<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
----------------------------------------------------
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________________ to _____________________
Commission file number 0-18446
-------------------------------------------------------
Fairwood Corporation
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3472113
- ------------------------------------------ --------------------------
(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
- ------------------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 302-884-6749
Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<S> <C>
Name of each exchange on
Title of each class which registered
------------------- -------------------------
None Not Applicable
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was zero as of February 28, 1998.
On February 28, 1998, 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.
<PAGE> 2
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.
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. On May 2, 1997, certain holders of the Fairwood
Debentures filed a Motion seeking to convert Fairwood's Chapter 11 case to a
Chapter 7 liquidation or, alternatively, to appoint a Chapter 11 trustee. On
July 21, 1997, the Bankruptcy Court denied the request to convert the case and
held in abeyance, pending further proceedings, the request to appoint a Chapter
11 trustee. Fairwood cannot predict how the Court may rule on the request to
appoint a Chapter 11 trustee or when such ruling may occur. Fairwood has
indicated in Bankruptcy Court papers that if the Motion for the appointment of
a Chapter 11 trustee is denied, 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. See Item 3. LEGAL PROCEEDINGS.
Fairwood's subsidiary Consolidated Furniture is the parent of Futorian
Furnishings, Inc. ("Futorian" formerly Furniture Comfort Corporation) whose two
operating divisions, Stratford Division ("Stratford") and Bacalounger Division
("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.
Operations
Futorian, 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
- 2 -
<PAGE> 3
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. Barcalounger has been able
to maintain its market share by focusing on its core high-end high-quality
product lines. In many cases this increased competitive activity has led to a
lowering of selling prices and the extension of liberal credit terms in an
attempt to maintain market share. 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, 1997, 1996 and 1995, net sales,
including sales to Barcalounger, by Stratford were $100.6 million, $114.0
million and $142.6 million, respectively, and net sales by Barcalounger were
$49.7 million, $39.9 million and $36.9 million, respectively.
The furniture market is highly competitive and includes a large number of
manufacturers, none of which dominates the market. Certain of these
manufacturers produce a broader range of furniture than Stratford and
Barcalounger, and many of them have greater financial and other resources. In
addition, there are relatively few barriers to entry into the industry.
Competition could require Stratford and Barcalounger to reduce prices, offer
better credit terms, or increase spending on product development, marketing or
sales, 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 strong brand recognition.
- 3 -
<PAGE> 4
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 $11.2, $12.7 and $2.4 million of revenues in 1997,
1996 and 1995, respectively, and the reimbursement of $600,000, $600,000 and
$243,000 for new product development and $2,029,000, $2,257,000 and $100,000
for selling expenses in 1997, 1996 and 1995, respectively.
In response to Stratford's eroding market share Stratford continues to
make changes to its operations primarily to improve the efficiency of its
production process and to reduce overhead and administration costs. The
agreement with Simmons allows Stratford to utilize certain excess capacity. In
December 1997, Stratford, in response to the continued erosion of sales,
significantly reduced its production activity in Okolona, Mississippi. As a
result of the significantly reduced activity, Stratford recognized a loss of
$1.4 million primarily for certain severance costs. Stratford believes that by
reducing the activity at this facility and centralizing the majority of
production in its New Albany, Mississippi facility, Stratford will be better
able to react to continually changing market conditions.
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, Futorian believes that the maintenance of high product
quality
- 4 -
<PAGE> 5
and the development of new products are essential to maintaining its
competitive position. In support of these goals, Futorian conducts research
and development activities which are decentralized and directed by its
individual operating divisions.
The Stratford and Barcalounger operating divisions expended a total of
$10,960,000 in the past five years for research and development programs of
which $1,945,000, $1,779,000, and $2,149,000 was expended in 1997, 1996 and
1995, respectively.
Employees
Fairwood has no employees but its subsidiaries and their operating
divisions employed 2,074 persons at December 31, 1997. The Stratford and
Barcalounger divisions have a long record of generally harmonious relations
with employees.
Backlog
The backlog of orders among Futorian's furniture operations was
approximately $17,830,000 at December 31, 1997 and approximately $11,270,000 at
December 31, 1996. It is expected that the backlog at December 31, 1997 will
be filled in the current year. Futorian 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 Futorian'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 Futorian'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 Futorian's activities for vacation periods of one or two weeks in
July has a limiting effect on production as well as sales. Futorian maintains
adequate levels of inventory to meet seasonal demands.
Sears, Roebuck & Co. accounted for approximately 9 percent, 13 percent
and 19 percent of Futorian's furniture sales during the years 1997, 1996 and
1995, respectively. Export sales for 1997, 1996 and 1995 were approximately 2
percent of sales for each of the three years.
Environmental and Raw Materials
In 1997, 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.
- 5 -
<PAGE> 6
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 Futorian 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, 1997, Stratford and Barcalounger divisions have
furniture facilities as follows:
<TABLE>
<CAPTION>
Location Use Square Footage
-------- --- --------------
<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
Guntown, MS Warehouse 216,000
Ontario, CA Manufacturing plant 228,000
High Point, NC Showroom 27,386
San Francisco, CA Showroom 10,390
---------
2,470,488
----------
Owned
Chicago, IL Office and showroom 35,000
New Albany, MS Manufacturing plant 32,463
---------
67,463
---------
Barcalounger
Leased
Rocky Mount, NC Manufacturing plant 364,000
High Point, NC Showroom 9,808
San Francisco, CA Showroom 2,945
---------
376,753
---------
2,914,704
---------
</TABLE>
- 6 -
<PAGE> 7
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 period 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 $132.3 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 set forth in item 8. 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 consolidated 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.
- 7 -
<PAGE> 8
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. On May 2, 1997, certain holders of the
Fairwood Debentures filed a Motion seeking to convert Fairwood's Chapter 11 case
to a Chapter 7 liquidation or, alternatively, to appoint a Chapter 11 trustee.
On July 21, 1997, the Bankruptcy Court denied the request to convert the case
and held in abeyance, pending further proceedings, the request to appoint a
Chapter 11 trustee. Fairwood cannot predict how the Court may rule on the
request to appoint a Chapter 11 trustee or when such ruling may occur. Fairwood
has indicated in Bankruptcy Court papers that if the Motion for the appointment
of a Chapter 11 trustee is denied, 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. Fairwood Corporation's
direct and indirect subsidiaries, including Consolidated Furniture Corporation,
Futorian Furnishings, Inc., 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, 1997 and
1996, there were three shareowners of Fairwood's common stock. No dividends
were declared on Fairwood's common stock in 1997 and 1996. 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 moneys 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.
- 8 -
<PAGE> 9
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,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 148.1 151.3 176.8 244.9 261.5
Operating income (loss) ( 20.6) ( 6.4) ( 11.8) ( 8.2) 1.9
Interest expense, net ( 65.5) ( 61.2) ( 58.6) ( 53.4) ( 46.6)
Gain on sale of subsidiary - - - 20.8 -
Net loss ( 86.1) ( 67.4) ( 70.7) ( 39.4) ( 46.9)
Total assets 57.4 46.6 54.1 95.6 113.6
Long-term debt, including
current maturities * 505.8 453.1 420.7 415.4 386.0
Redeemable preferred stock .1 .1 .1 .1 .1
</TABLE>
* - Does not include accrued interest for 1997, 1996 and 1995 of $91.4 million,
$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 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 and 1993 is not comparable with
one another or 1997, 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES
Certain statements in this Management's Discussion and Analysis ("MD&A") and
elsewhere in this Form 10-K for 1997 into which this MD&A is incorporated are
forward-looking statements based on current expectations and entail various
risks and uncertainties that could cause actual results to differ materially
from those projected in such forward-looking statements.
