger debentures. Consolidated
Furniture's credit facilities do not permit it to borrow funds to enable
Fairwood to make cash interest payments on the senior subordinated pay-in-kind
debentures and merger debentures. Accordingly, since Fairwood has failed to
make the interest payments required during 1995, see note 5, and will probably
fail to make any future cash interest payments the Fairwood Debentures have
been classified as current. Based on the terms of the Fairwood Debentures,
the failure to make the April 1, 1995 interest payment constitutes an event
of default which permits the acceleration of the Fairwood Debentures by the
demand of the holders of the requisite aggregate principal amount of the
debentures. Upon acceleration, the Fairwood Debentures and all accrued
interest would be due and payable.
An involuntary Chapter 7 petition, under U.S. Bankruptcy law, was filed on
January 3, 1996, in the United States Bankruptcy Court for the Southern
District of New York against Fairwood Corporation by certain bondholders. On
consent of the parties, Fairwood's time to answer or otherwise move with
respect to the petition has been extended to April 17, 1996. Fairwood intends
to seek to have the petition dismissed. If Fairwood is unsuccessful in
obtaining dismissal, Fairwood may convert the Chapter 7 case to a Chapter 11
case or permit a trustee to be appointed as part of a Chapter 7 proceeding.
Management is assessing its alternatives and plans with respect its
liquidity position based on the status of the bankruptcy proceedings and tax
examination described in Note 4.
- 36 -
<PAGE> 37
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 64 1992 Chief Financial Officer, Executive Vice President, Secretary and Treasurer since
March 1990. Mr. Sganga is also, inter alia, Chief Financial Officer, Executive Vice
President, Secretary and Treasurer of Consolidated Furniture and Vice President,
Treasurer and Secretary of each of Consolidated Furniture's subsidiaries. From
December 1988 to March 1990, Mr. Sganga served the Company and its subsidiaries in
various officer positions. Mr. Sganga is also a director of Consolidated Furniture.
M. Saleem Muqaddam 48 1992 Vice President, CVCL, an affiliate of the Company, since 1989. Mr. Mugaddam is
also vice president of CSCL, an affiliate of CVCL. 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 Consolidated Furniture, Chromcraft
Revington, Inc., Pamida Holdings, Inc., Plantronics, Inc., Furnishings International
Inc. and Simmons Upholstered Furniture Corporation.
</TABLE>
- 37 -
<PAGE> 38
Fairwood's senior executive officer holds the title of Chief Financial
Officer, Executive Vice President, Secretary and Treasurer. No executive
officer holds the title of President or Chief Executive Officer, but the
functions customarily performed by the person holding such titles are performed
by Fairwood's Chief Financial Officer, Executive Vice President, Secretary and
Treasurer. There are no arrangements or understandings between any director
and any other person naming such person pursuant to which such director was
selected as a director.
The following were subsidiary presidents and may be deemed to be
executive officers of the Company as of December 31, 1995:
<TABLE>
<CAPTION>
Date Assumed
Name Age Position Position
---- --- -------- --------
<S> <C> <C> <C>
Stephen R. Lake 49 President February 1995
Stratford Division of
Furniture Comfort
Corporation.
Wayne T. Stephens 45 President and Chief October 1992
Executive Officer
Barcalounger Division of
Furniture Comfort
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:
Effective February 1, 1995 Mr. Lake was appointed to the position of
President of Stratford, a Division of Furniture Comfort Corporation. From
August 1994 to February 1995 he was the Chief Operating Officer of Stratford.
From September 1991 to July 1994 he was the President and Chief Executive
Officer of Super Sagless Corporation. From 1989 to February 1991 he was Vice
President and General Manager of Clark Components N.A.
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 Furniture Comfort 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 Furniture Comfort Corporation. Prior to joining The Finley
Group in September 1989, Mr. Stephens was a partner with Deloitte & Touche, a
public accounting firm.
- 38 -
<PAGE> 39
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>
Name and Annual Compensation
Principal ------------------- All Other
Position Year Salary Bonus Compensation
- --------- ---- ------ ----- ------------
<S> <C> <C> <C>
John B. Sganga 1995 $150,000 $ 25,000 $ 9,803 (1)
Executive VP 1994 150,000 - 7,766 (1)
and CFO 1993 190,729 - 1,907 (1)
Stephen R. Lake 1995 250,000 100,000 552 (4)
President 1994 213,686 (2) 1,147,721 (3) 51,849 (4)
Stratford 1993 170,000 172,975 15,809 (4)
Wayne T. Stephens 1995 160,000 76,800 2,788 (5)
President & CEO 1994 160,000 - 2,150 (5)
Barcalounger 1993 300,000 (6) - -
</TABLE>
(1) 1995 amount represents company contributions to the investment plan of
$1,500 and $8,303 for the value of the use of a company vehicle. 1994
amount represents company contributions to the investment plan of $1,500
and $6,266 for the value of the use of a company vehicle. 1993 amount
represents company contributions to the Investment Plan.
(2) 1994 includes Super Sagless base salary of $107,917.
(3) 1994 amount includes Super Sagless of $1,047,721.
(4) 1995 amount represents the value for the use of a company car. 1994
amount represents distribution from Super Sagless Retirement Plan of
$51,849. 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 the Investment
Plan.
(5) 1995 amounts represent company contributions to the investment plan of
$1,776 and $1,012 for the value of the use of a company vehicle. 1994
amounts represent company contributions to the investment plan of $800
and $1,350 for the value of the use of a company vehicle.
(6) 1993 amounts represent $200,000 paid to Mr. Stephens as a consultant and
$100,000 paid to The Finley Group for services it rendered through Mr.
Stephens. 1992 amounts represent $55,682 paid to The Finley Group for
services it rendered through Mr. Stephens.
- 39 -
<PAGE> 40
Employment Agreements
Consolidated Furniture entered into an employment agreement with Mr.
Sganga, who is named in the summary compensation table, effective December 15,
1993, which provided for an annual salary, plus such bonuses as may be awarded
in the discretion of the Board of Directors. This agreement ended on December
31, 1995, and Mr. Sganga continues to be employed under similar terms.
Consolidated Furniture entered into an employment agreement with Mr.
Stephen R. Lake, who is named in the summary compensation table, effective June
16, 1994, which provides for an annual salary beginning at $250,000, plus
bonuses based on preestablished goals for each year. Mr. Lake was guaranteed a
$100,000 bonus for 1994. If employment is terminated without cause before the
third anniversary date of the agreement, Mr. Lake will be entitled to receive a
severance payment equal to his annual base salary then in effect.
Retirement Plan
Messrs. Sganga, Lake and Stephens, who are named in the summary
Compensation Table, are not participants in the Salaried and Sales employees
Retirement Plan of Consolidated Furniture, which ceased further benefit
accruals as of May 31, 1993.
Salaried Investment Plan
Officers of Consolidated Furniture are eligible to participate in its
Tax-qualified Investment Plan for Salaried and Sales Employees. Directors who
are not officers are not eligible. Consolidated Furniture 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 Consolidated Furniture's contributions
depending on years of membership in the plan, with 100% thereof payable if
years of membership are 5 or more.
During 1995 and 1994, such contributions for Mr. Sganga were $1,500. 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 8, 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. The company contribution for Mr. Stephens was $1,776 in 1995.
- 40 -
<PAGE> 41
Incentive Plan
Consolidated Furniture maintains an executive incentive (bonus) plan
implemented to provide individual awards for attainment of specified business
objectives. Under the executive incentive plan, each of Consolidated
Furniture's profit centers is assigned certain business goals annually, which
for 1994 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 1995 Plan Year were
$399,372, including awards of $76,800 for Mr. Stephens and $100,000 for Mr.
Lake. Total awards made for the 1994 Plan Year were $519,000, including awards
of $267,721 for Mr. Lake.
During 1994, Mr. Lake also received a $780,000 bonus associated with the
sale of substantially all of the assets and liabilities of Super Sagless and a
guaranteed bonus of $100,000 from Stratford.
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 1995.
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.
- 41 -
<PAGE> 42
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, 1996, certain information
regarding the directors and executive officers and 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. To the Company's knowledge, no
director or executive officer holds any warrants and no person owns of record
or beneficially 5% or more of the outstanding warrants.
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares Percentage
Name and Address Shares of Company's of Company's 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%
John B. Sganga - 0.00% 0%
========= ====== ===
M. Saleem Muqaddam** 1,000,100 99.98% 60%
========= ====== ===
</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 Fairwood 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 Fairwood
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.
** Mr. Muqaddam disclaims beneficial ownership of these shares owned of record
by CVCL which are attributed to him by reason of his status as an officer
of CVCL.
- 42 -
<PAGE> 43
Ownership by Directors and Officers
As of February 28, 1996, no shares of the Company's common stock were
beneficially held by any director or officer.
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, 1995 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 1995 and at February 28, 1996, the largest aggregate amount of
indebtedness outstanding that was payable to CSCL was approximately $357.2
million. See Note 5, Long-term Debt, in the Notes to Consolidated Financial
Statements set forth in Item 8. During 1995 the Company borrowed approximately
$32.5 million from CSCL and made payments to CSCL of approximately $27.1
million. During 1996 it is anticipated that approximately $34.6 million will
be borrowed from CSCL and that no repayments to CSCL will be made. It is also
anticipated that interest due to CSCL on the senior subordinated pay-in-kind
debentures, which interest approximates $20.5 million, will not be paid.
399 Venture Partners, Inc. ("VPI"), an affiliate of CVCL owns a majority
of Furnishings International Inc. (formerly known as Simmons Holding
Corporation)("Furnishings"), the parent of Simmons Upholstered Furniture
Corporation ("Simmons"). M. Saleem Muqaddam is a vice president of CVCL and a
director of Furnishings, Simmons and the Company. Stephen R. Lake is the
President of Stratford and a director of Furnishings and Simmons. Stratford
and Simmons are parties to a Manufacturing Agreement dated as of November 29,
1995 (the "Agreement"). Under this Agreement, Stratford has agreed to
manufacture product for and supply product on behalf of Simmons for a term of
one year, subject to automatic annual renewals, unless terminated by either
party. (See Note 9 to the Company's Consolidated Financial Statements set
forth in Item 10).
