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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, 1996
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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
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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, 1997.
On February 28, 1997, 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
Ltd. ("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 and included 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 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 in 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 Court Square
Capital Limited ("CSCL"), an affiliate of CVCL, under Consolidated Furniture's
Credit Agreement with CSCL (the "Credit Agreement").
Fairwood is contesting an Internal Revenue Service ("IRS") Agent's
report resulting from an IRS audit examination of the consolidated Federal
income tax returns of Fairwood and its subsidiaries for the years ended July
11, 1988 through December 1991. Fairwood has reached a tentative settlement
subject to approval by IRS and the Joint Committee on Taxation. Furthermore, an
involuntary Chapter 7 petition 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 November 26, 1996 the motion to dismiss
was denied. On December 26, 1996 Fairwood exercised its right to convert the
pending involuntary bankruptcy case to a voluntary Chapter 11 proceeding as
debtor-in-possession. See Item 3. LEGAL PROCEEDINGS.
Fairwood's subsidiary Consolidated Furniture is the parent of Furniture
Comfort Corporation ("Furniture Comfort" formerly named Mohasco Upholstered
Furniture Corporation) whose two operating divisions, Stratford Company
("Stratford") and Bacalounger Company ("Barcalounger") manufacture upholstered
stationary and motion furniture, such as modular living room groups, recliners,
rockers and glider chairs and upholstered motion furniture, such as, modular
sofas and living room and family room groups.
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Operations
Furniture Comfort, Consolidated Furniture's operating subsidiary through
its Stratford and Barcalounger divisions, 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. Currently a diversified line of upholstered motion furniture is
manufactured and sold under several brand names. While most products are
moderately priced and designed to appeal to a wide range of furniture buyers,
certain products have been successfully targeted to a more selective, higher
priced market. The products are sold nationally to furniture retailers and
department stores mainly through commissioned sales forces.
Stratford and Barcalounger operate as separate independent entities.
Each division markets and manufactures one or more brands of furniture.
Stratford makes and sells mid-priced upholstered stationary and motion
furniture under the brand names Stratford, Stratolounger and Avon. 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 its product lines to evaluate
whether minor or major restyling of such lines is warranted. To generate new
product and style ideas based upon consumer and retailer response, the
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 continued to erode 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. However, Stratford sales have shown a
continuous decrease. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL
RESOURCES. For the years ended December 31, 1996, 1995, and 1994, net sales,
including sales to Barcalounger, by Stratford were $114.0 million, $142.6
million and $176.6 million, respectively, and net sales by Barcalounger were
$39.9 million, $36.9 million and $36.5 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
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better credit terms, or increase spending on product development, marketing or
sales, any of 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.
Barcalounger targets a selected market for its high-end recliner chair
and motion upholstered furniture. Barcalounger sells mainly to furniture stores
and department 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 of the
Agreement renews annually, unless terminated by either party. This agreement
resulted in approximately $12.7 and $2.4 million of revenues in 1996 and 1995,
respectively, and the reimbursement of $600,000 and $243,000 for new product
development and $2,257,000 and $100,000 for selling expenses in 1996 and 1995,
respectively.
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: Life Style Furnishings
International, Furniture Brands International, 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.
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The Stratford and Barcalounger operating divisions expended a total of
$9,640,000 in the past five years for research and development programs of
which $1,779,000, $2,149,000, and $2,467,000 was expended in 1996, 1995 and
1994, respectively.
Employees
Fairwood has no employees but its subsidiaries and their operating
divisions employed 1,999 persons at December 31, 1996. The Stratford and
Barcalounger divisions have a long record of generally harmonious relations
with employees.
Backlog
The backlog of orders among Furniture Comfort's furniture operations was
approximately $11,270,000 at December 31, 1996 and approximately $13,401,000 at
December 31, 1995. It is expected that the backlog at December 31, 1996 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 13 percent, 19 percent
and 20 percent of Furniture Comfort's furniture sales during the years 1996,
1995 and 1994, respectively. Export sales for 1996, 1995 and 1994 were
approximately 2 percent, 2 percent and 1 percent of sales, respectively.
Environmental and Raw Materials
In 1996, there were no significant effects upon the capital
expenditures, earnings and competitive position of Stratford and Barcalounger
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 Stratford and Barcalounger are all procured
in the open market from a number of suppliers. In general, no major
difficulties have been experienced in obtaining raw materials.
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Patents
Patents are not a significant consideration in the manufacture of most
of Stratford and Barcalounger's products. Stratford and Barcalounger do not
believe that their operating income is materially dependent on any one patent
or license or group of related patents or licenses.
ITEM 2. PROPERTIES
The furniture manufacturing activities of the operating divisions 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 Furniture Comfort or its operating divisions.
Stratford and Barcalounger also lease showroom and warehouse space
throughout the United States for display and storage of products. Fairwood and
Consolidated Furniture lease office space in Wilmington, Delaware.
Stratford and Barcalounger believe that their plants and facilities, in
the aggregate, are adequate, suitable and of sufficient capacity for purposes
of conducting its current business.
As of December 31, 1996, Stratford and Barcalounger 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
2,832,621
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</TABLE>
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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 8).
Stratford and Barcalounger believe 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
Fairwood is contesting an Internal Revenue Service ("IRS") Agent's
report resulting from an IRS audit examination of the consolidated Federal
income tax returns of Fairwood and its subsidiaries for the years ended July
11, 1988 through December 1991. The report proposed to adjust Fairwood's
taxable income in the years in issue and in prior years to which net operating
losses of the Consolidated tax group were carried back. Fairwood estimates that
the aggregate proposed liability, if all issues were resolved unfavorably
would, together with statutory interest and state income tax, total
approximately $122 million and eliminate substantially all of the net operating
loss carryforwards. Under available administrative procedures, Fairwood has
protested the proposed adjustments and, through negotiations with the IRS
Appeals Division, has reached an agreement in principle for a potential
settlement of the issues in the case. A final settlement based on the foregoing
is estimated to be approximately $4.4 million and is included in Federal and
State income taxes on the accompanying audited consolidated balance sheets. The
terms of the proposed settlement are subject to final approval by the IRS and
will also require the approval of the Joint Committee on Taxation, and no
assurances can be given that such approvals will be given. However, should the
outcome of the reviews in question be unfavorable to Fairwood on one or more
issues in the case then Fairwood and its Subsidiaries may exercise their rights
to litigate these issues. Fairwood and its subsidiaries cannot predict the
ultimate outcome of these issues, nor the impact on its financial statements.
See note 4 to Fairwood's Consolidated Financial Statements set forth in Item 8.
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, Consolidated Furniture does not believe its disposals were toxic as
alleged. The damages sought from Sloane Blabon 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.
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An involuntary Chapter 7 petition 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. In response to the bankruptcy
filing, on April 22, 1996, Fairwood and certain other entities filed a
cross-motion seeking dismissal of the petition. On November 26, 1996 the motion
to dismiss was denied. On December 26, 1996 Fairwood exercised its right to
convert the pending involuntary bankruptcy case to a voluntary Chapter 11
proceeding as debtor-in-possession. Fairwood has indicated in Court papers that
it intends to propose a plan of reorganization with the bankruptcy Court at
some time in the future. The Chapter 11 case pertains only to Fairwood
Corporation. Its direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as the operating
divisions, Stratford and Barcalounger, are not parties to the bankruptcy, nor
are such operations under the supervision of the bankruptcy Court. These
companies will continue to operate in the normal course of business.
As of the date hereof, there are certain other legal proceedings
pending, which arise out of the normal course of the Companies' 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, 1996 and
1995, there were three shareowners of Fairwood's common stock. No dividends
were declared on Fairwood's common stock in 1996 and 1995. 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.
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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,
----------------------------------------------------
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Net sales $ 151.3 176.8 244.9 261.5 267.0
Operating income (loss) ( 6.4) ( 11.8) ( 8.2) 1.9 (104.4)
Interest expense, net ( 61.2) ( 58.6) ( 53.4) ( 46.6) ( 43.6)
Gain on sale of subsidiary - - 20.8 - -
Loss before extraordinary
items ( 67.4) ( 70.7) ( 39.4) ( 46.9) (159.1)
Extraordinary items - - - - 1.9
Net loss ( 67.4) ( 70.7) ( 39.4) ( 46.9) (157.2)
Total assets 46.6 54.1 95.6 113.6 105.1
Long-term debt, including
current maturities * 453.1 420.7 415.4 386.0 330.8
Redeemable preferred stock .1 .1 .1 .1 .1
</TABLE>
* - Does not include accrued interest for 1996 and 1995 of $64.4 million and
$37.3 million, respectively.
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 Corporation
("Chromcraft") and Peters-Revington Corporation ("Peters-Revington") for the
period from January 1 through April 23, 1992, which were sold to Chromcraft
Revington, Inc., an affiliate through mergers that were consummated on 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 1994, 1993 and 1992 is not comparable with one another or 1996
and 1995.
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
1996 vs 1995 Results of Operations
Consolidated net sales of approximately $151.3 million for 1996
decreased 14.4% from 1995 net sales of approximately $176.8 million, due
primarily to the significant reduction of sales at Stratford.
Net sales (including intercompany sales) for 1996 by Stratford decreased
20% to approximately $114 million as compared to $142.6 million for 1995.