1997 vs 1996 Results of Operations
Consolidated net sales of approximately $148.1 million for 1997 decreased
2.1% from 1996 net sales of approximately $151.3 million, due to the
significant reduction of sales at Stratford.
- 9 -
<PAGE> 10
Net sales (including intercompany sales) for 1997 by Stratford
decreased 11.8% to approximately $100.6 million as compared to $114.0 million
for 1996. During 1997 and 1996 net sales by Stratford include $11.2 million and
$12.7 million, respectively, of sales to Simmons Upholstered Furniture
Corporation ("Simmons"), an affiliate of the Company. Excluding these sales,
net sales by Stratford decreased 8.4% in 1997. Total volume, excluding frame
and coil sales which accounted for 10.6% of sales in 1997 and 6.4% in 1996, in
1997 decreased 16.0%, while average selling prices decreased by approximately
.5%. Sales in 1997 to Stratford's larger, national retail customers decreased
13.0%, while sales to smaller retail customers decreased 18.9%. These
decreases in sales volume were due to a continuance of adverse factors that
includes a weakness in sales in mid-priced furniture that Stratford targets,
intense competition due to the overall softness in industry sales and the
recent bankruptcy of Stratford's second and third largest customers. Moreover,
Stratford's largest customer had reduced its number of selling units and
inventory levels and consequently its purchases. These events are the main
causes for the decrease in sales to the value merchants and the larger chain
store customers who now make up the bulk of Stratford's customer base.
Stratford's previous strategies to improve margins and lower selling costs were
in conflict with certain customer's marketing strategies and slowed and blocked
Stratford's attempts to recapture smaller stores' sales.
Net sales for 1997 by Barcalounger increased 24.6% to approximately $49.7
million as compared to $39.9 million for 1996. This increase in sales reflects
an increase of 17.0% in the number of pieces sold in 1997 versus 1996, and a
6.8% increase in average selling prices. Beginning in 1993 and continuing
throughout 1994, 1995, 1996 and 1997, 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 1997 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 increased 4.2% in 1997 to approximately $142.0
million, or 95.9% of net sales as compared to $136.2 million, or 90.0% of net
sales, in 1996. Stratford Company cost of sales, including intercompany
sales, increased to 103.5% of net sales in 1997, as compared to 93.4% in 1996.
Barcalounger cost of sales was 80.6% of net sales in 1997 and 1996. Stratford
cost of sales as a percentage of sales increased in 1997 mainly because of
inefficiencies and costs incurred when Stratford moved product lines from the
Okolona facility to the New Albany facility and intense price competition.
Consolidated selling, administrative and general expenses increased 24.8%
to approximately $26.7 million in 1997 from approximately $21.4 million in
1996. The increase was due primarily to costs related to two of Stratford's
major customers declaring bankruptcy in 1997.
Interest expense increased 6.7% to $65.5 million from $61.4 million due
primarily to additional borrowings under the Credit Agreement, as discussed in
Liquidity and Capital Resources.
- 10 -
<PAGE> 11
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 1997 and 1996 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.
- 11 -
<PAGE> 12
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.
Liquidity and Capital Resources
Capital requirements for operations during 1997 and 1996 were provided
primarily by financing channels and operating cash flows at certain operating
divisions.
Fairwood had a working capital deficit of approximately $(258.6) million
and $(224.3) million at December 31, 1997 and 1996, respectively. At December
31, 1997, Fairwood had long-term debt of approximately $505.8 million of which
$169.0 million was current. Long-term debt at December 31, 1996 was
approximately $453.1 million of which $169.0 million was current. Accrued
interest on long-term debt was $91.4 million at December 31, 1997 and $64.4
million at December 31, 1996. 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,
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 1998.
Throughout 1997, 1996 and 1995, Consolidated Furniture funded interest
obligations related to long-term indebtedness through increased borrowings from
CSCL. Borrowings from CSCL during the years ended December 31, 1997, 1996 and
1995 were approximately $50.8 million, $32.6 million and $32.5 million,
respectively. However, during 1995 a portion of the proceeds to
Consolidated Furniture from the factoring of Stratford's trade accounts
receivable and proceeds from the sale of substantially all of the assets of
Super Sagless of approximately $15 million and $16 million, respectively, were
used to repay debt of Consolidated Furniture and its subsidiaries. All
outstanding debt and accrued interest at December 31, 1997, excluding the $62.9
million of outstanding merger debentures plus $34.5 million accrued interest
thereon, $0.2 million of a capitalized lease obligation and $2.1 million of a
mortgage obligation, 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
1999. 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 8.5% at December 31, 1997. Interest on the senior
subordinated debentures of Consolidated Furniture is
- 12 -
<PAGE> 13
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 1995, proceeds to Consolidated Furniture from the disposition of Super
Sagless 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. In January 1997, Barcalounger
received $1.0 million under a factoring agreement and transferred the funds to
Stratford. At December 31, 1997, $15.6 million was the amount of the advances
due to the Factor from Stratford and Barcalounger.
Interest payments during the years ended December 31, 1997, 1996 and 1995
of approximately $38.5 million, $34.4 million and $31.9 million, respectively
were primarily made through increased borrowings and the issue of additional
pay-in-kind debentures. Principal payments of approximately $.2 million, $.2
million and $27.2 million were made during the years ended December 31, 1997,
1996 and 1995, respectively.
Annual maturities on debt for the years ended December 31, 1997 and 1998,
are approximately $169.0 million and $334.8 million, respectively. Interest
payments expected to be made for the years ended December 31, 1998, 1999 and
2000 are estimated to be approximately $41.9 million, $46.0 million and $50.2
million.
On each of April 1, 1995, October 1, 1995, and each semi-annual interest
payment date thereafter, 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 $87.8 million on the
Fairwood Debentures, which includes $53.3 million due to CSCL, is included in
accrued expenses on the accompanying consolidated balance sheet as of December
31, 1997. See Note 5 to the accompanying Consolidated Financial Statements.
Based on the terms of the Fairwood Debentures, the failure to make the
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, 1997.
Capital additions were approximately $3.0 million, $.7 million and $2.4
million for the years 1997, 1996 and 1995, respectively. The operating units,
Stratford and Barcalounger anticipate making capital expenditures of
approximately $2.4 million during 1998, 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
- 13 -
<PAGE> 14
capital expenditures will be funded through cash flow generated from operations
of one of its subsidiaries, available credit facilities under the Consolidated
Furniture's revolving credit agreement with CSCL, and other financing
arrangements. Consolidated Furniture and Futorian intend to pursue other
sources of financing to the extent available and cost effective.
Consolidated Furniture, Futorian and the operating divisions are
dependent upon Court Square Capital Limited ("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 1998 to provide more favorable terms to
Consolidated Furniture and, in certain instances, to avoid defaults thereunder.
Under the Credit Agreement, Consolidated Furniture and its subsidiaries are
generally restricted from transferring moneys to Fairwood (including without
limitation by dividend or distribution) with the exception of amounts for (a)
specified administrative expenses of the Company and (b) payment of income
taxes. Furthermore, Consolidated Furniture is subject to additional
restrictions on transferring moneys to Fairwood (including without limitation
by dividend or distribution) under the indenture for its senior subordinated
debentures, which generally requires the satisfaction of certain financial
conditions for such transfers. Fairwood is subject to additional restrictions
on payment or transfer of moneys (including without limitation by dividend or
distribution) under the indentures for its senior subordinated pay-in-kind
debentures and merger debentures, which generally require the satisfaction of
certain financial conditions for such transfers.
Consolidated Furniture anticipates that funds provided by operations and
available credit facilities under the Credit Agreement will be available in
1998 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 1998 on the Fairwood senior subordinated pay-in-kind debentures
and merger debentures. Consolidated Furniture's obligations under the Credit
Agreement are secured by substantially all of the assets of Consolidated
Furniture and its subsidiaries.