VPI owns approximately 49% of Chromcraft Revington, Inc. Mr Muqaddam is
a director of Chromcraft Revington, Inc.
- 43 -
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Page
The following financial statements and supplementary data are
included in Part II, Item 8:
<TABLE>
<S> <C>
Independent Auditors' Report................................... 17-18
Consolidated Balance Sheets at December 31, 1995 and 1994...... 19
Consolidated Statements of Operations for the Years ended
December 31, 1995, 1994 and 1993 ............................ 20
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 1995, 1994 and 1993 ........ 21
Consolidated Statements of Cash Flows for the Years ended
December 31, 1995, 1994 and 1993 ............................. 22
Notes to Consolidated Financial Statements .................... 23-36
</TABLE>
2. Financial Statement Schedule
For the three years ended December 31, 1995:
<TABLE>
<S> <C>
Schedule II--Valuation and Qualifying Accounts
and Reserves................................... 49
</TABLE>
Other schedules are omitted because of the absence of conditions
under which they are required.
- 44 -
<PAGE> 45
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")).
- 45 -
<PAGE> 46
(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).
(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")).
- 46 -
<PAGE> 47
(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).
(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, (incorporated by reference to Exhibit 4.35 of the
1993 Form 10-K).
(4.36) Fourth Amendment, dated as of January 3, 1994, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.36 of the 1993 Form 10-K).
(4.37) Factoring Agreement, dated as of July 25, 1995, between
Capital Factors, Inc. and Stratford Company, a division of
Furniture Comfort Corporation.
(4.38) Debt Subordination Agreement, dated as of July, 1995,
between Capital Factors, Inc. and Consolidated Furniture
Corporation, formerly Mohasco Corporation.
- 47 -
<PAGE> 48
(4.39) Lien Subordination Agreement, dated as of July 25, 1995,
between Capital Factors, Inc. and Court Square Capital
Limited.
(4.40) Twelfth Amendment, dated as of November 30, 1995, to Credit
Agreement.
(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, (incorporated by reference to
Exhibit 10.8 of the 1993 Form 10-K).
(10.9) Agreement for Purchase and Sale of Assets among Super
Sagless Corporation, Mohasco Corporation, Leggett & Platt
Furniture Hardware Company and Leggett & Platt,
Incorporated, dated July 14, 1994, (incorporated by
reference to Exhibit 2.1 of the 1994 Second Quarter 10-Q).
(10.10) Employment Agreement, between Furniture Comfort Corporation
and Stephen R. Lake, dated June 16, 1994 (incorporated by
reference to Exhibit 10.10 of the 1994 Form 10-K).
(22.1) List of Subsidiaries of the Registrant.
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 twelve months ended
December 31, 1995.
- 48 -
<PAGE> 49
Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1995, 1994 and 1993
(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:
1995
----
Allowance for discounts $ 324 1,251 1,329 246
Allowance for doubtful
accounts 2,432 781 1,602 1,611
Allowance for estimated
loss on claims - - - -
------ ------ ------ -----
$ 2,756 2,032 2,931 1,857
====== ====== ====== ======
1994
----
Allowance for discounts $ 259 1,420 1,355 324
Allowance for doubtful
accounts 2,753 934 1,255 2,432
Allowance for estimated
loss on claims 1,050 - 1,050 -
------ ------ ------ -----
$ 4,062 2,354 3,660 2,756
====== ====== ====== ======
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
====== ====== ====== ======
</TABLE>
- 49 -
<PAGE> 50
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 26, 1996
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1996 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)
- 50 -
<PAGE> 51
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1996 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ M. Saleem Muqaddam Director
- --------------------------------
M. Saleem Muqaddam
- 51 -
<PAGE> 1
Exhibit 4.37
CAPITAL FACTORS, INC.
FACTORING AGREEMENT
Date: July 25, 1995
From: Stratford Company, a Division of
Furniture Comfort Corporation
Highway 178 West
P.O. Box 100
New Albany, MS 38652-0100
To: Capital Factors, Inc.
1799 West Oakland Park Boulevard
Fort Lauderdale, FL 33311
Gentlemen:
Upon your written acceptance, to be noted at the foot of this Agreement, the
following will state the terms and conditions under which you are to act as our
sole factor:
1. APPOINTMENT AND SALE OF ACCOUNTS: We hereby appoint you our
sole factor, and hereby sell and assign to you, making you absolute owner
thereof, all of our accounts, contract rights, and all other obligations to us
for the payment of money arising out of the sale of goods (hereinafter referred
to as "Receivables"), together with all proceeds thereof, all security and
guarantees therefor, and all of our rights to the goods and property
represented thereby. You shall have all the rights of an unpaid seller or
provider of the goods or services, the sale or rendering of which gives rise to
each Receivable, including the rights of stoppage in transit, reclamation and
replevin. Upon each sale of goods or rendering of services, we shall execute
and deliver to you such confirmatory assignments of our Receivables as you may
require, in form and manner satisfactory to you, together with copies of
invoices, all shipping or delivery receipts, and such other proof of sale and
delivery or performance as you may, at any time or from time to time, require
to effect collection of our Receivables. We shall make appropriate notations
upon our books and records indicating the sale and assignment of our
Receivables to you. All invoices or other statements to our customers
concerning Receivables shall clearly state, in language satisfactory to you,
that each such Receivable has been sold and assigned to you and is payable to
you and to you only. Copies of Receivables sold and assigned to you shall also
bear this language. During the term of this Agreement, we agree not to sell,
negotiate, pledge, assign or grant any security interest in any or all of our
Receivables to anyone other than you, except with respect to security interests
granted to Court Square Capital Limited and its successors and assigns which
security interest in Receivables shall be inferior and subordinate to your
security interest in Receivables pursuant to a Subordination Agreement to be
signed between you and Court Square Capital Limited and acknowledged by us. If
we are or become engaged in finishing or improving goods, we agree,
notwithstanding any credit approval you may have given on the customer(s)
involved, to assert promptly, at our expense and upon your demand, any lien
rights provided by law on goods in our possession; provided, that so long as
this Agreement has not been terminated for any reason and you have not declared
a breach or default of this Agreement by us, then we shall not be required to
exercise your lien rights until such Receivable is 120 days past due We will
remit to you any proceeds received from customers by us in respect to the sale
of such goods to satisfy the amounts owed to you by the owner of the finished
goods. It is understood that your credit approval is limited to the net amount
of the customer's invoice(s) obligation after the sale and disposition of such
finished goods.
2. ADDITIONAL COLLATERAL: Omitted.
<PAGE> 2
2
3. CREDIT RISK: You will assume the credit risk only on
Receivables for which you have given credit approval in writing ("Credit
Approvals"). In the absence of such written approval from you, the Receivable
is at our risk. If we ship merchandise or provide services based on a verbal
approval, we acknowledge our responsibility to ensure that such approval is
received by us in writing in a timely manner. We acknowledge that Credit
Approvals may be withdrawn, in writing, in your discretion at any time if, in
your opinion, a customer's credit standing becomes impaired before actual
delivery of merchandise or rendering of services. Credit Approvals shall be
limited to the specific terms and amounts indicated, and, notwithstanding any
information subsequently provided to us by you, such Credit Approvals are
automatically rescinded and withdrawn if the terms of sale vary from the terms
approved by you, or if the terms of sale are changed by us without your written
Credit Approval on the new terms, or if the Receivable is not assigned to you
promptly (within five days) after creation. We further acknowledge that if we
ship merchandise or provide services to a customer who has outstanding
Receivables from us, and such customer's credit line and/or outstanding
approvals have been withdrawn by you, and the Receivables created thereby,
whether or not they are sold and assigned to you, exceed ten percent (10%) of
the amount outstanding on your books, that any Credit Approvals applying to
those Receivables outstanding on your books are cancelled and all outstanding
Receivables from that customer are at our risk. If a customer, after receiving
and accepting delivery of goods or services (subject to all warranties herein)
for which you have given written Credit Approval, fails to pay a Receivable
when due solely to financial inability to pay, you shall bear any loss thereon.
If nonpayment is due to any other reason, however, you shall not be
responsible. Specifically, you shall not be responsible for any nonpayment of
a Receivable: (a) because of the assertion of any claim or dispute by a
customer for any reason whatsoever, including, without limitation, disputes as
to price, terms of sale, delivery, quantity, quality, or other, or the exercise
of any counterclaim or offset (whether or not such claim, counterclaim or
offset relates to the specific Receivable) or; (b) where nonpayment is a
consequence of enemy attack, civil commotion, strikes, lockouts, the act or
restraint of public authorities, acts of God or force majeure; or (c) if any
representation or warranty made by us to you under this agreement pertaining to
such Receivable under this agreement has been breached in a material respect.
The assertion of a dispute by a customer shall have the effect of negating any
Credit Approval on the affected Receivable(s) and such Receivable(s) shall be
at our risk until paid or otherwise cleared from your books. With regard to
sales without Credit Approval or in excess of any Credit Approval as to any
given customer, we agree that any payments or credits applying to any
Receivables owing by such customer will be applied: first, to any
credit-approved Receivables outstanding on your books; second, to any Client
Risk Receivables (as defined in Paragraph 4 of this Agreement) outstanding on
your books; and, third, to any Receivables outstanding on our books. This
order of payment applies regardless of the respective dates the sales occurred
and regardless of any notations on payment items. If you fail to collect a
Receivable, for which you have given credit approval, within 120 days of its
maturity, and your failure to collect such Receivable is due solely to the
customer's financial inability to pay, you shall pay to us the net amount of
such Receivable then owing on the Wednesday next following the week during
which said 120 days expired. Any Receivable for freight, samples, or
miscellaneous sales (including, without limitation, the sale of merchandise
and/or in quantities not regularly sold by us) is always assigned to you at our
risk, notwithstanding any written credit approval from you. You shall have no
liability of any kind for declining or refusing to give, or for withdrawing,
revoking, or modifying, any credit approval pursuant to the terms of this
Agreement, or for exercising or failing to exercise any rights or remedies you
may have under this Agreement or otherwise. In the event you decline to give
your credit approval on any order received by us from a customer, and in
advising us of such decline you furnish us with information as to the credit
standing of the customer, such information shall be deemed to have been
requested of you by us and your advice containing such information is
recognized as a privileged communication. We agree that such information shall
not be given to our customer or to our salesman. If necessary, we shall merely
advise our customer that credit has been declined on the account and that any
questions should be directed to you.