During 1996 and 1995 net sales by Stratford include $12.7 million and $2.4
million, respectively, of sales to Simmons Upholstered Furniture Corporation
("Simmons"), an affiliate of the Company. Excluding these sales, net sales by
Stratford decreased 29.0% in 1996. Total volume in 1996 decreased 25.6%, while
average selling prices decreased by approximately 4.8%. Sales in 1996 to
Stratford's larger, national retail customers decreased 30.3%, while sales to
smaller retail customers decreased 28.8%. The decrease in sales at Stratford
was the result of internal and external factors. In 1995 Stratford altered its
marketing strategy by discontinuing all styles with low profit margins and all
styles with low sales volume. This change was a primary factor in causing
decreased sales to smaller retail customers in 1995 and 1996. Sales to larger
national retail customers decreased mainly due to weak 1996 sales in mid priced
furniture and declining sales among the value merchandisers. In addition these
conditions were adversely affected during 1995 and 1996 by (1) organizational
realignment to lower inventory levels and reordering patterns, (2) the
consolidation and closing of retail chain customers' stores not replaced by new
store openings, (3) discontinuance of furniture departments and sales by
certain large customers, and (4) continuing conflicts between Stratford and
certain customers over price increases and more stringent sales terms.
Net sales for 1996 by Barcalounger increased 8.1% to approximately $39.9
million as compared to $36.9 million for 1995. This increase in sales reflects
an increase of 2.2% in the number of pieces sold in 1996 versus 1995, and a
4.7% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994, 1995 and 1996, Barcalounger added to its 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
1995 and 1996 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 15.4% in 1996 to approximately
$136.2 million, or 90.0% of net sales as compared to $161.1 million, or 91.1%
of net sales, in 1995. Stratford Company cost of sales decreased to 92.5% of
net sales in 1996, as compared to 94.0% in 1995. Barcalounger cost of sales
decreased to 80.5% of net sales in 1996 from 80.9% of net sales in 1995.
Stratford cost of sales as a percentage of sales decreased in 1996 mainly
because of better absorbing of overhead resulting from the reduction of
overhead costs and a larger LIFO liquidation as a percent of sales in 1996.
Barcalounger cost of sales as a percentage of net sales continued to decrease
in 1996 due to the ongoing impact of the cost reduction and quality improvement
programs initiated in 1994.
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Consolidated selling, administrative and general expenses decreased
21.9% to approximately $21.4 million in 1996 from approximately $27.5 million
in 1995. The decrease was primarily due to the continued organization-wide
downsizing, where appropriate, and continued reduction of general expenses
through increased controls.
Interest expense increased 4.3% to $61.4 million from $58.9 million due
primarily to additional borrowings under the Credit Agreement.
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.
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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 net sales increased in 1995 mainly because of under absorbing
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 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 in 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.
Liquidity and Capital Resources
Capital requirements for operations during 1996 and 1995 were provided
primarily by financing channels and operating cash flows at certain operating
divisions.
Fairwood had a working capital deficit of approximately $(224.3) million
and $(190.8) million at December 31, 1996 and 1995, respectively. At December
31, 1996, Fairwood had long-term debt of approximately $453.1 million of which
$169.0 million was current. Long-term debt at December 31, 1995 was
approximately $420.7 million of which $169.0 million was current. Accrued
interest on long-term debt was $64.4 million at December 31, 1996 and $37.4
million at December 31, 1995. Accrued interest is classified as a current
liability.
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,
- 12 -
<PAGE> 13
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 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 1997.
Throughout 1996, 1995 and 1994, Consolidated Furniture funded interest
obligations related to long-term indebtedness through increased borrowings from
CSCL. Borrowings from CSCL during the years ended December 31, 1996, 1995 and
1994 were approximately $32.6 million, $32.5 million and $31.2 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 and
accrued interest at December 31, 1996, excluding the $62.9 million of
outstanding merger debentures plus $23.9 million accrued interest thereon and
$0.4 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 1998. 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 8.25% at December 31, 1996.
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.
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, 1996, $9.7
million was the amount of the advance due to the Factor.
Interest payments during the years ended December 31, 1996, 1995 and
1994 of approximately $34.4 million, $31.9 million and $52.9 million,
respectively were primarily made through increased borrowings and the issue of
additional pay-in-kind debentures. Principal payments of approximately $.2
million, $27.2 million and $25.9 million were made during the years ended
December 31, 1996, 1995 and 1994, respectively.
Annual maturities on debt for the years ended December 31, 1997 and
1998, are approximately $169.0 million and $284.2 million, respectively.
Interest payments expected to be made for the years ended December 31, 1997,
1998 and 1999 are estimated to be approximately $38.3 million, $42.2 million
and $46.4 million.
- 13 -
<PAGE> 14
On each of April 1, 1995, October 1, 1995, April 1, 1996 and October 1,
1996, 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 $60.8 million on the Fairwood
Debentures, which includes $36.9 million due to CSCL, is included in accrued
expenses on the accompanying consolidated balance sheet as of December 31,
1996. 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 $168.8 million have been
classified as current liabilities in the accompanying Consolidated Financial
Statements as of December 31, 1996.
Capital additions were approximately $.7 million, $2.4 million and $3.4
million for the years 1996, 1995 and 1994, respectively. The operating units,
Stratford and Barcalounger anticipate making capital expenditures of
approximately $.6 million during 1997, primarily for the purpose of maintaining
and upgrading their manufacturing equipment, machinery and facilities. Stratford
and Barcalounger have 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 of one of its subsidiaries,
available credit facilities under the Company's revolving credit agreement with
CSCL, and other financing arrangements. Consolidated Furniture and Furniture
Comfort intend to pursue other sources of financing to the extent available and
cost effective.
Consolidated Furniture and the operating companies are dependent upon
CSCL for funding of their 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 January 1997 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.
- 14 -
<PAGE> 15
Consolidated Furniture anticipates that funds provided by operations and
available credit facilities under the Credit Agreement will be available in
1997 to support the operations of Stratford and Barcalounger. However, as
discussed above, funds provided by available credit facilities cannot be
expected to be adequate to make transfers to Fairwood for cash interest
payments due in 1997 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.
An involuntary Chapter 7 petition 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. In response to the bankruptcy
filing, on April 22, 1996, Fairwood and certain other entities filed a
cross-motion seeking dismissal of the petition. On November 26, 1996 the motion
to dismiss was denied. On December 26, 1996 Fairwood exercised its right to
convert the pending involuntary bankruptcy case to a voluntary Chapter 11
proceeding as debtor-in-possession. Fairwood has indicated in Court papers that
it intends to propose a plan of reorganization with the bankruptcy Court at some
time in the future. The Chapter 11 case pertains only to Fairwood Corporation.
Its direct and indirect subsidiaries, including Consolidated Furniture
Corporation, Furniture Comfort Corporation, as well as their operating
divisions, Stratford and Barcalounger, are not parties to the bankruptcy, nor
are such operations under the supervision of the bankruptcy Court. These
companies will continue to operate in the normal course of business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a
part of this report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Operations for the Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareowners' Equity (Deficit) for the Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
- 15 -
<PAGE> 16
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, 1996 and 1995, 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, 1996. We also have audited the related financial statement
schedule as listed in the accompanying index for Item 14(a)2 on page 44. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, 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.
- 16 -
<PAGE> 17
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 $122 million,
including interest, through the year ended December 31, 1996. Fairwood believes
that the proposed adjustments are in error and is vigorously contesting this
matter. Under available administrative procedures, Fairwood had protested the
proposed adjustments and, through negotiations with the IRS Appeals Division,
has reached an agreement in principle for a potential settlement of the issues
in the case. A final settlement based on the foregoing is estimated to be
approximately $4.4 million and is included in Federal and state income taxes on
the accompanying audited consolidated balance sheets. The terms of the proposed
settlement are subject to final approval by the IRS and will also require the
approval of the Joint Committee on Taxation, and no assurance can be given that
such approvals will be given. 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 1996 and does not expect to be able to make such payments
in the future. Further, an involuntary Chapter 7 petition was filed on January
3, 1996 in the United States Bankruptcy Court for the Southern District of New
York against Fairwood by certain bondholders. In response to the bankruptcy
filing, on April 22, 1996, Fairwood and certain other entities filed a
cross-motion seeking dismissal of the petition. On November 26, 1996, a motion
to dismiss was denied. On December 26, 1996 Fairwood exercised its right to
convert the pending involuntary bankruptcy case to a voluntary Chapter 11
proceeding as debtor-in-possession. Fairwood has indicated in Court papers that
it intends to propose a plan of reorganization with the bankuptcy Court at some
time in the future. 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 and the financial statement schedule do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Washington, D.C.