On February 11, 1998, Futorian entered into a revolving credit and term
loan agreement with a domestic corporation which replaced its two factoring
agreements for Barcalounger and Stratford. The new agreement provides for an
aggregate maximum commitment of $30,750,000 and expires in 2001. The agreement
consists of a term loan in the amount of $1,020,000 and a revolving credit loan
with a limit of $29,730,000. These loans bear interest at either the prime
rate plus 1% or the adjusted eurodollar rate plus 3-1/4% at the option of the
borrower providing certain conditions are met. The loan is secured by accounts
receivable, inventory, property and equipment and other assets. Other loan
costs include a monthly servicing fee of $5,000 and a monthly unused line fee
at a rate equal to three-eights (3/8%) percent per annum calculated upon the
amount by which $21,500,000 exceeds the average daily principal balance on the
outstanding Revolving Loans and Letter of Credit Accommodations during the
immediately preceding month.
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
- 14 -
<PAGE> 15
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. On May 2, 1997, certain holders of the
Fairwood Debentures filed a Motion seeking to convert Fairwood's Chapter 11
case to a Chapter 7 liquidation or, alternatively, to appoint a Chapter 11
trustee. On July 21, 1997, the Bankruptcy Court denied the request to convert
the case and held in abeyance, pending further proceedings, the request to
appoint a Chapter 11 trustee. Fairwood cannot predict how the Court may rule
on the request to appoint a Chapter 11 trustee or when such ruling may occur.
Fairwood has indicated in Bankruptcy Court papers that if the Motion for the
appointment of a Chapter 11 trustee is denied, 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. The Chapter 11 case
pertains only to Fairwood Corporation. Its direct and indirect subsidiaries,
including Consolidated Furniture Corporation, Futorian Furnishings, Inc., 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.
Year 2000 Compliance
Fairwood has evaluated the costs necessary to make its and its
subsidiaries computer systems year 2000 compliant. The bulk of these costs are
expected to be incurred during fiscal year 1998 and are estimated to be
approximately $250,000.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standard No. 130, "Reporting Comprehensive Income (SFAS
130) which will require Fairwood to change the display of comprehensive income
and its components within the consolidated financial statements.
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, 1997 and 1996
Consolidated Statements of Operations for the Years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareowners' Equity (Deficit) for the Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
- 15 -
<PAGE> 16
Independent Auditor's 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, 1997 and 1996, and
the related consolidated statements of operations, and shareowners' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1997. 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 are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial 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 audit provides 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, 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.
The accompanying consolidated financial statements have been prepared assuming
that Fairwood will continue as a going concern. As discussed in Note 4 to the
consolidated financial statements, Fairwood has been notified by the Internal
Revenue Service ("IRS") of proposed adjustments to its Federal income tax
returns for the years 1988 through 1991. Such adjustments would result in a
net tax cost to Fairwood Corporation of approximately $132.3 million, including
interest, through the year ended December 31, 1997. 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 sheet.
- 16 -
<PAGE> 17
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, 1996 and 1997 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 Corporation. 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. On May 2, 1997,
certain holders of the Fairwood Debentures filed a motion seeking to convert
Fairwood's Chapter 11 case, to a Chapter 7 liquidation or, alternatively, to
appoint a Chapter 11 trustee. On July 21, 1997, the Bankruptcy Court denied
the request to convert the case and held in abeyance, pending further
proceedings the request to appoint a Chapter 11 trustee. These matters raise
substantial doubt about the ability of Fairwood Corporation to continue as a
going concern. Management's plans in regard to these matters are also
described in Notes 4 and 13. The consolidated financial statements and
financial schedule do not include any adjustments that might result from the
outcome of this uncertainty.
Washington, D.C.
March 13, 1998
- 17 -
<PAGE> 18
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands except share data)
<TABLE>
<CAPTION>
Assets (note 5) 1997 1996
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 605 429
------- -------
Accounts and notes receivable
Trade (note 2) 28,119 23,673
Notes receivable, affiliate (Note 3) 500 -
Due from affiliate (Note 9) 1,420 2,418
Other 696 648
------- -------
30,735 26,739
Less allowance for discounts and doubtful accounts 4,216 1,566
------- -------
26,519 25,173
------- -------
Inventories (note 1) 13,950 13,625
Prepaid expenses and other current assets (note 4) 1,911 2,468
------- -------
Total current assets 42,985 41,695
------- -------
Property, plant and equipment, at cost:
Land 84 84
Buildings and improvements 13,055 12,591
Machinery and equipment 15,727 15,949
Leasehold improvements 2,385 2,359
Construction in progress 267 51
------- -------
31,518 31,034
Less accumulated depreciation and amortization 18,517 18,709
------- -------
13,001 12,325
------- -------
Other assets 1,434 2,260
------- -------
$ 57,420 56,280
</TABLE> ======== ========
<TABLE>
<CAPTION>
Liabilities and Shareowners' equity (deficit) 1997 1996
- --------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Notes payable (Note 2) $ 15,554 9,703
Overdraft - 715
Current maturities of long-term debt (notes 5, 10 and 13):
Senior subordinated pay-in-kind debentures 105,853 105,853
Merger debentures 62,928 62,928
Other 233 180
Accrued interest 91,436 64,413
Accounts payable:
Trade 9,111 6,940
Other 1,945 2,896
Accrued expenses 9,035 6,682
Federal and state income taxes 5,682 5,699
------- -------
Total current liabilities 301,777 266,009
------- -------
Long-term debt, less current maturities (notes 5, 10 and 13):
Revolving credit 254,714 203,992
Senior subordinated debentures 80,000 80,000
Mortgage payable 2,052 -
Capitalized lease obligations - 190
------- -------
336,766 284,182
------- -------
Deferred Federal income taxes (note 4) 1,179 1,524
Other liabilities (note 8) 1,653 2,513
------- -------
2,832 4,037
------- -------
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) ( 353) ( 539)
Accumulated deficit (639,650) (553,457)
------- -------
(584,055) (498,048)
Commitments and contingencies (notes 1, 2, 4, 5, 8, 9, 10, ------- -------
11, 12, 13 and 14)
$ 57,420 56,280
======== ========
</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,
--------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net sales (note 9) $ 148,113 151,316 176,834
------- ------- -------
Cost of sales (note 9) 142,024 136,242 161,091
Selling, administrative
and general expenses (note 9) 26,705 21,461 27,508
------- ------- -------
168,729 157,703 188,599
------- ------- -------
Operating loss ( 20,616) ( 6,387) ( 11,765)
Interest income 111 198 316
Interest on indebtedness (notes 2 and 5) ( 65,547) ( 61,433) ( 58,893)
Other income (expenses), net ( 72) 249 ( 378)
------- ------- -------
Loss before income taxes ( 86,124) ( 67,373) ( 70,720)
Provision for income
taxes (note 4) - - -
------- ------- -------
Net loss $ ( 86,124) ( 67,373) ( 70,720)
======= ======= =======
</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, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Additional Minimum Shareowners'
Common Stock Paid-in Pension Accumulated Equity
----------------
Class A Class B Capital Liability deficit (Deficit)
------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ - 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)
Net loss ( 86,124) ( 86,124)
Adjustment to minimum
pension liability (note 8) 186 186
Preferred stock dividends ( 69) ( 69)
----- ----- ------ ------ ------- -------
Balance, December 31, 1997 $ - 10 55,938 ( 353) (639,650) (584,055)
===== ===== ====== ====== ======= =======
</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,
--------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ( 86,124) ( 67,373) ( 70,720)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 1,886 2,170 2,075
Loss (gain) on sale of property, plant and equipment 361 59 ( 58)
Changes in assets and liabilities:
Accounts receivable ( 846) 5,350 6,567
Inventories ( 325) 769 4,419
Prepaid expenses and other current assets 212 262 ( 66)
Accounts payable 1,151 2,098 ( 2,082)
Accrued interest and expenses 29,376 25,369 26,080
Federal and state income taxes ( 17) ( 20) ( 6)
Other, net 152 ( 427) ( 106)
------- ------- -------
Cash used - operating activities ( 54,174) ( 31,743) ( 33,897)
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment ( 3,010) ( 679) ( 2,413)
Proceeds from disposition of property,
plant and equipment 87 159 427
Loan to affiliate ( 500) - -
Proceeds from sale of Super Sagless assets - - 15,750
------- ------- --------
Cash provided (used) - investing activities ( 3,423) ( 520) 13,764
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt 52,817 32,623 32,499
Overdraft ( 715) ( 6) 721
Proceeds from sale (repurchases) of
receivables to (from) Factor, net 5,851 ( 4,740) 14,443
Repayment of long-term debt ( 180) ( 170) ( 27,160)
------- ------- -------
Cash provided - financing activities 57,773 27,707 20,503
------- ------- -------
Increase (decrease) in cash and cash equivalents 176 ( 4,556) 370
Cash and cash equivalents:
Beginning of period 429 4,985 4,615
------- ------- -------
End of period $ 605 429 4,985
======= ======= =======
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $38,516 34,406 31,866
Income taxes 17 20 6
Adjustment to minimum pension liability ( 186) ( 417) ( 411)
</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") and all of its
subsidiaries. All significant intercompany balances, transactions and profits
have been eliminated in consolidation.