<PAGE> 3
3
4. CLIENT RISK RECEIVABLES: Any sale of goods or rendering of
services by us for which we have not received written Credit Approval, or for
which Credit Approval has been withdrawn or revoked, before actual delivery of
merchandise or rendering of service shall be known as a "Client Risk
Receivable." Any Client Risk Receivable(s) assigned to and purchased by you are
with recourse to us and at our sole credit risk. You shall have the right to
charge back to our account the amount of such Client Risk Receivable(s) at any
time and from time to time, either before or after maturity. We agree to pay
you on demand the full amount thereof, and, failing to do so, we agree to pay
all reasonable expenses incurred by you up to the date of such payment in
attempting to collect or enforce payment of such Receivable(s). For purposes
of determining your credit risk hereunder, the Receivable balance due you from
any given customer shall be calculated as the aggregate amount owed by that
customer less any credits to which such customer may be entitled, and is not to
be construed to mean individual invoices owed by that customer.
5. PURCHASE PRICE:
(a) The purchase price you shall pay to us for each
Receivable shall equal the Net Invoice Amount thereof less your factoring
commission, as specified below, As used herein, the term "Net Invoice Amount"
means the gross invoice amount of the Receivable, less returns (whenever made),
all selling discounts (at your option calculated on shortest terms) made
available or extended to our customer, if taken, and credits or deductions of
any kind allowed or granted to or taken by the customer at any time. Unless
specifically shown on the invoice sold and assigned to you, no discount,
credit, allowance, or deduction with respect to any Receivable shall be
granted, or approved, by us to any customer without your prior written consent.
(b) The purchase price (as computed above), less (i) any
reasonable reserves or credit balance that you, in your sole reasonable
discretion, determine to hold, (ii) monies remitted, paid, or otherwise
advanced by you to us or for our account, and (iii) any other charges to our
account provided for by this Agreement, shall be payable by you to us on a
weekly basis on the Wednesday next following the week of collection. Monies
shall be deemed to have been collected on the date of receipt thereof by you
plus three (3) days for clearing.
(c) You shall be entitled to withhold a reasonable
reserve of sums otherwise due us, and may revise the amount of such reserve at
any time and from time to time if you reasonably deem it necessary to do so in
order to protect your interests. Furthermore, at your reasonable request, we
shall maintain a credit balance ("credit balance" or "reserve" shall be defined
for purposes of this subparagraph 5(c) as credit for amounts due us and not a
"cash balance") with you in such amount as you reasonably determine to be
commensurate with the volume and character of the business conducted by us and
sufficient to protect you against all possible returns, claims of our
customers, indebtedness owing by us to you, or any other contingencies. We
shall pay you any debit balance in our account on demand.
(d) In your sole commercially reasonable discretion, in
accordance with the terms of this Agreement, you may from time to time advance
to us, against the purchase price of Receivables purchased by you hereunder,
sums up to seventy-five percent (75%) of the aggregate purchase price of
Receivables outstanding at the time any such advance is made, less: (1) Any
such Receivables that are in dispute; (2) Any such Receivables that are not
credit approved; and (3) Any fees, actual or estimated, that are chargeable to
our reserve account pursuant to this Agreement. Unless otherwise specified in
any promissory note, or loan or other agreement, executed in connection with
such advance, any such advance shall be payable on demand and shall bear
interest at the rate set forth in subparagraph (e) below from the date such
advance is made until the date you would otherwise be obligated hereunder to
pay the purchase price of the Receivable(s) against which such advance was made
or until payment is made in respect of such advance by us.
(e) Interest upon the daily net balance of any monies
remitted, paid, advanced or otherwise charged to us or for our account before
the payment date
<PAGE> 4
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(including any advance made pursuant to subparagraph 5(d) above), and interest
applicable to the charges or to the expenses referred to in this Agreement,
shall be charged to our reserve account as of the last day of each month at a
rate the greater of nine percent (9%) per anum or one percent (1%) above the
rate of interest designated by Capital Bank as its "Prime Rate" or "Base Rate,"
as the case may be. If, during any month, our reserve account or credit
balance, subject to the terms and conditions of this Agreement, shall be in a
net credit balance (i.e., the reserve or credit balance exceeds outstanding
Receivables), then you agree to credit our reserve account as of the last day
of each month with interest at a rate equal to three percent (3%) below the
rate of interest designated by Capital Bank as its "Prime Rate" or "Base Rate,"
as the case may be. All such interest, whether charged or credited to our
reserve account, shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Any adjustment in your interest rate,
whether downward or upward, will become effective on the first day of the month
following the month in which the prime rate of interest is reduced or
increased. HOWEVER, in no event shall the rate of interest agreed to or
charged to us hereunder exceed the maximum rate of interest permitted to be
agreed to or charged to us under applicable law. IT IS THE INTENTION OF THE
PARTIES HERETO NOT TO MAKE ANY AGREEMENT VIOLATIVE OF THE LAWS OF THE STATE OF
FLORIDA OR THE UNITED STATES RELATING TO USURY. IN NO EVENT, THEREFORE, SHALL
ANY INTEREST DUE HEREUNDER BE AT A RATE IN EXCESS OF THE HIGHEST LAWFUL RATE,
i.e., IN NO EVENT SHALL YOU CHARGE OR SHALL WE BE REQUIRED TO PAY ANY INTEREST
THAT, TOGETHER WITH ANY OTHER CHARGES HEREUNDER THAT MAY BE DEEMED TO BE IN THE
NATURE OF INTEREST, HOWEVER COMPUTED, EXCEEDS THE MAXIMUM LAWFUL RATE OF
INTEREST ALLOWABLE UNDER THE LAWS OF THE STATE OF FLORIDA AND/OR OF THE UNITED
STATES. SHOULD ANY PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN
US BE CONSTRUED TO REQUIRE THE PAYMENT OF INTEREST THAT EXCEEDS SUCH MAXIMUM
LAWFUL RATE, ANY SUCH EXCESS SHALL BE AND IS EXPRESSLY HEREBY WAIVED BY YOU.
SHOULD ANY EXCESS INTEREST IN FACT BE PAID, SUCH EXCESS SHALL BE DEEMED TO BE A
PAYMENT OF THE PRINCIPAL AMOUNT OF OUTSTANDING INDEBTEDNESS OWING BY US TO YOU
AND SHALL BE APPLIED TO SUCH PRINCIPAL.
6. FACTORING COMMISSIONS.
(a) For your services hereunder, we shall pay and you
shall be entitled to receive a factoring commission equal to point fifty-five
percent (.55%) of the gross Invoice Amount of each Receivable, which commission
shall be due and payable to you on the date you purchase such Receivable.
However, factoring commission equal to point twenty five percent (.25%) of the
gross Invoice Amount of each Receivable shall be paid on sales to Sears and
Montgomery Ward. Factoring commissions shall be chargeable to our account with
you. You shall be entitled to receive a surcharge equal to one percent (1%) of
the gross Invoice Amount of all Receivables arising out of our sales to
Debtors-In-Possession. The minimum factoring commission on each invoice or
credit memo shall be $3.50.
(b) Your commission, specified in paragraph 6(a) above,
is based upon our maximum selling terms of sixty (60) days, and no more
extended terms or additional dating will be granted by us to any customer
without your prior written approval. If and when such extended terms or
additional dating are given to our customers, your commission with respect to
the Receivables represented thereby shall be increased by twenty-five percent
(25%) for each additional 30 days, or portion thereof, of extended or
additional dating.
(c) The minimum aggregate factoring commissions payable
under this Agreement for each contract year hereof shall be Five Hundred Forty
Thousand Dollars ($540,000.00), which shall be payable at the rate of
$45,000.00 per month. To the extent of any deficiency (after giving effect to
commissions payable under the foregoing
<PAGE> 5
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subparagraphs), the difference between the minimum and the amount already
charged shall be chargeable to our account with you.
7. STATEMENT OF ACCOUNT: Once each month, and no later than the
20th day of any such month (subject to circumstances beyond your control which
may result in a reasonable delay and for which you shall notify us of) you
shall render a statement (Client Ledger) to us with respect to the Receivables
purchased by you during the previous month, any advances made by you,
collections received by you, and charges made to our account under this
Agreement. Our account shall be charged with all discounts (at your option,
calculated on shortest terms) made available to customers on assigned
Receivables, all returns, allowances, deductions and credits, and your
reasonable expenses, including, without limitation, postage on invoices, bank
wire fees, filing fees, UCC search and similar charges. We will also be
charged with interest at the rate specified in paragraph 5(e) above, with
respect both to Receivables as to which a credit is issued after the payment
date applicable thereto, and any Receivables collected or charged back after
such credit, or to the date of collection or chargeback, as the case may be. A
discount, credit or allowance after issuance or granting may be claimed solely
by the customer. Each statement, report, or accounting rendered or issued by
you to us shall be deemed accepted by us and shall be conclusive and binding
upon us, unless within thirty (30) days after the date thereof we notify you to
the contrary by registered or certified mail, setting forth with specificity
the reasons why we believe such statement, report, or accounting is incorrect
and what we believe to be the correct amount thereof. Moreover, if we fail to
receive a monthly statement, we shall likewise be obligated to notify you in
the same manner as if we fail to accept the statement, and our failure to do so
shall relieve you of any responsibility or liability arising out of our not
receiving such monthly statement.