February 21, 1997
- 17 -
<PAGE> 18
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands except share data)
<TABLE>
<CAPTION>
Assets (note 5) 1996 1995
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 429 4,985
------- -------
Accounts and notes receivable:
Trade (note 3) 23,673 29,545
Due from affiliate (note 9) 2,418 1,293
Other 648 1,542
------- -------
26,739 32,380
Less allowance for discounts and doubtful accounts 1,566 1,857
Less advances from Factor (note 3) 9,703 14,443
------- -------
15,470 16,080
------- -------
Inventories (note 1) 13,625 14,394
------- -------
Prepaid expenses and other current assets (note 4) 2,468 2,524
------- -------
Total current assets 31,992 37,983
------- -------
Property, plant and equipment, at cost:
Land 84 84
Buildings and improvements 12,591 12,591
Machinery and equipment 15,949 15,717
Leasehold improvements 2,359 2,334
Construction in progress 51 149
------- -------
31,034 30,875
Less accumulated depreciation and amortization 18,709 16,841
------- -------
12,325 14,034
------- -------
Other assets 2,260 2,125
------- -------
$ 46,577 54,142
====== ======
<CAPTION>
Liabilities and Shareowners' equity (deficit) 1996 1995
- --------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Overdraft $ 715 721
Current maturities of long-term debt (notes 5 and 10):
Senior subordinated pay-in-kind debentures 105,853 105,853
Merger debentures 62,928 62,928
Other 180 170
Accounts payable:
Trade 6,940 3,659
Other (includes claims payable of $1,860 in
1996 and $1,750 in 1995) 2,896 2,928
Accrued expenses (includes interest of $64,413 in
1996 and $37,388 in 1995) 71,095 46,820
Federal and state income taxes 5,699 5,719
------- -------
Total current liabilities 256,306 228,798
------- -------
Long-term debt, less current maturities (notes 5 and 10):
Revolving credit 203,992 171,369
Senior subordinated debentures 80,000 80,000
Capitalized lease obligations 190 370
------- -------
284,182 251,739
------- -------
Deferred Federal income taxes (note 4) 1,524 1,318
Other liabilities (note 8) 2,513 3,222
------- -------
4,037 4,540
------- -------
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) ( 539) ( 956)
Accumulated deficit (553,457) (486,027)
------- -------
(498,048) (431,035)
------- -------
Commitments and contingencies (notes 4, 5, 8, 9, 10,
12 and 13)
$ 46,577 54,142
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE> 19
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net sales (notes 9 and 11) $ 151,316 176,834 244,869
------- ------- -------
Cost of sales (note 9) 136,242 161,091 216,834
Selling, administrative
and general expenses (note 9) 21,461 27,508 36,247
------- ------- -------
157,703 188,599 253,081
------- ------- -------
Operating loss ( 6,387) ( 11,765) ( 8,212)
Interest income 198 316 498
Interest on indebtedness (notes 3 and 5) ( 61,433) ( 58,893) ( 53,852)
Gain on sale of subsidiary (note 2) - - 20,847
Other income (expenses), net 249 ( 378) 1,859
-------- -------- -------
Loss before income taxes ( 67,373) ( 70,720) ( 38,860)
Provision for income
taxes (note 4) - - 532
------- ------- -------
Net loss $ ( 67,373) ( 70,720) ( 39,392)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 19 -
<PAGE> 20
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareowners' Equity (Deficit)
Years Ended December 31, 1996, 1995 and 1994
(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, 1994 $ - 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)
Net loss ( 67,373) ( 67,373)
Adjustment to minimum
pension liability (note 8) 417 417
Preferred stock dividends ( 57) ( 57)
----- ----- ------ ------ ------- -------
Balance, December 31, 1996 - 10 55,938 ( 539) (553,457) (498,048)
===== ===== ====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-20-
<PAGE> 21
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ( 67,373) ( 70,720) ( 39,392)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,170 2,075 2,974
Gain on sale of Super Sagless assets - - ( 20,847)
Loss (gain) on sale of property, plant and equipment 59 ( 58) ( 1,636)
Current period conversions of PIK debentures - - 18,300
Changes in assets and liabilities:
Accounts receivable 5,350 6,567 3,079
Inventories 769 4,419 5,700
Prepaid expenses and other current assets 262 ( 66) 849
Accounts payable 2,098 ( 2,082) ( 1,646)
Accrued expenses 25,369 26,080 5,119
Federal and state income taxes ( 20) ( 6) 16
Other, net ( 427) ( 106) ( 69)
------- ------- -------
Cash used - operating activities ( 31,743) ( 33,897) ( 27,553)
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment ( 679) ( 2,413) ( 3,401)
Proceeds from disposition of property,
plant and equipment 159 427 3,929
Proceeds from sale of Super Sagless assets - 15,750 22,379
------- ------- --------
Cash provided (used) - investing activities ( 520) 13,764 22,907
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt 32,623 32,499 31,193
Overdraft ( 6) 721 -
Proceeds from sale of receivables to Factor, net ( 4,740) 14,443 -
Repayment of long-term debt ( 170) ( 27,160) ( 25,900)
------- ------- -------
Cash provided - financing activities 27,707 20,503 5,293
------- ------- -------
Increase (decrease) in cash and cash equivalents ( 4,556) 370 647
Cash and cash equivalents:
Beginning of period 4,985 4,615 3,968
------- ------- -------
End of period $ 429 4,985 4,615
======= ======= =======
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $ 34,406 31,866 28,835
Income taxes 20 6 506
Conversion of accrued interest to PIK debentures - - 24,091
Adjustment to minimum pension liability ( 417) ( 411) 1,367
</TABLE>
See accompanying notes to consolidated financial statements.
- 21 -
<PAGE> 22
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 a 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. LIFO liquidations
occurred during 1996 and 1995 which resulted in a reductions of cost of sales
of approximately $2.3 million for each year.
The components of inventory at December 31, are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 13,047 12,857
In process 3,028 3,532
Finished goods 5,163 8,063
------ ------
Inventories at first-in, first-out 21,238 24,452
LIFO reserve 7,613 10,058
------ ------
Inventories at LIFO $ 13,625 14,394
====== ======
</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.
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.
- 22 -
<PAGE> 23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting
amounts of existing assets and liabilities and their respective tax bases at
each year-end. Deferred tax assets and liabilities are measured using enacted
tax rates and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce the deferred tax asset to the amount
expected to be realized. Income tax expense is the amount payable for the year
and the change during the period in deferred tax assets and liabilities.
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.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Live Assets and for Long-Lived Assets to
be Disposed Of" (SFAS 121) in 1996 for purposes of determining and measuring
impairment of certain long-lived assets to be held and used in the business.
The Company reviews all long-lived assets to be held and used in the
business for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset or a group of assets may not be
recoverable. The Company considers a history of operating losses to be its
primary indicator of potential impairment. Assets are grouped and evaluated for
impairment at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets.
- 23 -
<PAGE> 24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company deems an asset to be impaired if a forecast of undiscounted
future operating cash flows directly related to the assets, including disposal
value, if any, is less than its carrying amount. If an assets is determined to
be impaired, the loss is measured as the amount by which the carrying amount of
the asset exceeds its fair value. Fair value is based on quoted market prices
in active markets, if available. If quoted market prices are not available, an
estimate of fair value is based on the best information available, including
prices for similar assets or the results of valuation techniques such as
discounting estimated future cash flows as if the decision to continue to use
the impaired asset was a new investment decision. The Company generally
measures fair value using industry knowledge, price quotes, when attainable, and
other factors relevant to determine recoverability. Considerable management
judgment is necessary to estimate the fair value. Accordingly, actual results
could vary significantly from such estimates.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform with the 1996 financial statement presentation.
(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.
(3) Trade accounts receivable
On July 25 1995, Stratford Company, an operating division of
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.
- 24 -
<PAGE> 25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Trade accounts receivable
Under the factoring agreement, advances may be made to Stratford for up
to 75 percent of the aggregate purchase price of outstanding non-recourse
receivables less the factoring commission and other fees. All advances are
repayable 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 percent or Capital
Bank's prime rate plus 1 percent. As of December 31, 1996, receivables sold
which remain to be collected approximated $14,472,000 of which approximately
$873,000 were sold with recourse. 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.
On December 10, 1996, Barcalounger Company, an operating division of
Consolidated Furniture, entered into a factoring agreement with Capital
Factors, Inc. to sell certain trade receivables on a recourse basis.
Barcalounger retains credit risk for all receivables sold under the factoring
agreement. Under the factoring agreement, advances may be made to Barcalounger
for up to 80 percent of the aggregate purchase price of "eligible receivables"
less factoring commissions and other fees and reserves. All advances are
repayable upon demand and are generally settled with the factor's collection of
the purchased receivables. Under the factoring agreement, Barcalounger pays
interest on the balance of the outstanding advances at an interest rate equal
to the greater of eight percent or one percent above the prime rate designated
by Citibank, New York. As of December 31, 1996, no advances were outstanding
under the Barcalounger factoring agreement.
(4) Income Taxes
Components of the provision for income taxes are summarized, in
thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Current:
Federal $ - - -
State and local - - 532
------ ------ ------
- - -
Deferred - - -
------ ------ ------
Total provision for income
taxes $ - - 532
====== ====== ======
</TABLE>
- 25 -
<PAGE> 26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
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,
------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Expected tax benefit computed
at U.S. rate $ (22,906) (24,045) (13,393)
Increase in valuation
allowance 24,802 26,865 15,467
State taxes, net of
Federal benefit ( 2,658) ( 2,820) ( 1,542)
Other 762 - -
------ ------ ------
Total provision for income taxes $ - - 532
====== ====== ======
</TABLE>
The tax effects of temporary differences as of December 31, 1996 and
1995, in thousands, are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 86,284 59,713
Accounts receivable 606 813
Vacation and holiday pay 315 421
Accrued expenses 3,500 4,166
Interest on merger debentures 4,320 4,904
Valuation allowance (93,501) (68,699)
------ ------
$ 1,524 1,318
====== ======
Deferred tax liabilities:
Property, plant and equipment $ 1,524 1,318
====== ======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994
was $41,834,000. The net changes in the total valuation allowance for the years
ended December 31, 1996 and 1995 were increases of $24,802,000 and $26,865,000,
respectively.
At December 31, 1996, the Company's net operating loss carryforwards of
approximately $225,603,000 expire in various years through 2011. However, the
agreement in principle with the IRS (as described below) would result in a
reduction of approximately $82,500,000 of the available net operating loss
carryforwards and may also result in the reduction of net operating loss
carryforwards generated in future years, if any.