Through its wholly-owned subsidiary, Consolidated Furniture and
Consolidated Furniture's wholly-owned subsidiary Futorian Furnishings, Inc.
("Futorian"), Fairwood 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.
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 the 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. On May 2, 1997, certain holders of the
Fairwood Debentures filed a Motion seeking to convert Fairwood's Chapter 11
case to a Chapter 7 liquidation or, alternatively, to appoint a Chapter 11
trustee. On July 21, 1997, the Bankruptcy Court denied the request to convert
the case and held in abeyance, pending further proceedings, the request to
appoint a Chapter 11 trustee. Fairwood cannot predict how the Court may rule
on the request to appoint a Chapter 11 trustee or when such ruling may occur.
Fairwood has indicated in Bankruptcy Court papers that if the Motion for the
appointment of a Chapter 11 trustee is denied, 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, Futorian
Furnishings, Inc., 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.
- 22 -
<PAGE> 23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
(continued)
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 1997, 1996 and 1995 which resulted in reductions
of cost of sales of approximately $52,000, $2,300,000 and $2,300,000,
respectively.
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Raw materials $ 11,809 13,047
In process 3,591 3,028
Finished goods 6,220 5,163
------ ------
Inventories at first-in, first-out 21,620 21,238
LIFO reserve 7,670 7,613
------ ------
Inventories at LIFO $ 13,950 13,625
====== ======
</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 shorter of the term of the related leases or 10 years.
Revenue Recognition
Revenue is recognized when title to furniture passes to the customer.
The Company provides a reserve against estimated future customer returns under
the warranty terms of sale.
Statements of Cash Flows
Cash and cash equivalents include cash in banks and highly liquid
short-term investments having a maturity of three months or less on the date of
purchase.
- 23 -
<PAGE> 24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
(continued)
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-Lived 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.
The Company deems an asset to be impaired if a forecast of
undiscounted future operating cash flows directly related to the asset,
including disposal value, if any, is less than its carrying amount. If an
asset 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
- 24 -
<PAGE> 25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies and Description of Business
(continued)
Impairment of Long-Lived Assets
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. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less cost to sell. 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 1996 and 1995
financial statements to conform with the 1997 financial statement presentation.
(2) Factoring Agreement
Pursuant to a factoring agreement, the majority of Stratford's, a
division of Futorian, trade receivables are factored on a recourse and
nonrecourse basis. Receivables sold for which Stratford has not received
written credit approval from the factor are with recourse. Only those
receivables sold for which Stratford has received written credit approval from
the factor are nonrecourse. Stratford retains credit risk for all recourse
receivables and transfers the credit risk to the factor for all nonrecourse
receivables.
Under the factoring agreement, advances may be made to Stratford for
up to 80 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 nine percent or
Capital Bank's prime rate plus 1 percent. As of December 31, 1997, receivables
sold which remain to be collected approximated $18,436,000 of which
approximately $8,132,000 were sold with recourse. 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.
- 25 -
<PAGE> 26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Factoring Agreements (continued)
On December 10, 1996, Barcalounger, a division of Futorian, entered
into a factoring agreement with Capital Factors, Inc. Pursuant to the
factoring agreement, certain of Barcalounger's trade receivables are pledged to
the Factor. Barcalounger retains credit risk for all receivables pledged under
the factoring agreement. Under the factoring agreement, advances may be made
to Barcalounger for up to 80 percent of the aggregate amount of "eligible
receivables" less factoring commissions and other fees and reserves. All
advances are repayable upon demand. 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, 1997,
receivables pledged to the Factor approximated $1,659,000.
The outstanding amounts due under the factoring agreements at December
31, are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997
Debt 1997 1996 Interest Rates
---- -------- -------- -------------------
<S> <C> <C> <C>
Stratford $ 14,554 9,703 9.5%
Barcalounger 1,000 - 9.5%
------- -------
15,554 9,703
======= =======
</TABLE>
(3) Note receivable, affiliate
In July 1997, Futorian loaned $500,000 to Simmons Upholstered
Furniture Corporation ("Simmons"), an affiliate of the Company. The note bears
interest at the rate of prime plus 1.5% per annum and is due on demand.
(4) Income Taxes
No income taxes have been provided in the accompanying statements of
operations because the Company is in a net operating loss carryforward
position.
- 26 -
<PAGE> 27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
A reconciliation of the provision for income taxes included in the
statements of operations and the amount computed by applying the U.S. Federal
income tax rate, in thousands, is summarized below:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expected tax benefit computed
at U.S. rate $ (29,282) (22,906) (24,045)
Increase in valuation
allowance 32,902 24,802 26,865
State taxes, net of
Federal benefit ( 3,411) ( 2,658) ( 2,820)
Other ( 209) 762 -
------- ------ ------
Total provision for income taxes $ - - -
====== ====== ======
</TABLE>
The tax effects of temporary differences as of December 31, in
thousands, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $118,486 86,284
Accounts receivable 1,613 606
Vacation and holiday pay 306 315
Accrued expenses 3,214 3,500
Interest on merger debentures 3,963 4,320
Valuation allowance (126,403) ( 93,501)
------- -------
$ 1,179 1,524
======= =======
Deferred tax liabilities:
Property, plant and equipment $ 1,179 1,524
====== =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996
was $68,699,000. The net changes in the total valuation allowance for the
years ended December 31, 1997 and 1996 were increases of $32,902,000 and
$24,802,000, respectively.
At December 31, 1997, the Company's net operating loss carryforwards
of approximately $312,134,000 expire in various years through 2012. However,
the agreement in principle with the IRS (as discussed below) would result in a
reduction of approximately $95,000,000 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.
- 27 -
<PAGE> 28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
Net current deferred income tax assets of $1,179,000 and $1,524,000 at
December 31, 1997 and 1996, 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 period 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
$132.3 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
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 consolidated financial statements.
(5) Long-term Debt
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 Court Square Capital Limited ("CSCL"), an
affiliated company, (the "Credit Agreement") and senior subordinated
pay-in-kind debentures due to CSCL. In exchange for the approximately 6.85% of
Consolidated Furniture common stock then outstanding, Fairwood issued $33.5
million of subordinated pay-in-kind merger debentures and 918,170 warrants to
purchase, in the aggregate, 142,900 shares of Fairwood's Class A common stock.