8. REPRESENTATIONS AND WARRANTIES: We hereby represent and
warrant to you that: (i) each Receivable is a bona fide existing obligation
created by a customer's express order for, and the actual sale and physical
delivery of, or legal passage of title to, goods or the rendering of services
to customers in the ordinary course of business, which goods, prior to sale, we
owned free and clear of any liens or encumbrances, except with respect to the
encumbrances created under the Credit Agreement with Court Square Capital
Limited, as amended (the "Credit Agreement") and which Receivable is then
unconditionally owing to us without dispute, defense, offset, or counterclaim;
(ii) the customers, which are not affiliated with us, have to the best of our
knowledge, and at the time a Receivable is created, received and have accepted
the goods or services, and the invoices therefor, without dispute, offset, or
claim of any kind as to price, terms, quality, quantity, delay in shipment,
offsets, counterclaims, contra accounts or any other defense of any other kind
and character; (iii) the Receivables will not be subject to discounts,
deductions, allowances, offsets, counterclaims or other contra items, nor to
any other special terms of payment that are not shown on the face of the
invoice thereof; (iv) the Receivables will not represent delivery of
merchandise upon "consignment," "guaranteed sale," "sale or return," "payment
on reorder," or similar terms; and (v) the Receivables will not represent
"pack, bill and hold" transactions unless we have furnished you with a copy of
our customer's purchase order soon after its receipt, and you have obtained
such customer's agreement to grant you a security interest in the merchandise
and pay for such merchandise at maturity of our invoice irrespective of whether
or not we have received instructions to deliver the same; (vi) we are solvent;
(vii) we have full right and authority to sell or assign to you, and to grant
to you a security interest in, our Receivables; (viii) we have not granted and
will not hereafter grant to any other person a security interest in, or grant
to any other person any right to purchase, our Receivables, or, without your
prior written consent, grant to any other person a security interest in any of
our inventory at any time during the term of this Agreement and until all
security interests or purchases granted hereunder have been terminated except
in connection with the Credit Agreement; and (ix) all taxes due and payable
have been paid prior to the date on which any fine, penalty or interest may be
added thereto for nonpayment thereof, except to the extent contested in good
faith by proper proceedings that stay the imposition of any lien filed against
us or our property during the term of this Agreement resulting from
non-payment; and (x) there are no judgments of assessments for the payment of
money exceeding $250,000 other than that are not fully covered by
<PAGE> 6
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insurance or that have been vacated, stayed, bonded, paid or discharged during
the term of this Agreement.
9. SECURITY: As collateral security for any and all of our
indebtedness and obligations to you whether matured or unmatured, absolute or
contingent, now existing or hereafter arising under this Agreement (including
under indemnity or reimbursement agreements or by subrogation), and however
acquired by you, whether arising directly between us or acquired by you by
assignment, whether relating to this Agreement or independent hereof, including
all obligations incurred by us to any other person factored or financed by you
(collectively, the "Obligations"), we do hereby grant to you a security
interest in all of our accounts, contract rights, and general intangibles,
whether or not otherwise specifically assigned to you in this Agreement, now
existing or hereafter acquired, and in the proceeds and products thereof, any
security and guarantees therefor, in the goods and property represented
thereby, in all of our books and records relating to the forgoing, and in all
reserves, credit balances, sums of money at any time to our credit with you,
and any of our property at any time in your possession. We hereby irrevocably
authorize and direct you to charge at any time to our account any Obligations.
We agree to execute financing statements and any and all other instruments and
documents that may now or hereafter be provided for by the Uniform Commercial
Code or other law applicable thereto reflecting security interests granted to
you hereunder. We hereby appoint you as our attorney-in-fact and authorize you
to sign such financing statements on our behalf as debtor or to file such
financing statements without our signature, signed only by you as secured
party. We shall be liable for, and you may charge our account with, all
reasonable costs and expenses of filing such financing statements (including
any filing or recording taxes), making lien searches, and any reasonable
attorney's fees and expenses that may be incurred by you in perfecting,
protecting, preserving, or enforcing your security interests and rights
hereunder.
10. TERM: This Agreement shall continue in full force and effect
for a period of one year from the date hereof (the "Initial Term") and shall be
deemed renewed from year to year thereafter. After the Initial Term, either
party may terminate this Agreement at any time upon thirty (30) days prior
written notice to the other party. Notwithstanding the foregoing, if we become
insolvent or unable to meet our debts as they mature, fail, close, suspend, or
go out of business, commit an act of bankruptcy, file or become the subject of
a petition under the Bankruptcy Act or law permitting the appointment of a
receiver, liquidator, conservator, or similar functionary, materially breach or
become in material default under this Agreement, or any Obligation to you, or
if there is a change (by death or otherwise) in our principal stockholders or
owners then, notwithstanding the foregoing, you shall have the right to
terminate this Agreement at any time without notice; however, you may consent
to such ownership change in your discretion which consent shall not be
unreasonably withheld. In the event you elect to terminate this Agreement, and
your decision to do so is a result of a material breach of this Agreement by
us, then, notwithstanding any other provisions contained herein, you shall be
entitled to charge our account, and we agree to pay to you, the monthly minimum
factoring fee specified in paragraph 6(c) herein for the later of ninety (90)
days from the effective date of termination or until any and all of our
indebtedness to you pursuant to this Agreement shall have been paid in full.
Your rights and our Obligations arising out of transactions having their
inception prior to the termination date shall not be affected by any
termination or notice thereof. Termination of this Agreement shall not
terminate, extinguish, or remove any liens or security interests granted to you
hereunder until we have fully paid and discharged any and all of our
Obligations to you, and we shall continue to furnish to you confirmatory
assignments and schedules of Receivables previously assigned to you and all
proceeds in respect thereof. After the giving of any notice of termination
hereunder, and until the full liquidation of our account, we shall not be
entitled to receive any payments from you. From and after the effective date
of termination, all amounts charged or chargeable to our account hereunder, and
all our Obligations to you, shall become immediately due and payable without
further notice or demand.
11. MISCELLANEOUS:
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(a) Any goods rejected or returned by any customer shall
be your property held by us in trust for you separate and apart from any other
goods, and, upon your demand and in accordance with your instructions, shall
forthwith be delivered to you or disposed of by us without charge to you, with
the proceeds of such disposition to be remitted promptly to you. We shall
promptly report to you, in writing, all disputes and claims made by our
customers, the refusal of any services, and the rejection or return of or offer
to return any goods, and we will promptly and diligently prosecute, defend or
settle all such claims and disputes at our expense. WE AGREE TO PREPARE AND
ASSIGN TO YOU ALL CREDIT MEMOS TO WHICH OUR CUSTOMERS HAVE BECOME ENTITLED
SINCE THE DATE OF OUR LAST ASSIGNMENT, and our failure to do so entitles you to
charge our account with any expenses incurred by you as a result. As absolute
owner of each Receivable, you may, in your sole discretion, enforce, effect any
compromise regarding settlement, or adjust any Receivable, in your name or
ours, without affecting or limiting our obligations to you under this
Agreement, whether or not any such Receivable shall have been charged back to
us. You reserve the right at any time to charge back to our account the full
amount of the Receivable(s) involved in any claim, dispute, rejection, or
return asserted or made by our customers, and we agree to pay you upon demand
the full amount thereof. The chargeback to our account of the amount of any
such Receivable shall not be deemed a reassignment to us, and title thereto and
to the proceeds thereof, all security and guarantees therefor, and our interest
in the goods represented thereby shall remain in you. We shall indemnify you
for, and hold you harmless against, any loss, liability, claim or reasonable
expense of any kind arising from any claims of, or disputes with, our customers
as to terms, price, quality, quantity, or otherwise, relating to any
Receivable, including any claim for return or reimbursement of any payments
therefor. We agree to notify you promptly when a customer asserts a dispute or
claim of any kind, and upon your notice to us of a customer dispute or claim,
we agree to contact the customer promptly to effect a resolution of such
dispute or claim.
(b) If any check, draft, note, acceptance, cash
collection or payment in any form is received by us on any Receivable, WE SHALL
IMMEDIATELY TRANSMIT AND DELIVER IT TO YOU IN THE FORM RECEIVED, and our
failure to do so entitles you to charge our account with any reasonable
expenses incurred by you as a result. Until our delivery of each such payment
to you, it shall be held by us in trust for you. We agree that you, and any
such person or entity as you may from time to time designate, shall have the
right to sign and/or endorse our name on all remittances and all papers, bills
of lading, receipts, instruments and documents relating to the Receivables and
the transactions between us. You shall have the right to deposit any checks or
other remittances received on Receivables regardless of notations or conditions
placed thereon by our customers or deductions reflected thereby and to charge
the amount of any such deduction to our account.
(c) In the event a sales or excise tax is levied by State
or Federal authorities, in such form that you are required to pay a tax on
sales represented by any Receivable(s), we agree to reimburse you for the full
amount of taxes payable and agree that all such amounts may be charged to our
account.
(d) We agree to keep proper books of record and accounts
in accordance with sound and accepted accounting practices, which books shall
at all times be open to inspection by you. You and such accountant or other
agents as you may from time to time designate shall have the right, at our
expense, to visit and inspect our properties, assets and books, and to discuss
our affairs, finances and accounts with our officers and employees at such
reasonable times as you may designate, and to make and take away copies of our
records. We agree to do all things necessary or appropriate to permit you to
fully exercise your rights under this Paragraph. We also agree to make
available to you from time to time, upon your request, copies of our quarterly
financial statements. Unless specifically waived in writing, such financial
statements are to be provided to you on a quarterly basis.
(e) Your failure at any time to insist upon performance
of any term or provision of this Agreement shall not be deemed a waiver of any
right reserved to you,
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and the waiver of one provision shall not be deemed to be a waiver of any other
provision.
(f) This Agreement is the parties' complete and final
agreement, reflects the parties' mutual understanding, supersedes any prior
agreement or understanding between the parties, and may not be modified or
amended orally. We each acknowledge that, but for the promises and
representations expressly contained in this Agreement, no other promise or
representation of any kind has been made to either party to induce each party
to execute this Agreement. Furthermore, the parties acknowledge that if any
such promise or representation has been made, neither party has relied upon it
in deciding to enter into this Agreement.