- 26 -
<PAGE> 27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
Net current deferred income tax benefits of $1,524,000 and $1,318,000 at
December 31, 1996 and 1995, respectively, are included in other current assets
in the accompanying consolidated balance sheets.
Fairwood is contesting an Internal Revenue Service ("IRS") Agent's
report resulting from an IRS audit examination of the consolidated Federal
income tax returns of Fairwood and its subsidiaries for the years ended July
11, 1988 through December 1991. The report proposed to adjust Fairwood's
taxable income in the years in issue and in prior years to which net operating
losses of the Consolidated tax group were carried back. Fairwood estimates that
the aggregate proposed liability, if all issues were resolved unfavorably
would, together with statutory interest and state income tax, total
approximately $122 million and eliminate substantially all of the net operating
loss carryforwards. Fairwood believes that the proposed adjustments are in
error and is vigorously contesting this matter. Under available administrative
procedures, Fairwood had protested the proposed adjustments and, through
negotiations with the IRS Appeals Division, has reached an agreement in
principle for a potential settlement of the issues in the case. A final
settlement based on the foregoing is estimated to be approximately $4.4 million
and is included in Federal and state income taxes on the accompanying audited
consolidated balance sheets. The terms of the proposed settlement are subject
to final approval by the IRS and will also require the approval of the Joint
Committee on Taxation, and no assurance can be given that such approvals will
be given. However, should the outcome of the reviews in question be unfavorable
to Fairwood on one or more issues in the case then Fairwood and its
Subsidiaries may exercise their rights to litigate these issues. Fairwood and
its Subsidiaries cannot predict the ultimate outcome of these issues, nor the
impact on its financial statements.
(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 and certain covenants therein have been
waived at various times through January 1997. In September 1996, Consolidated
Furniture entered into the Fifteenth Amendment to the Credit Agreement which
changed the covenant for liens on collateral granted pursuant to that certain
- 27 -
<PAGE> 28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
Factoring Agreement dated September 1996 by and between Barcalounger and
Capital Factors, Inc. In December 1996, Consolidated Furniture entered into the
Sixteenth Amendment to the Credit Agreement which extended the maturity date to
January 2, 1998. In January 1997, Consolidated Furniture entered into the Sixth
Amendment to the Increasing Rate Senior Subordinated Debentures due January 2,
1997, which extended the due date to January 2, 1998. Proceeds from the
disposition of 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, 1996 and 1995 was as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1996
Interest
Debt 1996 1995 Rates
- ---- -------- -------- -------
<S> <C> <C> <C>
Revolving credit, due 1998 $ 203,992 171,369 9-3/4%
Senior subordinated debentures, due 1998 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 370 540 6%
------- -------
453,143 420,690
Less current maturities 168,961 168,951
------- -------
$ 284,182 251,739
======= =======
</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.
All outstanding debt and accrued interest at December 31, 1996,
excluding the $62.9 million of outstanding merger debentures plus $23.9
million accrued interest thereon and $0.4 million of capitalized lease
obligations, is payable to CSCL.
On each of April 1, 1995, October 1, 1995, April 1, 1996 and October 1,
1996, 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 $60.8 million on the Fairwood
Debentures, which includes $36.9 million due to CSCL, is included in accrued
expenses in the accompanying consolidated balance sheet as of December 31,
1996. An involuntary Chapter 7 petition was filed on January 3, 1996 in the
United States Bankruptcy Court for the Southern District of New York against
- 28 -
<PAGE> 29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
Fairwood Corporation by certain merger debenture holders. In response to the
bankruptcy filing, on April 22, 1996, Fairwood and certain other entities filed
a cross-motion seeking dismissal of the petition. On November 26, 1996, the
motion to dismiss was denied. On December 26, 1996, Fairwood exercised its
right to convert the pending involuntary bankruptcy case to a voluntary Chapter
11 proceeding as debtor-in-possession. Fairwood has indicated in Court papers
that it intends to propose a plan of reorganization with the bankruptcy Court
at some time in the future. The Chapter 11 case pertains only to Fairwood
Corporation. Its direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as their
operating divisions, Stratford and Barcalounger, are not parties to the
bankruptcy, nor are such operations under the supervision of the bankruptcy
Court. It is currently expected that these companies will continue to operate
in the normal course of business.
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995 and subsequent period interest payments 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, 1996 and 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:
$168,961,000 in 1997; and $284,182,000 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, 1996 and 1995, dividends payable
were approximately $260,000 and $200,000, 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.
- 29 -
<PAGE> 30
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
Pension expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Current service cost $ - - -
Interest cost 1,062 954 892
Return on assets (1,018) ( 808) ( 829)
----- ----- -----
$ 44 146 63
===== ===== =====
</TABLE>
Information with respect to the retirement plans for 1996 and 1995 has
been determined by consulting actuaries. The following table sets forth the
plans' funded status at December 31, 1996 and 1995, respectively, and
reconciles amounts recognized in the consolidated balance sheets at December
31, 1996 and 1995, respectively (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Actuarial present value of obligations:
Vested $ 14,349 14,251
Nonvested 75 253
------ ------
Accumulated and projected benefit obligation 14,424 14,504
Assets at fair value at December 31 12,331 11,629
------ ------
Accumulated and projected benefit obligation
in excess of assets 2,093 2,875
Unrecognized net gain (loss) ( 140) ( 631)
------ ------
Accrued pension cost at December 31 1,953 2,244
Adjustment for minimum liability 539 956
------ ------
Pension liability at December 31 $ 2,492 3,200
====== ======
Assumptions:
Interest rates for obligations 7.75% 7.00%
Long-term rate of return 9.00% 9.00%
Salary increase rate N/A N/A
</TABLE>
- 30 -
<PAGE> 31
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, 1996, 1995 and 1994, company
contributions were $140,000, $133,000 and $120,000, 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, 1996, 1995 and
1994, company matching contributions were $42,000, $38,000 and $36,000,
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, 1996, 1995 and 1994, company
contributions were $802,000, $648,000 and $1,039,000, respectively.
Prior to the sale of Super Sagless, $252,500 was incurred for the year
ended December 31, 1994 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 1996, $2,000 in 1995 and
$39,000 in 1994.
- 31 -
<PAGE> 32
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 and provides sales services and
provides new product development services to Simmons. The products are
manufactured utilizing Stratford's equipment and various plant facilities and
the other services are provided using Stratford's personnel. The term of the
Agreement renews annually, unless terminated by either party.
Under the terms of the Agreement, in 1995, Stratford was paid by Simmons
a standard predetermined labor and overhead rate for time and materials
utilized for the benefit of Simmons. In 1996, Stratford earned 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
$12,722,000 and $2,400,000 of revenue in 1996 and 1995, respectively, from the
manufacture and supply of product and was reimbursed by Simmons $600,000 and
$243,000, respectively, for new product development and $2,257,000 and
$100,000, respectively, 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 1996 and 1995
consolidated statements 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 1996 and 1995 consolidated statements of
operations. At December 31, 1996 and 1995, approximately $2,418,000 and
$1,293,000, respectively, 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).
- 32 -
<PAGE> 33
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Rental Commitments (continued)
Future minimum lease payments at December 31, 1996, under all
non-cancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Period Capital Operating
------ ------- ---------
<S> <C> <C> <C>
1997 197 1,381
1998 196 1,109
1999 - 947
2000 - 471
2001 - 26
----- ------
Total minimum lease payments 393 3,934
======
Less amounts representing interest 23
-----
Total capitalized lease
obligations 370
Less current maturities of
capitalized lease obligations 180
Capitalized lease obligations
net of current maturities $ 190
=====
</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,
--------------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Minimum Rentals
(including cancel-
able leases) $ 2,115 1,946 4,314
Sublease rentals ( 291) ( 203) ( 285)
------ ------ ------
$ 1,824 1,743 4,029
====== ====== ======
</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 13 percent, 19
percent, and 20 percent of the Company's sales in each of the years 1996, 1995
and 1994, respectively.
- 33 -
<PAGE> 34
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 $190,000. The EPA
has not rejected or accepted the offer.
There were other contingent liabilities at December 31, 1996 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, 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,
October 1, 1995, April 1, 1996 and October 1, 1996 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.
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. Certain instruments
related to the Credit Agreement have been amended at various times through
January 1997.
- 34 -
<PAGE> 35
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Liquidity (continued)
Throughout portions of 1996, 1995, and 1994, 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.
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 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, 1997.
However, cash flow from Stratford, Barcalounger and their parent
Companies Furniture Comfort and Consolidated Furniture 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 and 1996, 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 and subsequent period
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.
- 35 -
<PAGE> 36
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Liquidity (continued)
An involuntary Chapter 7 petition 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. In response to the bankruptcy
filing, on April 22, 1996, Fairwood and certain other entities filed a
cross-motion seeking dismissal of the petition. On November 26, 1996 the motion
to dismiss was denied. On December 26, 1996 Fairwood exercised its right to
convert the pending involuntary bankruptcy case to a voluntary Chapter 11
proceeding as debtor-in-possession. Fairwood has indicated in Court papers that
it intends to propose a plan of reorganization with the bankruptcy Court at
some time in the future. The Chapter 11 case pertains only to Fairwood
Corporation. Its direct and indirect subsidiaries, including Consolidated
Furniture Corporation, Furniture Comfort Corporation, as well as their
operating divisions, Stratford and Barcalounger, are not parties to the
bankruptcy, nor are such operations under the supervision of the bankruptcy
Court. It is expected that currently these companies will continue to operate
in the normal course of business.