The 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 1998. In September 1996, Consolidated Furniture entered into
- 28 -
<PAGE> 29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
the Fifteenth Amendment to the Credit Agreement which changed the covenant for
liens on collateral granted pursuant to that certain 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
and Barcalounger's trade accounts receivable were used to repay a portion of
the debts due under the Credit Agreement with CSCL. In May 1997, Consolidated
Furniture entered into the Seventeenth Amendment to the Credit Agreement which
changed the overadvance on eligible inventory and accounts receivables from
$210,000,000 to $237,000,000. In July 1997, Consolidated Furniture entered
into the Eighteenth Amendment to the Credit Agreement which changed various
covenants and increased the amount of the Revolving Credit Commitment to
$245,000,000. In January 1998, Consolidated Furniture entered into the
Nineteenth Amendment to the Credit Agreement which permitted Futorian to enter
into a new Loan and Security Agreement on February 11, 1998. The Nineteenth
Amendment also waived noncompliance of certain covenants and extended the due
date to January 4, 1999. In January 1998, Consolidated Furniture entered into
the Twentieth Amendment to the Credit Agreement which changed various financial
covenants for 1998 and thereafter. In January 1998, Consolidated Furniture
entered into the Seventh Amendment to the Increasing Rate Senior Subordinated
Debentures due January 2, 1998, which extended the due date to January 4, 1999.
In October 1997, a mortgage was obtained for the purchase of an office
building in Chicago, Illinois. The mortgage bears interest at the rate of 8.5%
per annum and is payable in monthly installments of $18,224 of principal and
interest through October 2017. The mortgage is secured by the real estate.
Substantially all of Fairwood'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. Fairwood plans to attempt to refinance, or negotiate an extension of,
the debt payable to CSCL when due.
- 29 -
<PAGE> 30
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
The outstanding debt at December 31, was as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1997
Interest
Debt 1997 1996 Rates
---- -------- -------- ---------
<S> <C> <C> <C>
Revolving credit, due 1999 $ 254,714 203,992 10%
Senior subordinated
debentures, due 1999 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%
Mortgage payable, due 2017 2,095 - 8-1/2%
Other, due 1998 190 370 6%
------- -------
505,780 453,143
Less current maturities 169,014 168,961
------- -------
$ 336,766 284,182
======= =======
</TABLE>
All outstanding debt and accrued interest at December 31, 1997,
excluding the $62.9 million of outstanding merger debentures plus $34.5 million
accrued interest thereon, $0.2 million of capitalized lease obligations and the
mortgage amount of $2.1 million is payable to CSCL.
On each of April 1, 1995, October 1, 1995, and each semi-annual
interest payment date thereafter, 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 $87.8 million on the Fairwood Debentures, which includes $53.3 million due
to CSCL, is included in accrued interest in the accompanying consolidated
balance sheet as of December 31, 1997.
Based on the terms of the Fairwood Debentures, the failure to make the
April 1, 1995 and subsequent period interest payments constitute 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.
- 30 -
<PAGE> 31
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-term Debt (continued)
The fair market value of the debentures and revolving credit debt
cannot be reasonably estimated considering Fairwood's ongoing financial
difficulties (Note 13).
Annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------- ------------
<S> <C>
1998 $169,014
1999 334,760
2000 50
2001 55
2002 59
Thereafter 1,842
--------
$505,780
========
</TABLE>
(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, 1997 and 1996, dividends payable
were approximately $330,000 and $260,000, respectively.
(7) Common Stock
Holders of Class A common stock are entitled to convert their shares
to an equal number of shares of Class B common stock and holders of Class B
common stock are entitled to convert their shares to an equal number of shares
of Class A common stock.
(8) Employee Benefit Plans
All salaried employees, excluding certain key executives, and hourly
paid employees of Fairwood 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.
- 31 -
<PAGE> 32
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Employee Benefit Plans (continued)
Pension expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current service cost $ - - -
Interest cost 1,111 1,062 954
Return on assets (1,104) (1,018) ( 808)
----- ----- -----
$ 7 44 146
===== ===== ======
</TABLE>
Information with respect to the retirement plans for 1997 and 1996 has
been determined by consulting actuaries. The following table sets forth the
plans' funded status at December 31, and reconciles amounts recognized in the
consolidated balance sheets at December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Actuarial present value of obligations:
Vested $ 16,850 14,349
Nonvested 51 75
------ ------
Accumulated and projected benefit obligation 16,901 14,424
Assets at fair value at December 31 15,309 12,331
------ ------
Accumulated and projected benefit obligation
in excess of assets 1,592 2,093
Unrecognized net gain (loss) ( 314) ( 140)
------ ------
Accrued pension cost at December 31 1,278 1,953
Adjustment for minimum liability 353 539
------ ------
Pension liability at December 31 $ 1,631 2,492
====== ======
Assumptions:
Interest rates for obligations 7.00% 7.75%
Long-term rate of return 9.00% 9.00%
Salary increase rate N/A N/A
</TABLE>
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies:
- 32 -
<PAGE> 33
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 1997, 1996 and 1995, Barcalounger
contributions were $140,000, $140,000 and $133,000, 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, 1997, 1996
and 1995, Barcalounger matching contributions were $47,000, $42,000 and
$38,000, 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, 1997, 1996 and 1995 company
contributions were $585,000, $802,000 and $648,000, respectively.
Consolidated Furniture also sponsors an investment plan. This
investment plan is a defined contribution plan covering all employees of
Consolidated Furniture and its subsidiaries, who have a minimum of one year of
service. For the years ended December 31, 1997, 1996 and 1995 Consolidated
Furniture contributions were $2,000, $2,000 and $2,000, respectively.
(9) Related party transactions
In November 1995, Stratford entered into a manufacturing agreement
("Agreement") with 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 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 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 1997 and 1996, Stratford earned a
percentage of the Simmons gross margin on products manufactured, in addition to
monthly service charges for new product development and selling activities
performed by Stratford.
- 33 -
<PAGE> 34
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Related party transactions (continued)
As a result of this Agreement, Stratford recognized approximately
$11,200,000, $12,722,000 and $2,400,000 of revenue in 1997, 1996 and 1995,
respectively, from the manufacture and supply of product and was reimbursed by
Simmons $600,000, $600,000 and $243,000, respectively, for new product
development and $2,029,000, $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 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 consolidated
statements of operations. At December 31, 1997 and 1996, approximately
$420,000 and $2,418,000, respectively, was due from Simmons under this
Agreement. Under a separate agreement Stratford advanced Simmons $1,000,000.
(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).
Future minimum lease payments at December 31, 1997, under all
non-cancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Period Capital Operating
------ ------- ---------
<S> <C> <C>
1998 196 1,251
1999 - 1,085
2000 - 500
2001 - 26
----- ------
Total minimum lease payments 196 2,862
======
Less amounts representing interest 6
-----
Capitalized lease obligations $ 190
=====
</TABLE>
It is expected that, in the normal course of business, non-cancelable
leases that expire will be renewed or replaced.
- 34 -
<PAGE> 35
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Rental Commitments (continued)
Rental expense is summarized, in thousands, as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Minimum Rentals
(including cancel-
able leases) $ 2,227 2,115 1,946
Sublease rentals ( 254) ( 291) ( 203)
------ ------ ------
$ 1,973 1,824 1,743
====== ====== ======
</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 9
percent, 13 percent, and 19 percent of the Company's sales in each of the years
1997, 1996 and 1995, respectively.
(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, 1997
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 as otherwise disclosed in these consolidated
financial statements 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
- 35 -
<PAGE> 36
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Liquidity (continued)
April 1, 1995, October 1, 1995, and each semi-annual interest payment date
thereafter 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 moneys 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 1998.