(g) This Agreement is deemed made in the State of Florida
and shall be governed, interpreted, and construed in accordance with the laws
of the State of Florida. No modification, amendment, waiver, or discharge of
this Agreement shall be binding upon either party, unless in writing and signed
by the applicable party. TRIAL BY JURY IS HEREBY WAIVED by the parties in any
action, proceeding or counterclaim brought by either party against the other on
any matters whatsoever arising out of or in any way connected with this
Agreement, or the relations created hereby, whether for contract, tort, or
otherwise, and the parties hereby consent to the jurisdiction of the courts of
the State of Florida and of any Federal Court in such state for determination
of any dispute as to any such matters. In connection therewith, the parties
hereby waive personal service of any summons, complaint, or other process, and
agree that service thereof may be made by registered or certified mail directed
to such party at its address set forth above or such other address of which
said party shall have previously notified to the other party by registered or
certified mail. In the event that you obtain counsel for the purpose of
collecting any indebtedness due you from us or seeking to enforce any right you
are entitled to under the factoring agreement, we agree to pay the reasonable
attorneys' fees and expenses (including all such fees incurred at trial and the
appellate levels) of your counsel. In addition, in the event you are sued by
us or any other party for any claim or cause of action related to or arising
under this Agreement or the factoring relationship, or you are required to
defend any suit regarding any duty you are alleged to have breached, whether in
the form of a contract duty, tort or otherwise, we agree that if you prevail at
trial or on appeal we shall be obligated to reimburse you for all of the
reasonable attorneys' fees you incur. We also agree that you may charge and/or
set off against our account all such fees and expenses as such fees or expenses
are incurred. Your books and records shall be admissible as prima facie
evidence of the status of the accounts between us. This Agreement shall be
binding upon and inure to the benefit of each of us and our respective heirs,
executors, administrators, successors and assigns, but neither party may assign
this Agreement or any of its rights hereunder to any person without the other
party's prior written consent.
(h) We agree and acknowledge that you and your authorized
representatives are engaged in the provision of factoring services pursuant to
this Agreement. By entering into this Agreement, we expressly acknowledge that
we will not seek advice or counsel from you or any of your representatives with
respect to the management and/or operation of our business, or any other entity
affiliated or controlled by us, and if we deem such advice or counsel to have
been offered, directly or indirectly, we will evaluate it and act or decline to
act upon it based upon our own careful analysis and/or the advice or counsel of
our own independent expert(s) or consultant(s). WE AGREE THAT WE WILL NOT SEEK
OR ATTEMPT TO ESTABLISH A FIDUCIARY RELATIONSHIP BETWEEN YOU AND/OR YOUR
REPRESENTATIVES AND OURSELVES, OR ANY OTHER ENTITY AFFILIATED OR CONTROLLED BY
US. WE HEREBY EXPRESSLY WAIVE ANY RIGHT TO ASSERT, NOW OR IN THE FUTURE, THAT
THERE WAS OR IS A FIDUCIARY RELATIONSHIP BETWEEN US IN ANY ACTION, PROCEEDING
OR CLAIM FOR DAMAGES.
STRATFORD COMPANY, A DIVISON OF
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
---------------------
John B. Sganga
Vice President
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The foregoing is acknowledged, accepted and agreed to:
CAPITAL FACTORS, INC.
By: /s/ MICHAEL J. SULLIVAN
------------------------------------------
Michael J. Sullivan, Senior Vice President
<PAGE> 1
Exhibit 4.38
DEBT SUBORDINATION
THIS DEBT SUBORDINATION AGREEMENT ("Agreement"), made and entered into
this 25th day of July, 1995, by and between CAPITAL FACTORS, INC., a Florida
corporation ("Senior Lender"); and CONSOLIDATED FURNITURE CORPORATION (f/k/a
Mohasco Corporation), a New York corporation ("Subordinated Lender");
WITNESSETH:
WHEREAS, Stratford Company, a division of Furniture Comfort
Corporation, a Delaware corporation ("Borrower") and the Senior Lender propose
to enter into that certain Factoring Agreement, dated of even date herewith
(such Factoring Agreement, as it may be hereafter amended, modified,
supplemented or restated from time to time, together with all documents,
instruments and other agreements executed from time to time pursuant thereto or
in connection therewith, being herein called the "Senior Lender Documents"),
pursuant to which, and upon the terms and subject to the conditions thereof,
the Senior Lender will factor the accounts of the Borrower and make loans and
advances and extend other credit accommodations to the Borrower, secured by
liens in and security interests upon certain of the Borrower's assets, all as
more particularly set forth therein;
WHEREAS, the Subordinated Lender has made and may hereafter make
loans, advances and other extensions of credit to the Borrower;
WHEREAS, the Senior Lender, as a condition precedent to entering into
the Senior Lender Documents and extending the credit to the Borrower
contemplated thereby, requires the execution of this Agreement by the
Subordinated Lender establishing the relative priorities and right of payment
and claim of the indebtedness of the Borrower to the Senior Lender arising
under the Senior Lender Documents and the indebtedness of the Borrower to the
Subordinated Lender which is now existing or may be hereafter incurred; and
WHEREAS, the Borrower is a wholly-owned subsidiary of the Subordinated
Lender and it is to the direct benefit and advantage of the Subordinated Lender
for the Senior Lender to enter into the Senior Lender Documents with the
Borrower and to factor the accounts of the Borrower and to make the loans and
advances and extend the other credit to the Borrower contemplated thereby;
NOW, THEREFORE, for good and valuable considerations, the receipt and
sufficiency of which are hereby expressly acknowledged, and in order to induce
the Senior Lender to enter into the Senior Lender Documents and to factor the
accounts of the Borrower and to make loans and advances and extend other credit
accommodations to the Borrower pursuant thereto, and to better secure the
Senior Lender in respect of the foregoing, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Definitions. In addition to the terms defined in the recitals
hereto, the following terms shall have the following meanings for the purposes
of this Agreement:
"Agreement" - this Subordination Agreement, as the same may be
modified, amended or supplemented from to time to time pursuant to
Section 21 hereof.
<PAGE> 2
"Business Day" - any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the State of Florida or
is a day on which banking institutions located in the State of Florida
are closed,
"Default" - any event or condition which, with the giving of
notice or the passage of time or both, would constitute an Event of
Default if the Borrower took no action to correct the same.
"Event of Default" - shall mean the occurrence of any event
under the Senior Lender Documents and the expiration of all grace
periods applicable thereto which entitles the Senior Lender to
terminate the Senior Lender Documents or to accelerate the Senior
Indebtedness owing thereunder.
"Indebtedness" - all loans, advances, indebtedness,
obligations, liabilities, covenants and duties at any time owing by
the Borrower, whether voluntary or involuntary, and however arising,
direct or indirect, absolute or contingent, liquidated or
unliquidated, determined or undetermined, secured or unsecured, due or
to become due, including all interest, fees, costs, expenses and
attorneys' fees for which the Borrower is now or hereafter becomes
liable to pay under any agreement or by law.
"Lenders" - the Senior Lender and the Subordinated Lender, or
any of them or any combination of them, as the context may require,
and any other lender or lenders refinancing or refunding all or any
portion of the Senior Debt or the Subordinated Debt.
"Overadvance" - an advance made by the Senior Lender to the
Borrower under the Senior Lender Documents when an Overadvance
Condition exists or would result from the making of such advance.
"Overadvance Condition" - at any date, a condition such that
the aggregate amount of outstanding advances against the purchase
price of receivables factored by the Senior Lender under the Senior
Lender Documents exceeds the maximum amount which the Borrower is then
permitted to have outstanding as more particularly set forth and
described in the Senior Lender Documents.
"Permitted Junior Securities" - shall have the meaning
ascribed to such term in Section 5 of this Agreement.
"Permitted Payments" - Section 3 of this Agreement.
"Senior Debt" - the principal of (and premium, if any) and
interest on (including interest accruing after the occurrence of any
default or event of default under the Senior Lender Documents or after
the filing of a petition initiating any proceeding pursuant to any
state or federal bankruptcy or other insolvency law at a rate per
annum equal to the applicable rate set forth in the Senior Lender
Documents),
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<PAGE> 3
and all fees, charges, expenses, attorneys' fees and other amounts due
on or in connection with, any Indebtedness owing by the Borrower to
the Senior Lender under the Senior Lender Documents, and any
refinancings, renewals or refundings thereof.
"Senior Lender" - Capital Factors, Inc., a Florida
corporation, and any other lender or lenders refinancing or refunding
all or any portion of the Senior Debt.
"Subordinated Debt" - all Indebtedness of any nature now or
hereafter owing by the Borrower to the Subordinated Lender, whether
such Indebtedness is for the principal of, interest on (including
interest accruing after the occurrence of a default or any event of
default in respect of the Indebtedness owing by the Borrower to the
Subordinated Lender or after the filing of a petition initiating any
proceeding pursuant to a state or federal bankruptcy or other
insolvency law at a rate per annum equal to the applicable rate set
forth in the documents evidencing or securing any of the Subordinated
Debt), and all fees, charges, expenses, attorneys' fees and other
amounts due on or in connection with, any such Indebtedness now or
hereafter owing by the Borrower to the Subordinated Lender, and any
refinancings, renewals or refunds thereof.
"Subordinated Lender" - Consolidated Furniture Corporation
(f/k/a Mohasco Corporation), a New York corporation.
2. Debt Subordination.
(a) The Subordinated Lender agrees that, upon the terms
and subject to the conditions set forth in this Agreement, payment of all
Subordinated Debt is expressly subordinated to the prior payment in full of all
Senior Debt.
(b) Except as set forth in Section 3 below, unless and
until the Senior Debt shall have been fully paid and all outstanding
commitments of the Senior Lender for the incurring of additional Senior Debt
shall have been terminated in writing, the Subordinated Lender will not,
without the Senior Lender's prior written consent:
(i) Accelerate, ask, demand, sue for, take or receive
from or on behalf of the Borrower, by setoff or in any other manner,
the whole or any part of any monies which may now or hereafter be
owing to the Subordinated Lender on the Subordinated Debt;
(ii) Initiate or participate with others in any suit,
action or proceeding against the Borrower, or otherwise take action
against the Borrower or any of its assets, to enforce payment of or to
collect the whole or any part of the Subordinated Debt; or
(iii) Ask, demand, take or receive any security from the
Borrower for any of the Subordinated Debt.