- 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 65 1990 Chief Financial Officer, Executive
Vice President, Secretary and
Treasurer since September 1989. Mr.
Sganga has also been, 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 since September 1989.
Mr. Sganga has been a director of
Consolidated Furniture and Furniture
Comfort Corporation since February
1990.
M. Saleem Muqaddam 49 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, Furniture Comfort,
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, 1996:
<TABLE>
<CAPTION>
Date Assumed
Name Age Position Position
----- --- -------- ------------
<S> <C> <C> <C>
Gary L. Parks 41 Chief Operating Officer June 1996
Stratford Division of
Furniture Comfort
Corporation.
Stephen R. Lake 50 President February 1995
Stratford Division of
Furniture Comfort
Corporation.
Wayne T. Stephens 46 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 June 24, 1996 Mr. Parks was hired to the position of Chief
Operating Officer of Stratford, a Division of Furniture Comfort Corporation.
From 1986 to January 1995 he served in various positions with Simmons
Upholstered Furniture Inc. including plant manager, division manager and
finally as Vice President of manufacturing. From January 1995 to May 1996 he
was President of Rosalco.
Effective May 31, 1996 Mr. Lake resigned as President of Furniture
Comfort Corporation and President and Chief Executive Officer of Stratford.
Prior to his resignation he had been employed by the Company since February
1995 in his present position. 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 Chier Executive Officer of Super Sagless Corporation.
- 38 -
<PAGE> 39
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 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
Barcalounger.
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> <C>
John B. Sganga 1996 $150,000 $ 25,000 $ 9,113 (1)
Executive VP 1995 150,000 25,000 9,803 (1)
and CFO 1994 150,000 - 7,766 (1)
Gary L. Parks 1996 96,058 9,250 2,290 (2)
Stephen R. Lake 1996 135,000 - -
President 1995 250,000 100,000 552 (5)
Stratford 1994 213,686 (3) 1,147,721 (4) 51,849 (5)
Wayne T. Stephens 1996 185,000 96,885 3,661 (6)
President & CEO 1995 160,000 108,800 2,788 (6)
Barcalounger 1994 160,000 76,800 2,150 (6)
</TABLE>
(1) 1996 amount represents company contributions to the investment plan of
$1,750 and $7,363 for automobile allowance. 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.
(2) 1996 amount represents $2,290 for the value of the use of a company
vehicle.
(3) 1994 includes Super Sagless base salary of $107,917.
(4) 1994 amount includes Super Sagless special bonus of $1,047,721.
- 39 -
<PAGE> 40
(5) 1995 amount represents the value for the use of a company car. 1994 amount
represents distribution from Super Sagless Retirement Plan of $51,849.
(6) 1996 amount represents company contributions to the investment plan of
$2,203 and $1,458 for the value of the use of a company vehicle. 1995
amount represents company contributions to the investment plan of $1,776
and $1,012 for the value of the use of a company vehicle. 1994 amount
represents company contributions to the investment plan of $800 and $1,350
for the value of the use of a company vehicle.
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.
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 1996, 1995 and 1994, such contributions for Mr. Sganga were
$1,750, $1,500 and $1,500, respectively. 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 $2,203 and $1,776 in 1996 and 1995, respectively.
- 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
are 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 1996 Plan Year were $216,119,
including awards of $96,885 for Mr. Stephens and $9,250 for Mr. Parks. Total
awards made for the 1995 Plan Year were $399,372, including awards of $108,800
for Mr. Stephens and $100,000 for Mr. Lake. Total awards made for the 1994 Plan
Year were $519,000, including awards of $76,800 for Mr. Stephens and $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 1996.
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, 1997, 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.
<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, 1997, 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, 1996 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 1996 and at December 31, 1996, the largest aggregate amount of
indebtedness outstanding that was payable to CSCL was approximately $389.8
million. See Note 5, Long-term Debt, in the Notes to Consolidated Financial
Statements set forth in Item 8. During 1996 the Company borrowed approximately
$32.6 million from CSCL and made no payments to CSCL. During 1997 it is
anticipated that approximately $36.5 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 $16.4 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. 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).
- 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:
Independent Auditors' Report................................... 16-17
Consolidated Balance Sheets at December 31, 1996 and 1995...... 18
Consolidated Statements of Operations for the Years ended
December 31, 1996, 1995 and 1994 ............................ 19
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 1996, 1995 and 1994 ........ 20
Consolidated Statements of Cash Flows for the Years ended
December 31, 1996, 1995 and 1994 ............................. 21
Notes to Consolidated Financial Statements .................... 22-36
2. Financial Statement Schedule
For the three years ended December 31, 1996:
Schedule II--Valuation and Qualifying Accounts
and Reserves................................... 49
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 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) 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).
(4.5) 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).
(4.6) 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
RevingtonCorporation and Citicorp Capital Investors Ltd. (the
"Credit Agreement"), (incorporated by reference to Exhibit
4.8 of the Registrant's annual report on Form 10-K for the
year ended December 31, 1989 (the "1989 Form 10-K")).
(4.7) Amendment, dated December 15, 1989, to the Credit Agreement,
(incorporated by reference to Exhibit 4.9 of the 1989 Form
10-K).
(4.8) Amendment, dated March 13, 1990, to the Credit Agreement,
(incorporated by reference to Exhibit 4.10 of the 1989 Form
10-K).
- 45 -
<PAGE> 46
(4.9) 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")).
(4.10) 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).
(4.11) Agreement and Waiver, dated August 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.13 of the
1990 Form 10-K).
(4.12) Agreement and Waiver, dated September 5, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.14 of the
1990 Form 10-K).
(4.13) Agreement and Waiver, dated September 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.16 of the
1990 Form 10-K).
(4.14) 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).
(4.15) 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).
(4.16) 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).
(4.17) 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).
(4.18) Amendment, dated March 30, 1990, to the Senior Subordinated
Debentures, (incorporated by reference to Exhibit 4.14 of the
1989 Form 10-K).
(4.19) 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).
(4.20) 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).
(4.21) Waiver, dated as of June 29, 1991, to the Credit Agreement,
(incorporated by reference to Exhibit 4.23 of the
Registrant's annual report on Form 10-K for the year ended
December 31,1991 the "1991 Form 10-K")).
(4.22) Waiver, dated as of October 31, 1991, to the Credit
Agreement, (incorporated by reference to Exhibit 4.24 of the
1991 Form 10-K).
(4.23) 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).
- 46 -
<PAGE> 47
(4.24) 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).
(4.25) 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).
(4.26) 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")).
(4.27) 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).
(4.28) 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")).
(4.29) 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).
(4.30) Tenth Amendment, dated as of March 22, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.33 of the
1992 Form 10-K).
(4.31) 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")).
(4.32) Eleventh Amendment, dated as of March 25, 1994, to Credit
Agreement, (incorporated by reference to Exhibit 4.35 of the
1993 Form 10-K).
(4.33) 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).
(4.34) Factoring Agreement, dated as of July 25, 1995, between
Capital Factors, Inc. and Stratford Company, a division of
Furniture Comfort Corporation, (incorporated by reference to
Exhibit 4.37 of the 1995 Form 10-K).
(4.35) Debt Subordination Agreement, dated as of July, 1995, between
Capital Factors, Inc. and Consolidated Furniture Corporation,
formerly Mohasco Corporation, (incorporated by reference to
Exhibit 4.38 of the 1995 Form 10-K).
(4.36) Lien Subordination Agreement, dated as of July 25, 1995,
between Capital Factors, Inc. and Court Square Capital
Limited, (incorporated by reference to Exhibit 4.39 of the
1995 Form 10-K).
(4.37) Twelfth Amendment, dated as of November 30, 1995, to Credit
Agreement, (incorporated by reference to Exhibit 4.40 of the
1995 Form 10-K).
- 47 -
<PAGE> 48
(4.38) Fifth Amendment, dated as of January 2, 1996, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.41 of the Registrant's first quarter report on Form
10-Q for the quarter ended March 30, 1996 (the "1996 First
Quarter 10- Q")).
(4.39) Thirteenth Amendment, dated as of January 13, 1996, to Credit
Agreement, (incorporated by reference to Exhibit 4.42 of the
Registrant's first quarter report on Form 10-Q for the
quarter ended March 30, 1996 (the "1996 First Quarter 10-
Q")).
(4.40) Fourteenth Amendment, dated as of March 25, 1996, to Credit
Agreement, (incorporated by reference to Exhibit 4.43 of the
Registrant's first quarter report on Form 10-Q for the
quarter ended March 30, 1996 (the "1996 First Quarter 10-
Q")).
(4.41) Fifteenth Amendment, dated as of September 30, 1996, to
Credit Agreement.
(4.42) Sixteenth Amendment, dated as of December 31, 1996, to Credit
Agreement.
(4.43) Sixth Amendment, dated as of January 2, 1997, to the Senior
Subordinated Debentures.
(4.44) Factoring Agreement, dated as of December 10, 1996, between
Capital Factors, Inc. and Barcalounger Company, a division of
Furniture Comfort Corporation.
(4.45) Debt Subordination Agreement, dated as of December 10, 1996,
between Capital Factors, Inc. and Consolidated Furniture
Corporation, formerly Mohasco Corporation.
(4.46) Lien Subordination Agreement, dated as of December 10, 1996,
between Capital Factors, Inc. and Court Square Capital
Limited.