Throughout portions of 1997, 1996, and 1995, Consolidated Furniture
did not generate sufficient funds from operations to 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 1995 the proceeds from the disposition
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, 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 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 moneys to the Company with the exception of amounts for (a)
specified administrative expenses of Fairwood 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. 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, 1998.
However, cash flows from Stratford, Barcalounger and their parent
companies, Futorian and Consolidated Furniture, will not be sufficient to permit
the Company to make cash interest payments on Fairwood's senior
- 36 -
<PAGE> 37
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Liquidity (continued)
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 since 1995, see note 5, and will probably
fail to make any future cash interest payments, the Fairwood Debentures have
been classified as current. Based on the terms of the Fairwood Debentures, the
failure to make the April 1, 1995 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.
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, Futorian, 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.
(14) Subsequent event
On February 11, 1998, Futorian entered into a revolving credit and
term loan agreement with a domestic corporation which replaced the two
factoring agreements for Barcalounger and Stratford. The new agreement
provides for an aggregate maximum commitment of $30,750,000 and expires in
2001. The agreement consists of a term loan in the amount of $1,020,000 and a
revolving credit loan with a limit of $29,730,000. These loans bear interest
at either the prime rate plus 1% or the adjusted eurodollar rate plus 3-1/4% at
the option of the borrower provided certain conditions are met. The loan is
secured by accounts receivable, inventory, property and equipment and other
assets. Other loan costs include a monthly servicing fee of $5,000 and a
monthly unused line fee at a rate equal to three-eights (3/8%) percent per
annum calculated upon the amount by which $21,500,000 exceeds the average daily
principal balance on the outstanding Revolving Loans and Letter of Credit
Accommodations during the immediately preceding month.
- 37 -
<PAGE> 38
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 66 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 Futorian Furnishings,
Inc. since February 1990. Mr. Sganga is also a director of Simmons Upholstered Furniture
Corporation.
M. Saleem Muqaddam 50 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, Futorian, Chromcraft Revington,
Inc., Pamida Holdings, Inc., Plantronics, Inc., Furnishings International Inc. and
Simmons Upholstered Furniture Corporation.
</TABLE>
- 38 -
<PAGE> 39
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, 1997:
<TABLE>
<CAPTION>
Date Assumed
Name Age Position Position
---- --- -------- --------
<S> <C> <C> <C>
Lawrence Adelman 52 Chief Operating Officer May 1997
Stratford Division of
Futorian Furnishings, Inc.
Wayne T. Stephens 47 President and Chief October 1992
Executive Officer
Barcalounger Division of
Futorian Furnishings, Inc.
</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:
In May 1997, Lawrence Adelman was named Chief Executive Officer of
Stratford, a Division of Futorian Furnishings, Inc. Previously, Mr. Adelman
was President and Chief Executive Officer of Alliance Capital Group, a
consulting company he founded in 1991. Mr Adelman was responsible for more
than 50 successful engagements involving companies in industries ranging from
manufacturing to retail, growing his from a Chicago-based business to a
national company.
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 Futorian Furnishings, Inc.
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.
Effective October 17, 1997 Gary Parks resigned as Chief Operating
Officer of Stratford, a Division of Futorian Corporation. Prior to his
resignation he had been employed by Stratford since May 1996. From January 1995
to May 1996 he was President of Rosalco. 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.
- 39 -
<PAGE> 40
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
Principal Annual Compensation All Other
-------------------
Position Year Salary Bonus Compensation
- --------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
John B. Sganga 1997 $150,000 $ - $ 7,500 (1)
Executive VP 1996 150,000 25,000 9,113 (1)
and CFO 1995 150,000 25,000 9,803 (1)
Gary L. Parks 1997 154,641 - 39,409 (2)
1996 96,058 9,250 2,290 (2)
Lawrence Adelman 1997 170,994 - -
CEO Stratford
Wayne T. Stephens 1997 185,000 217,375 1,910 (3)
President & CEO 1996 185,000 96,885 3,661 (3)
Barcalounger 1995 160,000 108,800 2,788 (3)
</TABLE>
(1) 1997 amount represents Consolidated Furniture contributions to the
investment plan of $1,500 and $6,000 for automobile allowance. 1996
amount represents Consolidated Furniture contributions to the
investment plan of $1,750 and $7,363 for the value of the use of a
company vehicle. 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.
(2) 1997 amount represents $37,119 for severance pay and $2,290 for the
use of a company vehicle. 1996 amount represents $2,290 for the value
of the use of a company vehicle.
(3) 1997 amount represents company contributions to the investment plan of
$705 and $1,205 for the value of the use of a company vehicle. 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.
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.
- 40 -
<PAGE> 41
Retirement Plan
Messrs. Sganga, Parks 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 1997, 1996 and 1995, such contributions for Mr. Sganga were
$1,500, $1,750 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. Stephens
was $705, $2,203 and $1,776 in 1997, 1996 and 1995, respectively.
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 1997 Plan Year were $483,528
including awards of $217,375 for Mr. Stephens. 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.
Directors' Compensation
As of the date of this Annual Report on Form 10-K, the Company has not
determined what compensation directors who are not officers of the Company will
receive for their service as director. No compensation was paid to directors
for their services as directors in 1995, 1996 or 1997.
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
<PAGE> 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
Fairwood's common stock consists of both voting stock and non-voting stock.
The table below sets forth, as of February 28, 1998, 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 Small Business Administration has extended the
December 31, 1997 conversion date to December 31, 1998. 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> 44
Ownership by Directors and Officers
As of February 28, 1998, 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, 1997 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 1997 and at December 31, 1997, the largest aggregate amount of
indebtedness outstanding that was payable to CSCL was approximately $440.5
million. See Note 5, Long-term Debt, in the Notes to Consolidated Financial
Statements set forth in Item 8. During 1997 the Company borrowed approximately
$50.8 million from CSCL and made no payments to CSCL. During 1998 it is
anticipated that approximately $41.9 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 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> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. Financial Statements Page
<S> <C>
The following financial statements and supplementary data are
included in Part II, Item 8:
Independent Auditors' Report................................... 16-17
Consolidated Balance Sheets at December 31, 1997 and 1996...... 18
Consolidated Statements of Operations for the Years ended
December 31, 1997, 1996 and 1995............................ 19
Consolidated Statements of Shareowners' Equity (Deficit)
for the Years ended December 31, 1997, 1996 and 1995........ 20
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995............................ 21
Notes to Consolidated Financial Statements .................... 22-37
2. Financial Statement Schedule
----------------------------
For the three years ended December 31, 1997:
Schedule II--Valuation and Qualifying Accounts
and Reserves................................... 50
</TABLE>
Other schedules are omitted because of the absence of conditions
under which they are required.
- 44 -
<PAGE> 46
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 Revington
Corporation and Citicorp Capital Investors Ltd. (the "Credit
Agreement"), (incorporated by reference to Exhibit 4.8 of
the Registrant's annual report on Form 10-K for the year
ended December 31, 1989 (the "1989 Form 10-K")).
(4.7) 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> 47
(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> 48
(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> 49
(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, (incorporated by reference to Exhibit 4.36
of the 1993 Form 10-K).
(4.42) Sixteenth Amendment, dated as of December 31, 1996, to
Credit Agreement, (incorporated by reference to Exhibit 4.36
of the 1993 Form 10-K).
(4.43) Sixth Amendment, dated as of January 2, 1997, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.43 of the 1996 Form 10-K).
(4.44) Factoring Agreement, dated as of December 10, 1996, between
Capital Factors, Inc. and Barcalounger Company, a division
of Furniture Comfort Corporation, (incorporated by reference
to Exhibit 4.44 of the 1996 Form 10-K).