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<PAGE> 4
(c) The provisions of this Agreement shall apply with
respect to all of the Senior Debt, regardless of whether the Senior Debt has
already been incurred or may be incurred in the future by future advances or
other financial accommodations made or extended by the Senior Lender to the
Borrower.
(d) If the Subordinated Lender in violation of this
Agreement shall commence, prosecute or participate in any suit, action or
proceeding against the Borrower, or shall ask, demand, take or receive any
security from the Borrower for any of the Subordinated Debt, or shall attempt
to enforce, foreclose or realize upon any security for the Subordinated Debt,
the Borrower or the Senior Lender may interpose as a defense or plea the making
of this Agreement and the Senior Lender may intervene and interpose such
defense in its name or in the name of the Borrower, and the Borrower or the
Senior Lender may by virtue of this Agreement restrain the enforcement thereof
in the name of the Borrower or the Senior Lender.
3. Permitted Payments. Notwithstanding the provisions of Section
2 hereof, the Borrower may pay to the Subordinated Lender, and the Subordinated
Lender may demand, accept and retain from the Borrower, the following payments
("Permitted Payments") of the Subordinated Debt, if and only to the extent
that, immediately before and after giving effect to such Permitted Payment, no
Default or Event of Default or Overadvance Condition shall exist:
(a) From the proceeds of the initial advance made by the
Lender to the Borrower under the Senior Lender Documents, a sum equal
to $15,000,000; and
(b) In addition to the payment referred to in clause (a)
above, payments of Subordinated Debt in any calendar year up to an
aggregate amount not to exceed $4,000,000.
4. Subordinated Debt Owed Only to Subordinated Lender. The
Subordinated Lender warrants and represents to the Senior Lender that it has
not previously assigned any interest in the Subordinated Debt to any party,
that no party owns an interest in the Subordinated Debt other than the
Subordinated Lender (whether as joint holder of the Subordinated Debt,
participants or otherwise), that the entire Subordinated Debt is owing to the
Subordinated Lender, and the Subordinated Lender covenants that the
Subordinated Debt shall continue to be owing only to it, unless assigned,
transferred or disposed of in accordance with the terms of this Agreement as
provided in Section 10 hereof.
5. Priority of Distribution. In the event of (a) any insolvency
or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding in connection therewith,
relative to the Borrower or its assets, or (b) any liquidation, dissolution or
other winding up of the Borrower, whether voluntary or involuntary, and whether
or not involving insolvency or bankruptcy, or (c) any assignment for the
benefit of creditors or any other marshalling of assets or liabilities of the
Borrower, then, in any such event, the Senior Lender shall be entitled to
receive payment in full of all Senior Debt prior to the payment of all or any
part of the Subordinated Debt, and all payments or distributions of assets of
the Borrower of any kind or character, whether in cash, property or securities,
to which the Subordinated Lender would be entitled, except for the provisions
of this Agreement (excluding securities of the Borrower provided for by a plan
of
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<PAGE> 5
reorganization or readjustment that are equity securities or are subordinated
in right of payment to all Indebtedness of the Borrower issued to the Senior
Lender in such plan of reorganization or readjustment to substantially the same
extent as, or to a greater extent than, the Subordinated Debt is subordinated
to the Senior Debt as provided in this Agreement) (such equity securities or
subordinated securities being herein called the "Permitted Junior Securities"),
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Borrower being
subordinated to the payment of the Subordinated Debt, shall be paid to the
Senior Lender for application on the Senior Debt.
6. Payments Received by Subordinated Lender, Except for Permitted
Payments and Permitted Junior Securities, should any payment or distribution be
collected or received by the Subordinated Lender upon or with respect to the
Subordinated Debt prior to the payment in full of all Senior Debt and the
termination in writing of all commitments of the Senior Lender for the
incurring of Senior Debt, the Subordinated Lender shall receive and hold the
same in trust, as trustee, for the benefit of the Senior Lender, and shall
forthwith deliver the same to the Senior Lender in precisely the same form
received (except for the endorsement or assignment of the Subordinated Lender
where necessary) for application to the Senior Debt, due or not due, and until
so delivered, the same shall be held in trust by the Subordinated Lender as the
property of the Senior Lender.
7. Grant of Authority. Until all of the Senior Debt is paid in
full and all outstanding commitments of the Senior Lender for the incurring of
Senior Debt are terminated in writing, the Subordinated Lender hereby
irrevocably authorizes and empowers the Senior Lender, in the event any
proceeding referred to in Section 5 above is commenced by or against the
Borrower, to (a) collect and receive every payment or distribution referred to
in Section 6 above (other than Permitted Payments and Permitted Junior
Securities) and give acquittance therefor, (b) file claims and proofs of claim
in any such proceeding in respect of the Subordinated Debt in its name, or in
the name of the Subordinated Lender or otherwise, as the Senior Lender may deem
reasonably necessary or advisable for the exercise or enforcement of any other
fights of the Senior Lender hereunder, and (c) to take such action as may be
reasonably requested at any time and from time to time by the Senior Lender to
file appropriate claims and proofs of claim in respect of the Subordinated Debt
in order, under the circumstances set forth in and in accordance with the terms
of Section 5 above, to enable the Senior Lender to enforce any and all claims
upon or in respect of the Subordinated Debt and to receive any and all payments
or distributions which may be payable or deliverable at any time upon or in
respect of the Subordinated Debt.
8. Instrument Legend. On the date hereof or promptly upon the
issuance thereof, each instrument evidencing any of the Senior Debt shall be
inscribed with a legend conspicuously indicating that the payment thereof is
subordinated to the prior payment in full of all of the Senior Debt pursuant to
the terms of this Agreement, and copies thereof shall be delivered to the
Senior Lender.
9. Subrogation. After all of the Senior Debt has been paid in
full and until all of the Subordinated Debt has been paid in full, the
Subordinated Lender shall be subrogated to the rights of the Senior Lender to
receive payments and distributions of assets with respect to the Senior Debt,
to the extent that distributions otherwise payable to the Subordinated Lender
have been applied to the payment of Senior Debt in accordance with the
provisions of this Agreement. As between the Borrower and the Subordinated
Lender, a distribution applied to the payment of Senior Debt in
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<PAGE> 6
accordance with the provisions of this Agreement which would otherwise have
been made to the Subordinated Lender shall not be deemed a payment by the
Borrower on the Subordinated Debt, it being understood that the subordination
provisions of this Agreement are intended solely for the purpose of defining
the relative fights of the Subordinated Lender, on the one hand, and the Senior
Lender, on the other hand, and nothing contained in this Agreement shall impair
the obligations of the Borrower, which are absolute and unconditional, to pay
to the Subordinated Lender the Subordinated Debt as and when the same shall
become due and payable in accordance with its terms, except as such obligation
is modified by the fights confirmed hereunder in favor of the Senior Lender, or
affect the relative rights of the Subordinated Lender and the creditors of the
Borrower other than the Senior Lender.
10. Assignment of Subordinated Debt. The Subordinated Lender
agrees that until all of the Senior Debt has been paid in full and all
outstanding commitments of the Senior Lender for the incurring of Senior Debt
shall have been terminated in writing, the Subordinated Lender will not assign,
transfer or otherwise dispose of the Subordinated Debt or any portion thereof
unless such assignment, transfer or other disposition is made expressly subject
to this Agreement, and the assignee or transferee expressly acknowledges in an
instrument delivered to the Senior Lender that the Subordinated Debt is being
assigned or transferred subject to the terms of this Agreement.
11. Subordination Non-Impaired. All fights and interests of the
Senior Lender, and all agreements and obligations of the Subordinated Lender
hereunder, shall remain in full force and effect irrespective of (a) any
amendment, modification, waiver or consent of any term or provision set forth
in any document, instrument or other agreement evidencing or securing any of
the Senior Debt; (b) any change in the time, manner or place of payment of, or
any other term of, all or any portion of the Senior Debt; (c) any change,
release or non-perfection of any lien in any collateral securing the Senior
Debt, or any release or amendment or waiver of or consent to the departure
from, any guaranty for all or any of the Senior Debt; (d) any circumstances
which might otherwise constitute a defense available to, or a discharge of, the
Borrower in respect of the Senior Debt or the Subordinated Lender in respect of
its obligations under this Agreement. The provisions of this Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
payment of any Senior Debt is rescinded or must otherwise be returned by the
Senior Lender upon the insolvency, bankruptcy or reorganization of the
Borrower, or otherwise, all as though such payment had not been made.
12. Term of Agreement. This Agreement shall continue in full
force and effect and shall be irrevocable by the Subordinated Lender until the
earliest to occur of the following:
(a) All of the parties hereto mutually agree in writing
to terminate this Agreement, or
(b) All of the Senior Debt is paid in full and all
outstanding commitments of the Senior Lender for the incurring of Senior Debt
are terminated in writing.
13. Waivers of Subordinated Lender. All of the Senior Debt shall
be deemed to have been made or incurred in reliance upon this Agreement, and
the Subordinated Lender expressly waives all notice of acceptance by the Senior
Lender of the subordination and other provisions of this
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<PAGE> 7
Agreement, notice of the incurring of any Senior Debt from time to time and all
other notices not specifically required pursuant to the terms of this Agreement
or by applicable law, and reliance by the Senior Lender upon the subordination
and other agreements as herein provided.
14. Waivers of Parties. No waiver shall be deemed to be made by
any party of any of its rights hereunder, unless the same shall be in writing
signed in behalf of such party, and each waiver, if any, shall be a waiver only
with respect to the specific instance involved and shall in no way impair the
rights of such party or the obligations of the other parties in any other
respect at any other time. Each party agrees that no party shall have any
responsibility to advise any other party of information known to such party
regarding the financial condition of the Borrower or of any circumstances
bearing upon the risk of nonpayment of the Senior Debt, the Subordinated Debt
or any other Indebtedness of the Borrower.