(10.1) Mohasco Executive Retirement Plan, (incorporated by reference
to Exhibit 10.5 of the 1990 Form 10-K).
(10.2) Mohasco Corporation Executive Incentive Plan, (incorporated
by reference to Exhibit 10.6 of the 1990 Form 10-K).
(10.3) Amendment, dated December 31, 1991, to the Mohasco Executive
Retirement Plan, (incorporated by reference to Exhibit 10.6
of the 1991 Form 10-K).
(10.4) 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).
(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 three months ended December
31, 1996.
- 48 -
<PAGE> 49
Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1996, 1995 and 1994
(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:
1996
----
Allowance for discounts $ 246 603 770 79
Allowance for doubtful
accounts 1,611 533 657 1,487
Allowance for estimated
loss on claims - - - -
------ ------ ------ -----
$ 1,857 1,136 1,427 1,566
====== ====== ====== ======
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
====== ====== ====== ======
</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, 1997
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1997 by the following persons on
behalf of the Registrant and in the capacities indicated.
Title
-----
/s/ John B. Sganga Director and Chief
- ------------------------- Financial Officer,
John B. Sganga 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, 1997 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 4.41
[Execution Version]
FIFTEENTH AMENDMENT
TO CREDIT AGREEMENT
THIS FIFTEENTH AMENDMENT TO CREDIT AGREEMENT, dated as of
September __, 1996 (the "Fifteenth 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 Fifteenth 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 Fifteenth 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 - Covenants.
The Credit Agreement is amended by deleting the period at the end of
Section 4.10 Liens on Collateral and replacing it with the following:
"or
(e) liens granted pursuant to that certain "Factoring
Agreement dated July 25, 1995 by and between
Stratford\Avon and Capital Factors, Inc. in respect
of accounts, contract rights, and all other
obligations to Borrowers for the payment of money
arising out of the sale of goods, the proceeds
thereof, all security and guarantees therefor and all
of the rights to the goods and property represented
thereby; or
<PAGE> 2
(f) liens granted pursuant to that certain Factoring
Agreement dated September __, 1996 by and between
Barcalounger and Capital Factors, Inc. in respect of
accounts, contract rights and all other obligations
to Barcalounger for the payment of money arising out
of the sale of goods, the proceeds thereof, all
security and guarantees therefor and all of the
rights to the goods and property represented thereby.
The Credit Agreement is amended by deleting Section 4.11 Indebtedness
in its entirety and replacing it with the following:
SECTION 4.11 Indebtedness. No Borrower will or
will permit any of its Subsidiaries to create, incur, suffer
to exist or make any prepayment upon, any Indebtedness other
than (a) Indebtedness which is secured by liens or security
interests permitted under clauses (a), (b) or (c) of Section
4.10, (b) Indebtedness described on Exhibit 3.3(b), (c)
Indebtedness which is secured by liens or security interests
permitted by clause (d) of Section 4.10, (d) Indebtedness
which is secured by liens or security interests permitted by
clause (e) of Section 4.10, and (e) Indebtedness arising
pursuant to the Factoring Agreement dated September __, 1996
by and between Barcalounger and Capital Factors, Inc.;
provided, that Lender shall have first provided written
authorization to Barcalounger prior to Barcalounger making any
request for, or receiving any, advances under such agreement
Section 2 - Conditions to Effectiveness. This Fifteenth
Amendment shall be effective when, and only when, the Lender shall have
received counterparts of this Fifteenth Amendment executed by each of the
Borrowers and copies of such approvals, opinions or documents as the Lender may
reasonably request.
Section 3 - Representations and Warranties. The
Borrowers hereby jointly and severally represent and warrant to the Lender
that:
(a) the execution, delivery and performance by
each of the Borrowers of this Fifteenth Amendment (i) are within each of the
Borrower's respective corporate powers, (ii) have been duly authorized by all
necessary corporate actions of each of the Borrowers and (iii) do not and will
not (X) violate any requirement of law, (Y) 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 (Z) require the consent or approval of, authorization by or
notice to or filing or
<PAGE> 3
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; and
(b) that, after giving effect to this Fifteenth
Amendment, all the representations and warranties of the Borrowers contained in
the Credit Agreement shall be true and correct in all material respects.
Section 4 - 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 Fifteenth 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 Fifteenth Amendment shall be construed
in connection with and as part of the Credit Agreement, and all terms,
conditions and covenants contained in the Credit Agreement except as herein
modified shall remain in full force and effect.
(d) The Lender shall have received a copy of the
Factoring Agreement dated September __, 1996 by and between Barcalounger and
Capital Factors, Inc. in form and substance satisfactory to the Lender.
(e) Any and all notices, requests, certificates
and other instruments executed and delivered after the execution and delivery
of this Fifteenth Amendment may refer to the "Credit Agreement dated as of
September 22, 1989" without making specific reference to the Fifteenth
Amendment, but nevertheless all such references shall be deemed to include this
Fifteenth Amendment unless the context shall otherwise require.
(f) This Fifteenth Amendment shall be governed
by, and construed in accordance with, the law of the State of New York.
[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> 1
EXHIBIT 4.42
[Execution Version]
SIXTEENTH AMENDMENT
TO CREDIT AGREEMENT
THIS SIXTEENTH AMENDMENT TO CREDIT AGREEMENT, dated as of
December __, 1996 (the "Sixteenth 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 Sixteenth 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 Sixteenth 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 - Covenants.
Section 4.1 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
"SECTION 4.1 Financial Covenants of Borrowers.
Borrowers shall not at any time:
4.1.1 Current Ratio. Permit the
ratio of Consolidated Current Assets to Consolidated Current
Liabilities to be less than 0.075 to 1 on the last day of any
fiscal quarter.
4.1.2 [Intentionally Omitted].
4.1.3 [Intentionally Omitted].
4.1.4 [Intentionally Omitted].
<PAGE> 2
4.1.5 Consolidated Net Worth. Permit
Consolidated Net Worth to be less than: (i) $(285,000,000) on
the last day of any fiscal quarter on or prior to March 31,
1997, (ii) $(290,000,000) on the last day of the fiscal
quarter ended June 30, 1997, (iii) $(300,000,000) on the last
day of the fiscal quarter ended September 30, 1997, and (iv)
$(310,000,000) on the last day of the fiscal quarter ended
December 31, 1997 and each fiscal quarter thereafter.
4.1.6 Working Capital. Permit
Working Capital to be less than: (i) $(290,000,000) on the
last day of any fiscal quarter on or prior to March 31, 1997,
(ii) $(295,000,000) on the last day of the fiscal quarter
ended June 30, 1997, (iii) $(300,000,000) on the last day of
the fiscal quarter ended September 30, 1997, and (iv)
$(308,000,000) on the last day of the fiscal quarter ended
December 31, 1997 and each fiscal quarter thereafter.
4.1.7 Total Debt. Permit
Consolidated Indebtedness to exceed (i) $300,000,000 at any
time on or prior to June 30, 1997, (ii) $315,000,000 at any
time during the period from July 1, 1997 to September 30, 1997
and (iii) $320,000,000 at any time after September 30, 1997.
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,
1998, when the Revolving Credit Note shall be due and payable
in full.
Section 3 - Conditions to Effectiveness. This Sixteenth
Amendment shall be effective when, and only when, the Lender shall have
received counterparts of this Sixteenth 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:
(a) the execution, delivery and performance by
each of the Borrowers of this Sixteenth Amendment (i) are within
<PAGE> 3
each of the Borrower's respective corporate powers, (ii) have been duly
authorized by all necessary corporate actions of each of the Borrowers and
(iii) do not and will not (X) violate any requirement of law, (Y) 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 (Z) 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; and
(b) that, after giving effect to this Sixteenth
Amendment, all the representations and warranties of the Borrowers contained in
the Credit Agreement shall be true and correct in all material respects.
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 Sixteenth 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 Sixteenth Amendment shall be construed
in connection with and as part of the Credit Agreement, and all terms,
conditions and covenants contained in the Credit Agreement except as herein
modified shall remain in full force and effect.
(d) Any and all notices, requests, certificates
and other instruments executed and delivered after the execution and delivery
of this Sixteenth Amendment may refer to the "Credit Agreement dated as of
September 22, 1989" without making specific reference to the Sixteenth
Amendment, but nevertheless all such references shall be deemed to include this
Sixteenth Amendment unless the context shall otherwise require.
(e) This Sixteenth Amendment shall be governed
by, and construed in accordance with, the law of the State of New York.
[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> 1
EXHIBIT 4.43
SIXTH AMENDMENT
SIXTH AMENDMENT, dated as of January 2, 1997, to the
Increasing Rate Senior Subordinated Debentures due January 3, 1996 of
Consolidated Furniture Corporation (formerly known as Mohasco Corporation) (the
"Borrower") issued in the original principal amount of $80,000,000 to Court
Square Capital Limited (formerly known as Citicorp Capital Investors Ltd.) (the
"Lender") dated as of September 22, 1989, as amended (the "Security") and the
indenture attached as Exhibit A thereto (the "Indenture"). Capitalized terms
used herein without definition shall have the same meaning as ascribed to such
terms in the Security and the Indenture.
Background
Pursuant to the terms of the Security and Section 9.2 of the
Indenture, the Borrower and the trustee under the Indenture may effect
amendments to the Security and the Indenture with the consent of all
Securityholders. Pursuant to the terms of the Security and Section 11.16 of
the Indenture, if a trustee has not been appointed under the Indenture, the
Borrower, with the consent of all Securityholders, may effect such amendments
without the consent of a trustee. The Lender is the sole Securityholder and no
trustee has been appointed under the Indenture. The parties have agreed to
amend the Security and the Indenture to extend the maturity date of the
Security from January 2, 1997 to January 2, 1998.