(4.45) Debt Subordination Agreement, dated as of December 10, 1996,
between Capital Factors, Inc. and Consolidated Furniture
Corporation, formerly Mohasco Corporation, (incorporated by
reference to Exhibit 4.45 of the 1996 Form 10-K).
(4.46) Lien Subordination Agreement, dated as of December 10, 1996,
between Capital Factors, Inc. and Court Square Capital
Limited, (incorporated by reference to Exhibit 4.46 of the
1996 Form 10-K).
(4.47) Seventeenth Amendment, dated as of May 23, 1997, to Credit
Agreement.
(4.48) Eighteenth Amendment, dated as of July 1, 1997, to Credit
Agreement.
(4.49) Mortgage, Security Agreement, Assignment of Rents and
Financing Statement, dated November 12, 1997, by Futorian
Furnishings, Inc. in favor of Banco Popular.
(4.50) Mortgage Note, dated November 12, 1997, by Futorian
Furnishings, Inc. and Banco Popular.
(4.51) Nineteenth Amendment, dated as of January 30, 1998, to
Credit Agreement.
(4.52) Twentieth Amendment, dated as of January 31, 1998, to Credit
Agreement.
(4.53) Loan and Security Agreement, dated February 11, 1998,
between Congressional Financial Corporation (CENTRAL) and
Futorian Furnishings, Inc., formerly Furniture Comfort
Corporation.
(4.54) Seventh Amendment, dated as on January 2, 1998, to the Senior
Subordinated Debentures.
- 48 -
<PAGE> 50
(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).
(10.5) Real Estate Purchase Agreement, dated September 15, 1997,
between Furniture Comfort Corporation and American National
Bank and Trust Company, not personally, but solely as
Trustee under Trust Agreement dated July 17, 1978, and known
as Trust No. 43449.
(21.1) 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, 1997.
- 49 -
<PAGE> 51
Schedule II
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1997, 1996 and 1995
(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:
1997
----
Allowance for discounts $ 79 408 436 51
Allowance for doubtful
accounts 1,487 3,244 566 4,165
Allowance for estimated
loss on claims - - - -
------ ------ ------ -----
$ 1,566 3,652 1,002 4,216
====== ====== ====== ======
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
====== ====== ====== ======
</TABLE>
- 50 -
<PAGE> 52
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, 1998
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1998 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)
- 51 -
<PAGE> 53
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 26, 1998 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ M. Saleem Muqaddam Director
- --------------------------------
M. Saleem Muqaddam
- 52 -
<PAGE> 1
EXHIBIT 4.47
[Execution Version]
SEVENTEENTH AMENDMENT
TO CREDIT AGREEMENT
THIS SEVENTEENTH AMENDMENT TO CREDIT AGREEMENT, dated as of
May 23, 1997 (the "Seventeen 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 Seventeenth 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 Seventeenth Amendment, to such amendment.
TERMS
In consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound, the Lender and the
Borrowers hereby agree as follows:
Section 1 - Overadvance Amount.
The definition of "Overadvance Amount" in Section 6.1 of the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"Overadvance Amount" means $210,000,000 during the
second fiscal quarter of 1997 and thereafter.
Section 2 - Conditions to Effectiveness. This Seventeenth
Amendment shall be effective when, and only when, the Lender shall have
received counterparts of this Seventeenth 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:
<PAGE> 2
(a) the execution, delivery and performance by
each of the Borrowers of this Seventeenth 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 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 Seventeenth
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 Seventeenth 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 Seventeenth 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 Seventeenth Amendment may refer to the "Credit Agreement dated as of
September 22, 1989" without making specific reference to the Seventeenth
Amendment, but nevertheless all such references shall be deemed to include this
Seventeenth Amendment unless the context shall otherwise require.
(e) This Seventeenth Amendment shall be governed
by, and construed in accordance with, the law of the State of New York.
[SIGNATURE PAGES FOLLOW]
<PAGE> 3
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,
Secretary, Treasurer and
Controller
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
SSC CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Treasurer, Vice President and
Secretary
- 3 -
<PAGE> 1
EXHIBIT 4.48
EIGHTEENTH AMENDMENT
TO CREDIT AGREEMENT
THIS EIGHTEENTH AMENDMENT TO CREDIT AGREEMENT, dated as of
July 1, 1997 (the "Eighteenth 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)("Consolidated"), Futorian Furnishings, Inc. (formerly known as
Mohasco Upholstered Furniture Corporation, and as Furniture Comfort
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 Eighteenth 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 Eighteenth 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 4.1.5 of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
4.1.5 Consolidated Net Worth. Permit Consolidated Net
Worth to be less than $(320,000,000) on the last day of the fiscal quarter
ended on or about September 30, 1997, and each fiscal quarter thereafter.
Section 2 - Overadvance Amount.
The definition of "Overadvance Amount" in Section 6.1 of the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"Overadvance Amount" means $237,000,000 during the third
fiscal quarter of 1997 and thereafter.
<PAGE> 2
Section 3 - Revolving Credit Note.
Exhibit 1.1.3 of the Credit Agreement is hereby 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 the revolving
Credit Note such Endorsement No. 5 as duly executed and delivered by such
authorized officers of each of the Borrowers on the date hereof and to insert
on the face of the Revolving Credit Note the following legend.
THIS SECURITY SHALL
BE DEEMED TO INCLUDE
ENDORSEMENT NO. 5 DATED AS OF JULY 1, 1997
WHICH IS ATTACHED HERETO.
Section 4 - Revolving Credit Commitment.
The definition of "Revolving Credit Commitment" in Section
6.1 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
"Revolving Credit Commitment" means $245,000,000 during the
third quarter of 1997 and thereafter.
Section 5 - Conditions to Effectiveness.
This Eighteenth Amendment shall be effective when, and only
when, the Lender shall have received counterparts of this Eighteenth Amendment
executed by each of the Borrowers and copies of such approvals, opinions or
documents as the Lender may reasonably request.
Section 6 - 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 Eighteenth 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 registration with any governmental authority or other person
- 2 -
<PAGE> 3
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 Eighteenth Amendment,
all the representations and warranties of the Borrowers contained in the Credit
Agreement shall be true and correct in all material respects.
Section 6 - 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 Eighteenth 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 Eighteenth 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
Eighteenth Amendment may refer to the "Credit Agreement dated as of September
22, 1989" without making specific reference to the Eighteenth Amendment, but
nevertheless all such references shall be deemed to include this Eighteenth
Amendment unless the context shall otherwise require.
(e) This Eighteenth 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,
Secretary, Treasurer and
Controller
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
SSC CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Treasurer, Vice President and
Secretary
- 4 -
<PAGE> 5
Annex A
FORM OF ENDORSEMENT NO.5
COURT SQUARE CAPITAL LIMITED, CONSOLIDATED FURNITURE
CORPORATION, FURNITURE COMFORT CORPORATION, SSC CORPORATION, AND CHOICE SEATS
CORPORATION hereby agree that the promissory note, as amended, to which this
Endorsement No. 5 is attached (the "Revolving Credit Note") shall be and hereby
is amended as follows:
A. Each occurrence of the amount of the amount
"$200,000,000" on page 1 of the Revolving Credit Note is deleted and the amount
"$245,000,000" is inserted in lieu thereof.
B. The words "Two Hundred Million" are deleted from the
first paragraph of the Revolving Credit Note and the words "Two Hundred Forty
Five Million" are inserted in lieu thereof.
Date: July 1, 1997
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,
Secretary, Treasurer and
Controller
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
A-1
<PAGE> 6
SSC CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Treasurer, Vice President and
Secretary
A-2
<PAGE> 7
WAIVER
Waiver dated as of February 1, 1995 ("Waiver") to the Credit
Agreement dated as of September 22, 1989, as amended (the "Credit Agreement")
among Court Square Capital Limited (formerly known as Citicorp Capital
Investors Ltd.) (the "Lender") and Consolidated Furniture Corporation (formerly
known as Mohasco Corporation)("Consolidated"), Futorian Furnishings, Inc.