15. Notices. Any notice, demand or other communication required
or permitted under the terms of this Agreement shall be in writing and shall be
made by telegram, telex or electronic transmitter (including telecopy) or
certified or registered mail, return receipt requested, and shall be deemed to
be received by the addressee one (1) Business Day after sending, if sent by
telegram, telex or electronic transmitter (including telecopy) and three (3)
Business Days after mailing, if sent by certified or registered mail. Notices
shall be addressed as follows:
(a) If to the Senior Capital Factors, Inc.
Lender: 1799 West Oakland Park Boulevard
Ft. Lauderdale, Florida 33311
Attn: President
Facsimile No. 305-497-3136
(b) If to the Consolidated Furniture Corporation
Subordinated One Commerce Center
Lender: 102 North Orange Street, Suite 790
Wilmington, Delaware 19801
Attn: President
Facsimile No. 302-573-2507
or at such other address as either party may designate by notice to the other
party in accordance with the provisions hereof.
16. Governing Law. This Agreement shall be interpreted and the
rights and liabilities of the parties hereto determined, in accordance with the
laws and decisions (exclusive of choice of law provisions) of the State of
Florida.
17. Expenses. The Subordinated Lender agrees to pay to the Senior
Lender on demand all reasonable expenses of every kind, including, without
limitation, reasonable attorneys' fees, which the Senior Lender may incur in
enforcing any of its rights under this Agreement against the Subordinated
Lender.
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<PAGE> 8
18. Parties. This Agreement shall be binding upon, and inure to
the benefit of, each of the Lenders and their respective successors and
assigns. The term "Borrower" as used herein shall also refer to the successors
and assigns of the Borrower, including, without limitation, a receiver,
trustee, custodian or debtor-in-possession.
19. Section Titles. The section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement among the parties hereto.
20. Authority. Each party represents and warrants to each other
party that it has the authority to enter into this Agreement and that the
person signing for such party is authorized and directed to do so.
21. Entire Agreement. This Agreement constitutes and expresses
the entire understanding among the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any provision hereof may be changed,
waived or amended orally or in any other manner other than by an agreement in
writing signed by each Lender.
22. Severability. The provisions of this Agreement are
independent of and inseparable from each other. If any provision hereof shall
for any reason be held invalid or unenforceable, it is the intent of the
parties that such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, and that this Agreement shall
be construed as if such invalid or unenforceable provision had never been
contained herein.
23. Counterparts. This Agreement may be executed by the parties
hereto in one or more counterparts, each of which when so executed shall be an
original. When taken together, such counterparts shall constitute but one and
the same document.
24. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH LENDER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION ARISING
OUT OF OR RELATED TO THIS AGREEMENT.
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<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto under seal on the day and year first above written.
CONSOLIDATED FURNITURE CORPORATION
(f/k/a Mohasco Corporation)
By: /s/ JOHN B. SGANGA
--------------------------------
Title: Vice President and Chief
Financial Officer
CAPITAL FACTORS, INC.
By: /s/ MICHAEL J. SULLIVAN
--------------------------------
Title: SVP
--------------------------
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<PAGE> 10
ACKNOWLEDGMENT AND AGREEMENT
OF THE BORROWER
The undersigned, STRATFORD COMPANY, a division of Furniture Comfort
Corporation (f/k/a Mohasco Upholstered Furniture Corporation), a Delaware
corporation, does hereby accept, and acknowledge receipt of a copy of, the
foregoing Debt Subordination Agreement, and agrees that (a) it will not pay any
of the Subordinated Debt except as permitted by the foregoing Debt
Subordination Agreement, and (b) it will be bound by the subrogation provisions
of Section 9 of the foregoing Debt Subordination Agreement. In the event of a
breach by the undersigned of any of the provisions herein, all of the Senior
Debt shall, without presentment, demand, protest or notice of any kind except
as otherwise required by the Senior Lender Documents, become immediately due
and payable unless the Senior Lender shall otherwise elect in writing.
All capitalized terms used in this acknowledgment and agreement
without definition shall have the same meanings as set forth in the foregoing
Debt Subordination Agreement.
IN WITNESS WHEREOF, the undersigned has caused this acknowledgment and
agreement to be duly executed on the day and year first above written.
STRATFORD COMPANY, a division of
Furniture Comfort Corporation
(f/k/a Mohasco Upholstered
Furniture Corporation)
By: /s/ JOHN B. SGANGA
----------------------------------
Title: Vice President
----------------------------
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<PAGE> 11
ACKNOWLEDGMENT AND AGREEMENT
OF COURT SQUARE CAPITAL LIMITED (f/k/a Citicorp Capital Investors Ltd.)
The undersigned, COURT SQUARE CAPITAL LIMITED (f/k/a Citicorp Capital
Investors Ltd.), a Delaware corporation, does hereby accept, and acknowledge
receipt of a copy of, the foregoing Debt Subordination Agreement, and agrees
that the collateral assignment of, and grant of lien and security interest in,
all of the Subordinated Debt by the Subordinated Lender to the undersigned as
security for certain obligations owing by the Subordinated Lender to the
undersigned is subject to the terms and provisions of the foregoing Debt
Subordination Agreement.
All capitalized terms used in this acknowledgment and agreement
without definition shall have the same meanings as set forth in the foregoing
Debt Subordination Agreement.
IN WITNESS WHEREOF, the undersigned has caused this acknowledgment and
agreement to be duly executed on the day and year first above written.
COURT SQUARE CAPITAL LIMITED
(f/k/a Citicorp Capital Investors Ltd.)
By: /s/ M. SALEEM MUQADDAM
----------------------------------
Title: Vice President
----------------------------
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<PAGE> 1
Exhibit 4.39
LIEN SUBORDINATION AGREEMENT
THIS LIEN SUBORDINATION AGREEMENT ("Agreement"), made and entered into
this 25th day of July, 1995, by and between COURT SQUARE CAPITAL LIMITED (f/k/a
Citicorp Capital Investors Ltd.), a Delaware corporation ("Subordinating
Creditor"), and CAPITAL FACTORS, INC., a Florida corporation ("Senior
Creditor"),
WITNESSETH:
WHEREAS, pursuant to that certain Factoring Agreement, dated on or
about the date hereof (such Factoring Agreement, and all other agreements,
instruments and documents executed in connection therewith or pursuant thereto,
each as amended, modified, supplemented or restated from time to time, being
herein called the "Senior Creditor Factoring Agreement"), between Stratford
Company, a division of Furniture Comfort Corporation (f/k/a Mohasco Upholstered
Furniture Corporation), a Delaware corporation ("Borrower") and Senior
Creditor, Senior Creditor has agreed to factor Borrower's accounts and make
loans and advances and extend other credit accommodations to Borrower, secured
by liens and security interests in certain of Borrower's assets, all upon the
terms and subject to the conditions contained therein;
WHEREAS, pursuant to that certain Credit Agreement, dated as of
September 22, 1989 (such Credit Agreement, and all other agreements, notes,
instruments, guaranties and other documents executed in connection therewith or
pursuant thereto, each as amended, modified, supplemented or restated from time
to time, being herein called the "Subordinated Creditor Documents"), among
Borrower, its parent and affiliated companies, and Subordinated Creditor,
Subordinated Creditor has agreed to make loans and advances and extend other
creditor accommodations to Borrower and its parent and affiliated companies,
secured by liens and security interests in substantially all of the assets of
Borrower and its parent and affiliated companies, all upon the terms AND
subject to the conditions contained therein; and
WHEREAS, Senior Creditor, as a condition precedent to factoring
Borrower's accounts and making loans and advances and extending the other
credit accommodations to Borrower contemplated by the Senior Creditor Factoring
Agreement, requires the execution of this Agreement by Subordinated Creditor
establishing the relative priorities of Subordinated Creditor's and Senior
Creditor's security interests in and liens upon the assets of Borrower;
NOW, THEREFORE, for and in consideration of the foregoing premises and
other good and valuable considerations, the receipt and sufficiency of which
are hereby expressly acknowledged, and in order to induce Senior Creditor to
enter into the Senior Creditor Factoring Agreement, and make loans and advances
and extend other credit accommodations to Borrower thereunder, the parties
hereto, intending to be legally bound hereby, do hereby agree as follows:
1. Certain Definitions. In addition to the terms defined in the
recitals hereto, the following terms shall have the following meanings for the
purposes of this Agreement:
"Liens" - the liens and security interests with respect to the
Senior Creditor Collateral or any portion thereof granted by Borrower
to Senior Creditor or Subordinated Creditor, respectively.
<PAGE> 2
"Senior Creditor Collateral" - all of the following assets,
properties and interests in property of Borrower, whether now existing
or hereafter acquired or arising, wherever located:
(a) All accounts, contract rights and general
intangibles;
(b) All other obligations owing to Borrower for
the payment of money arising out of the sale of goods, all
security and guarantees therefor, and all of Borrower's rights
to the goods and property represented thereby;
(c) All goods rejected or returned by any
customer of Borrower;
(d) All reserves, credit balances, sums of money
at any time to Borrower's account with Senior Creditor and any
of Borrower's property at any time in the possession of Senior
Creditor;
(e) All of Borrower's books and records relating
to the foregoing; and
(f) All proceeds and products of any of the
foregoing.
"Senior Creditor Indebtedness" - All indebtedness, obligations
and liabilities of Borrower (including, without limitation, principal,
interest, fees, costs, commissions, expenses and attorneys' fees), now
or hereafter owed by Borrower to Senior Creditor under or secured by
the Senior Creditor Factoring Agreement, and any replacements,
renewals, extensions, refundings or refinancings thereof.