Terms
In consideration of the foregoing premises and the agreements
and covenants contained herein, and intending to be legally bound, the parties
hereto agree as follows:
Section 1. Amendments.
1.1 The Security shall be amended as set forth in
Endorsement No. 5 thereto, which Endorsement shall be in the form of Annex A
hereto. The Lender is hereby authorized to attach to its Security such
Endorsement No. 5 executed by a duly authorized officer of the Borrower, and to
insert on the face of its Security the following legend:
"THIS SECURITY SHALL BE DEEMED TO INCLUDE
ENDORSEMENT NO. 5 DATED AS OF JANUARY 2, 1997
WHICH IS ATTACHED HERETO."
1.2 The Indenture is hereby amended as follows:
<PAGE> 2
(a) The date "January 2, 1997" is
deleted from the fourth line of the cover page of the Indenture and the date
"January 2, 1998" is inserted in lieu thereof.
(b) The date "January 2, 1997" is
deleted from the second paragraph on page 1 of the Indenture and the date
"January 2, 1998" is inserted in lieu thereof.
(c) The date "January 2, 1997" is
deleted from the definition of "Securities" in Section 1.1 of the Indenture and
the date "January 2, 1998" is inserted in lieu thereof.
Section 2. Conditions to Effectiveness. This Sixth
Amendment shall become effective when the Endorsement No. 5 in the form of
Annex A hereto is executed on behalf of the parties hereto and delivered to the
Lender.
Section 3. Effect of Amendment on Security and Indenture.
3.1. Except as specifically amended above, the
Security and the Indenture shall remain in full force and effect and hereby are
ratified and confirmed. As used in the Security and the Indenture, the terms
"Security" or "Indenture", "this Security" or "this Indenture", "herein",
"hereinafter", "hereunder", "hereto", and words of similar import shall, unless
the context requires otherwise, mean the Security and the Indenture as amended
by this Sixth Amendment.
3.2 The execution, delivery and effectiveness of
this Sixth Amendment shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of the Lender under the Security or the
Indenture.
Section 4. Execution and Counterparts. This Sixth
Amendment may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
Section 5. Governing Law. This Sixth Amendment shall be
governed by the laws of the State of New York applicable to contracts to be
performed wholly in the State of New York, without regard to the conflicts of
laws rules thereof.
Section 6. Headings. Section headings in this Sixth
Amendment are included herein for convenience of reference
-2-
<PAGE> 3
only and shall not constitute a part of this Sixth Amendment for any other
purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Sixth
Amendment to be duly executed by their respective officers as of the date first
above written.
CONSOLIDATED FURNITURE CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Executive Vice President,
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Chief Financial Officer,
Treasurer and Controller
COURT SQUARE CAPITAL LIMITED
By: /s/ M. SALEEM MUQADDAM
-----------------------------
M. Saleem Muqaddam
Vice President
- 3 -
<PAGE> 4
ANNEX A
FORM OF ENDORSEMENT NO. 5
CONSOLIDATED FURNITURE CORPORATION and COURT SQUARE CAPITAL
LIMITED hereby agree that the promissory note to which this Endorsement No. 5
is attached (the "Debentures") shall be and hereby is amended as follows:
A. Delete the words "January 2, 1997" appearing on the
front of the Debentures and substitute therefor the words "January 2, 1998."
B. Delete the words "due January 2, 1997" appearing on
the first page of the back of the Debentures and substitute therefor the words
"due January 2, 1998."
CONSOLIDATED FURNITURE CORPORATION
Dated: January 2, 1997 By: /s/ JOHN B. SGANGA
-------------------------------
John B. Sganga
Executive Vice President
Dated: January 2, 1997 By: /s/ JOHN B. SGANGA
-------------------------------
John B. Sganga
Chief Financial Officer,
Treasurer and Controller
COURT SQUARE CAPITAL LIMITED
Dated: January 2, 1997 By: /s/ M. SALEEM MUQADDAM
-------------------------------
M. Saleem Muqaddam
Vice President
A-1
<PAGE> 1
EXHIBIT 4.44
CAPITAL FACTORS, INC.
FACTORING AGREEMENT
December 10, 1996
From: The Barcalounger Company, a division of
Furniture Comfort Corporation
1450 Atlantic Avenue
P.O. Box 6157
Rocky Mount, NC 27802
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.
Simultaneous and subsequent to your first advance to us hereunder and upon each
sale of goods or rendering of services thereafter, we shall execute and deliver
to you such confirmatory assignments of our Receivables as you may require, in
form and manner satisfactory to you. In the event that you declare a material
breach or default of this Agreement and we fail to pay to you all outstanding
Obligations within five business days of such declaration or upon notice of the
termination of this Agreement and in the event we fail to pay to you all
outstanding Obligations within five business days of such termination, you and
your designee may, at any time, notify our customers or any account debtor that
the Receivables have been assigned to you and that you have a security interest
therein, collect such Receivables directly, and charge the collection costs and
expenses to us as an Obligation (as hereafter defined) hereunder, but, unless
and until you do so or give us other written instructions, we shall be entitled
to collect the Receivables and, upon receipt, provided that there is any
Obligation outstanding and due you under this Agreement, we shall immediately
deliver to you the proceeds of any and all Receivables together with a fully
completed collection report in form satisfactory to you. We agree and
acknowledge that all payments received by us in connection with the Receivables
and any other collateral pledged to you hereunder shall be held in trust for
you by us as your trustee until paid or remitted to you. We agree and
acknowledge that all payments received by us in connection with the Receivables
and any other collateral pledged to you hereunder shall be held in trust for
you by us as your trustee until paid or remitted to you. At any time you are
directly engaging in collection of any Receivables, we shall provide you 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. Unless you are directly
collecting Receivables, all collections will flow into our Post Office Box
located at Charlotte, North Carolina with the following mailing address:
The Barcalounger Company
P.O. Box 1070
Charlotte, NC 28201-1070
During the term of this Agreement, and as long as any Obligations remain due
and outstanding to you, we shall not change the mailing address of said Post
Office Box unless we have provided you with at least thirty (30) days' prior
written notice of said change along with the location and mailing address of
such location.
We shall make appropriate notations upon our books and records indicating the
sale and assignment of our Receivables to you. 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 a security interest granted to Court Square Capital
Limited and its successors and assigns which security interest in the
Receivables shall be inferior and subordinate to your security interest in the
Receivables pursuant to a Subordination Agreement to be executed between you
and
<PAGE> 2
-2-
Court Square Capital Limited and acknowledged by us. If we are or become
engaged in finishing or improving goods, we agree, to assert promptly, at our
expense and upon your demand, any lien rights provided by law on goods in our
possession. We will remit to you the proceeds of sale of such goods to satisfy
the amounts owed to you by the owner of the finished goods."
2. CLIENT RISK RECEIVABLES: Any sale of goods or rendering of services
by us, 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).
3. 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 Receivables, 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, or unless you shall have advised
us that discounts, credit, allowance or deductions with respect to any
Receivable cannot be granted without your prior written approval, no discount,
credit, allowance, or deduction with respect to any Receivable shall be granted,
or approved, by us in excess of $5,000.00 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 discretion
reasonably exercised, 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
upon collection. Monies shall be deemed to have been collected on the date of
receipt thereof by you plus three ( 3 ) business 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 3(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 eighty percent (80%) of the aggregate purchase price of the "Eligible
Receivables" (as defined in subparagraph (e) below) outstanding at the time any
such advance is made, less (i) any such Receivables that are in dispute and (ii)
any fees, actual or estimated, that are chargeable to our reserve account
pursuant to this Agreement; provided, however, you shall have no obligation to
consider a request from us for an advance under this subparagraph (d) whenever
the aggregate amount of the then outstanding advances made pursuant to this
subparagraph (d) exceeds or would exceed as a result of the requested advance,
Five Million and 00/100 Dollars ($5,000,000.00) to us. 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 (f) below from the
date such advance is made until the date you receive repayment, in full of such
advance.
(e) The term "Eligible Receivables" means all of those
Receivables (i) which have been validly assigned to you, (ii) strictly comply
with all of our warranties and representations to you, (iii) contain payment
terms of net sixty (60) days, or less from the date of invoice (unless otherwise
pre-approved by one of your duly authorized officers in writing), and (iv) are
not past due more than sixty (60) days from the invoice due date; provided,
however, that Eligible Receivables shall not include the following: (a)
Receivables with respect to which the account debtor is one of our officers,
employees or
<PAGE> 3
-3-
agents; (b) Receivables with respect to which services or goods are placed on
consignment, guaranteed sale, or other terms by reason of which the payment by
the account debtor may be conditional; (c) Receivables with respect to which the
account debtor is not located in the United States; (d) Receivables with respect
to which the account debtor is the United States or any department, agency or
instrumentality of the United States; provided, however, that a Receivable shall
not be deemed ineligible by reason of this clause (e) if we have completed all
of the steps necessary to comply with the Federal Assignment of Claims Act (31
U.S.C. Section 3727) with respect to such Receivables; (f) Receivables with
respect to which the account debtor is any state of the United States or any
city, town, municipality, county or division thereof; (g) Receivables with
respect to which the account debtor is one of our subsidiaries, is related to
us, and under common control with us, or has common officers or directors with
us; (h) Receivables with respect to which we are or become liable to the account
debtor for goods sold or services rendered by the account debtor; (i) that
portion of the Receivables owing by an account debtor which exceeds fifty
percent (50%) of all Eligible Receivables; (j) all of the Receivables owed by an
account debtor who is the subject of an insolvency proceeding (including, but
not limited to, proceedings under the United States Bankruptcy Code, assignments
for the benefit of creditors, formal or informal moratoriums, compositions or
extensions generally with its creditors); (k) all of the Receivables owed by any
account debtor where fifty percent (50%) or more of all of the Receivables owed
by that account debtor are past due more than sixty (60) days from the due date
of the invoice; and (l) Receivables for which the services have not yet been
rendered to the account debtor or the goods sold have not yet been delivered to
the account debtor (commonly referred to as "pre-billed accounts").