2. Priority of Liens and Subordination. Senior Creditor and
Subordinated Creditor agree that at all times, whether before, after or during
the pendency of any bankruptcy, reorganization or other insolvency proceeding,
and notwithstanding the priorities which would ordinarily result from the order
of granting or attaching of any Lien, or the order of filing or recording of
any financing statements or any of the Senior Creditor Factoring Agreement or
the Subordinated Creditor Documents:
(a) the Lien in favor of Senior Creditor with respect to the
Senior Creditor Collateral arising pursuant to the Senior Creditor
Factoring Agreement shall be superior to the Lien of Subordinated
Creditor in the Senior Creditor Collateral arising pursuant to the
Subordinated Creditor Documents, and the Lien of Subordinated Creditor
in the Senior Creditor Collateral arising pursuant to the Subordinated
Creditor Documents shall be junior and subordinate to the Lien of
Senior Creditor therein; and
(b) The Lien in favor of Subordinated Creditor with
respect to any inventory of the Borrower which does not constitute any
portion of the Senior Creditor Collateral shall be superior to any
Lien of Senior Creditor therein, and the
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<PAGE> 3
Lien, if any, of Senior Creditor in any inventory of the Borrower
which does not constitute any portion of the Senior Creditor
Collateral shall be junior and subordinate to the Lien of Subordinated
Creditor therein.
3. Term. This Agreement shall constitute a continuing agreement
between Senior Creditor and Subordinated Creditor, and Senior Creditor may
continue without notice to Subordinated Creditor to lend monies, extend credit
and make other credit accommodations to or for the account of Borrower. This
Agreement shall be irrevocable by Subordinated Creditor until all of the Senior
Creditor Indebtedness shall have been paid and satisfied in full and the Senior
Creditor Factoring Agreement has been terminated in writing.
4. Additional Agreements. Senior Creditor, at any time and from
time to time, may enter into such agreement or agreements with Borrower,
including amendments or modifications to the Senior Creditor Factoring
Agreement, as Senior Creditor may deem proper, extending the time of payment of
or renewing or otherwise altering the terms of all or any of the Senior
Creditor Indebtedness, and may exchange, sell, release, surrender or otherwise
deal with any of the Senior Creditor Collateral without any in any way
impairing or affecting this Agreement.
5. Consent of Subordinated Creditor. Subordinated Creditor does
hereby consent to the grant of a Lien in the Senior Creditor Collateral by
Borrower to Senior Creditor pursuant to the Senior Creditor Factoring Agreement
and the incurring by Borrower of the Senior Creditor Indebtedness thereunder,
and agrees that such actions do not and will not constitute a default or an
event of default under the Subordinated Creditor Documents, notwithstanding any
term or provision thereof to the contrary.
6. Notices. Any notice, demand or other communication required
or permitted under the terms of this Agreement shall be in writing and shall be
made by certified or registered mail, return receipt requested, or by
electronic transmitter or overnight air service, and shall be deemed to have
been received by the addressee three (3) business days after mailing, if sent
by certified or registered mail, and upon receipt, if sent by electronic
transmitter or overnight air courier. Notices shall be addressed as follows:
(a) If to Senior Creditor: Capital Factors, Inc.
1799 West Oakland Park Boulevard
Ft. Lauderdale, Florida 33311
Attn: President
Facsimile No. 305-497-3136
(b) If to Subordinated Court Square Capital Limited
Creditor: 399 Park Avenue, 14th Floor
Zone 4
New York, New York 10022
Attn: President
Facsimile No. 212-888-2940
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<PAGE> 4
or at such other address as either party may designate by notice to the other
party in accordance with the provisions hereof
7. Governing Law. This Agreement shall be interpreted, and the
fights and liabilities of the parties hereto determined, in accordance with the
laws and decisions of the State of Florida.
8. Parties. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
The term "Borrower" as used herein shall also refer to the successors and
assigns of Borrower, including, without limitation, a receiver, trustee,
custodian or debtor-in-possession.
9. Section Titles. The section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement among the parties hereto.
10. Authority. Each party represents and warrants to each other
party that it has the authority to enter into this Agreement and that the
person signing for such party is authorized and directed to do so.
11. Severability. The provisions of this Agreement are
independent of and inseparable from each other. If any provision hereof shall
for any reason be held invalid or unenforceable, it is the intent of the
parties that such invalidity or unenforceability shall not affect the validity
or enforceability of any other provision hereof, and that this Agreement shall
be construed as if such invalid or unenforceable provision had never been
contained herein.
12. Counterparts. This Agreement may be executed by the parties
hereto in one or more counterparts, each of which when so executed SHALL be an
original. When taken together, such counterparts shall constitute but one and
the same document.
13. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
RELATED HERETO OR CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
CAPITAL FACTORS, INC.
By: /s/ MICHAEL J. SULLIVAN
----------------------------------
Title: SVP
----------------------------
-4-
<PAGE> 5
COURT SQUARE CAPITAL LIMITED (f/k/a
Citicorp Capital Investors Ltd.)
By: /s/ M. SALEEM MUQADDAM
----------------------------------
Title: Vice President
----------------------------
-5-
<PAGE> 6
ACKNOWLEDGMENT AND AGREEMENT
OF BORROWER
The undersigned, Stratford Company, a division of Furniture Comfort
Corporation (f/k/a Mohasco Upholstered Furniture Corporation) hereby accepts
and acknowledges receipt of a copy of the foregoing Lien Subordination
Agreement and consents to and agrees to bound by all of the terms and
provisions thereof.
IN WITNESS WHEREOF, the undersigned has caused this acknowledgment and
agreement to be duly executed on the day and year first above written.
STRATFORD COMPANY, a division of
Furniture Comfort Corporation
(f/k/a Mohasco Upholstered
Furniture Corporation)
By: /s/ JOHN B. SGANGA
----------------------------------
Title: Vice President
----------------------------
-6-
<PAGE> 1
EXHIBIT 4.40
[Execution Version]
TWELFTH AMENDMENT
TO CREDIT AGREEMENT
THIS TWELFTH AMENDMENT TO CREDIT AGREEMENT, dated as of
November 30, 1995 (the "Twelfth Amendment"), is among Court Square Capital
Limited (formerly known as Citicorp Capital Investors Ltd.) (the "Lender") and
Consolidated Furniture Corporation (formerly known as Mohasco Corporation),
Furniture Comfort Corporation (formerly known as Mohasco Upholstered Furniture
Corporation) (on its behalf and on behalf of each of its Stratford and
Barcalounger operating units), SSC Corporation (formerly known as Super Sagless
Corporation) and Choice Seats Corporation (collectively, the "Borrowers").
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 Twelfth 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 Twelfth 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 - 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 $148,500,000 during the
fourth fiscal quarter of 1995 and thereafter.
Section 2 - 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,
1997, when the Revolving Credit Note shall be due and payable
in full.
<PAGE> 2
Section 3 - Conditions to Effectiveness.
This Twelfth Amendment shall be effective when, and only when,
the Lender shall have received counterparts of this Twelfth Amendment executed
by each of the Borrowers and copies of such approvals, opinions or documents as
the Lender may reasonably request.
Section 4 - 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 Twelfth 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:
(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 to the Lender,
each of which is in full force and effect.
Section 5 - 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 Twelfth 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 Twelfth Amendment shall be construed in
connection with and as part of the Credit Agreement, and all terms,
conditions and covenants contained in the Credit
<PAGE> 3
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 Twelfth Amendment may refer to the "Credit Agreement
dated as of September 22, 1989" without making specific reference to
the Twelfth Amendment, but nevertheless all such references shall be
deemed to include this Twelfth Amendment unless the context shall
otherwise require.
[SIGNATURE PAGES FOLLOW]
- 3 -
<PAGE> 4
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
CONSOLIDATED FURNITURE CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Executive Vice President,
Chief Financial Officer,
Treasurer and Controller
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Executive Vice President,
Treasurer and Secretary
SSC CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Executive Vice President,
Treasurer and Secretary
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Executive Vice President,
Treasurer and Secretary
- 4 -
<PAGE> 5
WAIVER
WAIVER dated as of November 29, 1995 ("Waiver") to the Credit
Agreement dated as of September 22, 1989, as amended (the "Credit Agreement"),
among Court Square Capital Limited (formerly known as Citicorp Capital
Investors Ltd.) (the "Lander") and Consolidated Furniture Corporation,
Furniture Comfort Corporation (on its behalf and on behalf of each of its
Stratford and Barcalounger operating units), SSC Corporation and Choice Seats
Corporation (collectively, the "Borrowers"). Terms used herein and not
otherwise defined herein shall have the meanings given such terms in the Credit
Agreement.
The Lander hereby agrees to waive compliance by Borrowers with
respect to (i) the covenants set forth in Section 4.1.1 and Section 4.1.6 of
the Credit Agreement for the quarters ended June 30, 1995, September 30, 1995
and December 31, 1995 and (ii) the covenant set forth in Section 4.1.5 of the
Credit Agreement for each of the months of June through December of Fiscal
Year 1995.
Except as expressly waived hereby, the Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof on
the date hereof.
IN WITNESS WHEREOF, the Lender has caused this Waiver to be
executed by its duly authorized officer as of the date first written above.
COURT SQUARE CAPITAL LIMITED
By: /s/ M. SALEEM MUQADDAM
-------------------------------
Name: M. Saleem Muqaddam
Title: Vice President
Acknowledged:
CONSOLIDATED FURNITURE CORPORATION
FURNITURE COMFORT CORPORATION
SSC CORPORATION
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
------------------------------
Name: John B. Sganga
Title: Vice President
Treasurer and Secretary
<PAGE> 1
Exhibit 22.1
SUBSIDIARIES OF REGISTRANT
- --------------------------
<TABLE>
<CAPTION>
State of
Incorporation
or other
Jurisdiction
in which
Name organized
---- ----------------
<S> <C>
Consolidated Furniture Corporation New York
Furniture Comfort Corporation Delaware
SSC 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4264
<SECURITIES> 0
<RECEIVABLES> 17937
<ALLOWANCES> 1857
<INVENTORY> 14394
<CURRENT-ASSETS> 37262
<PP&E> 30875
<DEPRECIATION> 16841
<TOTAL-ASSETS> 53421
<CURRENT-LIABILITIES> 228077
<BONDS> 370
0
100
<COMMON> 55948
<OTHER-SE> (486983)
<TOTAL-LIABILITY-AND-EQUITY> 53421
<SALES> 176834
<TOTAL-REVENUES> 176834
<CGS> 161091
<TOTAL-COSTS> 188599
<OTHER-EXPENSES> (62)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58893
<INCOME-PRETAX> (70720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (70720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70720)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