(f) 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 (including any advance made pursuant to subparagraph 3(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 eight percent (8%) per anum or one percent ( 1%)
above the rate of interest designated by Citibank, New York 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 Citibank, New York 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
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.
4. FACTORING COMMISSIONS.
(a) For your services hereunder, we shall pay and you shall be
entitled to receive a factoring commission equal to point thirty percent (.30%)
of the gross Invoice Amount of each Receivable, which commission shall be due
and payable to you on the date you purchase such Receivable. Factoring
commissions shall be chargeable to our account with you.
(b) The minimum aggregate factoring commissions payable under
this Agreement for each contract year hereof shall be Sixty Thousand Dollars
($60,000.00) per annum which shall be payable at the rate of $5,000.00 per month
and chargeable to our account with you on a monthly basis. To the extent of any
deficiency (after giving effect to commissions payable under the foregoing
<PAGE> 4
-4-
subparagraphs), the difference between the minimum and the amount already
charged shall be chargeable to our account with you.
5. STATEMENT OF ACCOUNT: Once each month, subsequent to our having
provided you with a complete collection report in form satisfactory to you, 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) 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 3(f) 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.
6. 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 of 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 kind and character; (iii)
subject to the terms and conditions of paragraph 3(a) of this Agreement, 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; (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; (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 insurance or that have been
vacated, stayed, bonded, paid or discharged during the term of this Agreement.
7. 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 (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
<PAGE> 5
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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. In the event you declare a material default
or breach of this Agreement and we fail to pay to you all outstanding
Obligations within five business days of such declaration or upon notice of the
termination of this Agreement and our failure to pay to you all outstanding
Obligations within five business days of such notice, we hereby appoint you as
our attorney-in-fact and authorize you to sign any document or agreement which
would entitle you to change our mail delivery address with any postal authority
and we shall promptly execute any documents you may reasonably request of us to
effect same. 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.
8. 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, material 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 4(b) 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.
9. MISCELLANEOUS:
(a) Subsequent to your first advance to us hereunder, while any
Obligations due you hereunder remain outstanding and upon notice from you to us,
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)
<PAGE> 6
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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) Subsequent to your first advance to us hereunder and while
any Obligations due you hereunder remain outstanding, 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, 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.
The parties 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 them to execute this Agreement. Furthermore,
the parties acknowledge that if any such promise or representation has been
made, neither party 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 you unless in writing and signed by the
applicable party. The parties mutually agree that TRIAL BY JURY IS HEREBY WAIVED
by either party 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 my party hereby consents 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 such party shall have previously notified 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
<PAGE> 7
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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 their 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.
THE BARCALOUNGER COMPANY, A DIVISION OF
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------
Name/Title John B. Sanga
Vice President ,
The foregoing is acknowledged, accepted and agreed to:
CAPITAL FACTORS, INC.
By:
-----------------------------
John W. Kiefer, President
<PAGE> 8
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CORPORATE RESOLUTION
WHEREAS, the company will benefit from the services of a factor in
connection with the handling of its accounts receivable; and
WHEREAS, the Board has considered a proposed Factoring Agreement with
CAPITAL FACTORS, INC., a Florida corporation, under which CAPITAL FACTORS, INC.
would act as the Company's exclusive factor;
NOW, THEREFORE, BE IT AND IT IS HEREBY RESOLVED THAT:
The proposed Factoring Agreement is approved, and appropriate officers
of the company are authorized and directed to execute and deliver a Factoring
Agreement with CAPITAL FACTORS, INC. in the form or substantially the form
outlined herein, and to do and perform all things contemplated herein on behalf
of this company.
As of the date of this Agreement, the following are the
officers/employees authorized to act on behalf of the company:
/s/ Wayne Stephens
- ---------------------------------------
Wayne Stephens, President
/s/ John B. Sganga
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John B. Sganga, Vice President,
Secretary and Treasurer
/s/ Phillip L.. Chamberlain
- ---------------------------------------
Phillip L.. Chamberlain, Vice President
- ---------------------------------------
Name/Title
- ---------------------------------------
Name/Title
IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing
Resolution was duly adopted at a meeting of the Board of Directors held on
September 6, 1996, at which a quorum was present, and that said Resolution has
not been modified, amended, or rescinded and remains in full force and effect as
of the date set forth below.
THE BARCALOUNGER COMPANY, A DIVISION OF
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------
Name John B. Sganga
Its: Title Vice President
ATTEST:
/s/ JOHN B. SGANGA (SEAL)
- -----------------------
Secretary
<PAGE> 1
EXHIBIT 4.45
DEBT SUBORDINATION AGREEMENT
THIS DEBT SUBORDINATION AGREEMENT ("Agreement"), made and entered into this
10th day of December, 1996, 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, The Barcalounger 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:
<PAGE> 2
"Agreement" - this Subordination Agreement, as the same may be
modified, amended or supplemented from time to time pursuant to Section 21
hereof.
"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" - shall have the meaning ascribed to such term in
Section 3 of this Agreement.
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<PAGE> 3
"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), 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
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<PAGE> 4
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.
(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, payments of
Subordinated Debt in any calendar year up to an aggregate amount not to exceed
$5,000,000 ("Permitted Payments"), if and only to the extent that, immediately
before and after giving effect to any such Permitted Payment, no Default or
Event of Default or Overadvance Condition shall exist.
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
reorganization or readjustment that are equity securities
-4-
<PAGE> 5
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 rights of the Senior Under
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.
-5-
<PAGE> 6
As between the Borrower and the Subordinated Lender, a distribution applied to
the payment of Senior Debt in 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 rights 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 rights 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 rights 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) A11 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
-6-
<PAGE> 7
waives all notice of acceptance by the Senior Lender of the subordination and
other provisions of this 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
-7-
<PAGE> 8
attorney's fees, which the Senior Leader may incur in enforcing any of the
rights under this Agreement against Subordinate Lender
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.
-8-
<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: [SIG]
------------------------------------------------
Title: Executive Vice President and
------------------------------------------
Chief Financial Officer
CAPITAL FACTORS, INC.
By: [SIG]
------------------------------------------------
Title: Vice President
------------------------------------------
-9-
<PAGE> 10
ACKNOWLEDGMENT AND AGREEMENT
OF THE BORROWER
The undersigned, THE BARCALOUNGER 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.
THE BARCALOUNGER COMPANY, a division
of Furniture Comfort Corporation
(f/k/a Mohasco Upholstered
Furniture Corporation)
By: [SIG]
------------------------------------------
Title: Vice President
------------------------------------
-10-
<PAGE> 11
ACKNOWLEDGEMENT 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: [SIG]
------------------------------------------
Title: VP
------------------------------------
-11-
<PAGE> 1
Exhibit 4.46
LIEN SUBORDINATION AGREEMENT
THIS LIEN SUBORDINATION AGREEMENT ("Agreement"), made and entered into this
10th day of December, 1996, 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 The
Barcalounger 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
-2-
<PAGE> 3
(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 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
Attn: President
Facsimile No. 305-497-3136
-3-
<PAGE> 4
(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
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 rights 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.
-4-
<PAGE> 5
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: [SIG]
---------------------------------------
Title: Vice President
---------------------------------
COURT SQUARE CAPITAL LIMITED (f/k/a
Citicorp Capital Investors Ltd.)
By: [SIG]
---------------------------------------
Title: VP
---------------------------------
-5-
<PAGE> 6
ACKNOWLEDGMENT AND AGREEMENT
OF BORROWER
The undersigned, The Barcalounger 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.
THE BARCALOUNGER COMPANY, a division
of Furniture Comfort Corporation
(f/k/a Mohasco Upholstered
Furniture Corporation)
By: [SIG]
-------------------------------
Title: Vice President
-------------------------
-6-
<PAGE> 1
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
State of
Incorporation
or other
jurisdiction
in which
Name organized
---- ---------
Consolidated Furniture Corporation New York
Furniture Comfort Corporation Delaware
SSC Corporation Delaware
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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 429
<SECURITIES> 0
<RECEIVABLES> 17,036
<ALLOWANCES> 1,566
<INVENTORY> 13,625
<CURRENT-ASSETS> 31,992
<PP&E> 31,034
<DEPRECIATION> 18,709
<TOTAL-ASSETS> 46,577
<CURRENT-LIABILITIES> 256,306
<BONDS> 284,182
0
100
<COMMON> 55,948
<OTHER-SE> (553,996)
<TOTAL-LIABILITY-AND-EQUITY> 46,577
<SALES> 151,316
<TOTAL-REVENUES> 151,316
<CGS> 136,242
<TOTAL-COSTS> 157,703
<OTHER-EXPENSES> (447)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,433
<INCOME-PRETAX> (67,373)
<INCOME-TAX> 0
<INCOME-CONTINUING> (67,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,373)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