(formerly known as Mohasco Upholstered Furniture Corporation, and as Furniture
Comfort Corporation) (on its behalf and on behalf of each of its Stratford and
Barcalounger operating units) ("Futorian"), SSC Corporation (formerly known as
Super Sagless Corporation) and Choice Seats Corporation (collectively, the
"Borrowers"). Terms used herein and not otherwise defined herein shall have
the meanings given such terms in the Credit Agreement.
The Lender hereby agrees to waive compliance by Borrowers with
respect to their failure to comply with the covenants set forth in Section 4.26
of the Credit Agreement in connection with their failure to timely notify the
Lender of (i) the name change of Mohasco Upholstered Furniture Corporation to
Furniture Comfort Corporation on February 9, 1995 and (ii) the name change of
Mohasco Corporation to Consolidated Furniture Corporation on March 1, 1995.
Except as expressly waived hereby, the Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof on
the date hereof.
IN WITNESS WHEREOF, the Lender has caused this waiver to be
executed 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
--------------------------------
Name: M. Saleem Muqaddam
Title: Vice President
Acknowledged:
CONSOLIDATED FURNITURE CORPORATION
FURNITURE COMFORT CORPORATION
SSC CORPORATION
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
------------------------------------
Name: John B. Sganga
Title: Vice President
<PAGE> 8
WAIVER
Waiver dated as of July 1, 1997 ("Waiver") to the Credit
Agreement dated as of September 22, 1989, as amended (the "Credit Agreement")
among Court Square Capital Limited (formerly known as Citicorp Capital
Investors Ltd.) (the "Lender") and Consolidated Furniture Corporation (formerly
known as Mohasco Corporation)("Consolidated"), Futorian Furnishings, Inc.
(formerly known as Mohasco Upholstered Furniture Corporation, and as Furniture
Comfort Corporation) (on its behalf and on behalf of each of its Stratford and
Barcalounger operating units) ("Futorian"), SSC Corporation (formerly known as
Super Sagless Corporation) and Choice Seats Corporation (collectively, the
"Borrowers"). Terms used herein and not otherwise defined herein shall have
the meanings given such terms in the Credit Agreement.
The Lender hereby agrees to waive compliance by Borrowers with
respect to their failure to comply with the covenants set forth in Section 4.26
of the Credit Agreement in connection with their failure to timely notify the
Lender of the name change of Furniture Comfort Corporation to Futorian
Furnishings, Inc. on July 21, 1997.
Except as expressly waived hereby, the Credit Agreement shall
continue in full force and effect in accordance with the provisions thereof on
the date hereof.
IN WITNESS WHEREOF, the Lender has caused this waiver to be
executed 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
---------------------------------
Name: M. Saleem Muqaddam
Title: Vice President
Acknowledged:
CONSOLIDATED FURNITURE CORPORATION
FUTORIAN FURNISHINGS, INC.
SSC CORPORATION
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
------------------------------------
Name: John B. Sganga
Title: Vice President
<PAGE> 9
ENDORSEMENT NO.5
COURT SQUARE CAPITAL LIMITED, CONSOLIDATED FURNITURE
CORPORATION, FURNITURE COMFORT CORPORATION, SSC CORPORATION, AND CHOICE SEATS
CORPORATION hereby agree that the promissory note, as amended, to which this
Endorsement No. 5 is attached (the "Revolving Credit Note") shall be and hereby
is amended as follows:
A. Each occurrence of the amount of the amount
"$200,000,000" on page 1 of the Revolving Credit Note is deleted and the amount
"$245,000,000" is inserted in lieu thereof.
B. The words "Two Hundred Million" are deleted from the
first paragraph of the Revolving Credit Note and the words "Two Hundred Forty
Five Million" are inserted in lieu thereof.
Date: July 1, 1997
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,
Secretary, Treasurer and
Controller
FURNITURE COMFORT CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
<PAGE> 10
SSC CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
CHOICE SEATS CORPORATION
By: /s/ JOHN B. SGANGA
-----------------------------
John B. Sganga
Treasurer, Vice President and
Secretary
2
<PAGE> 1
EXHIBIT 4.49
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND FINANCING STATEMENT
THIS MORTGAGE, made this 12th day of November, 1997, by Futorian
Furnishings, Inc., a Delaware corporation ("Mortgagor") in favor of Banco
Popular, a state banking corporation ("Mortgagee").
W I T N E S S E T H :
WHEREAS, Pursuant to that certain Mortgage Note of even date herewith
made by Mortgagor to the order of Mortgagee (the "Note"), Mortgagor is justly
indebted to Mortgagee in the principal amount of Two Million One Hundred
Seventy Thousand Dollars ($2,170,000) (the "Loan"); and
WHEREAS, pursuant to the Note, Mortgagor promises to pay the said
principal sum and interest at the rate or rates and in installments as provided
in said Note, and a final payment of principal and interest, if not sooner
paid, on or before December 1, 2017 (the "Maturity Date"), at the office of
Mortgagee at 4801 W. Fullerton, Chicago, Illinois 60639, or such place as the
holder of the Note may from time to time in writing appoint; and
WHEREAS, Mortgagee has required as a condition of the Loan, that this
Mortgage be executed and delivered by Mortgagor to Mortgagee.
NOW, THEREFORE, Mortgagor, to secure the payment of the principal
indebtedness and interest thereon in accordance with the terms of the Note, to
secure the performance of the covenants and agreements herein contained by
Mortgagor to be performed and the additional obligations hereinafter described,
as said Note may be amended, modified or replaced from time to time, and also
in consideration of the sum of ONE DOLLAR ($1.00) in hand paid, the receipt
whereof is hereby acknowledged, does by these presents MORTGAGE, GRANT, REMISE,
RELEASE AND CONVEY unto Mortgagee, its successors and assigns, the real estate
and all of its estate, right, title and interest therein situate, lying and
being in the County of Lake and State of Illinois, which, with the property
hereinafter described, is collectively referred to herein as the "Premises";
<PAGE> 2
TOGETHER with all easements and rights of way appurtenant thereto,
whether now or hereafter existing and all heretofore or hereafter vacated
alleys and streets abutting said real estate;
TOGETHER with all buildings and other improvements now located thereon
or which may hereafter be placed thereon (the "Improvements"), tenements,
easements, fixtures and appurtenances thereto belonging, and all rents, issues
and profits thereof for so long and during all such times as Mortgagor may be
entitled thereto (which are pledged primarily and on a parity with said real
estate and not secondarily), and all fixtures, apparatus, equipment or articles
now or hereafter therein or thereon used to supply heat, gas, electricity, air
conditioning, water, light, power, sprinkler protection, waste removal,
refrigeration (whether single units or centrally controlled), and ventilation,
including (without restricting the foregoing) all items set forth on Exhibit B
attached hereto and made a part hereof, it being understood that the
enumeration of any specific articles of property shall in no way exclude or be
held to exclude any items of property not specifically mentioned;
TOGETHER with all the estate, interest, right, title, other claim or
demand, including claims or demands with respect to the proceeds of insurance
in effect with respect thereto, which Mortgagor now have or may hereinafter
acquire in the Premises, and any and all awards made for the taking of eminent
domain, or by any proceedings or purchase in lieu thereof, or of the whole or
any part of the Premises, including without limitation any awards resulting
from the change of grade of streets and awards for severance damages;
TOGETHER with all royalties, minerals, oil and gas rights and profits,
water and water rights (whether or not appurtenant) owned by Mortgagor and
shares of stock pertaining to such water or water rights, ownership of which
affects such real estate;
TOGETHER with all building materials, equipment, work in process or
other personal property of any kind, whether stored on the Premises or
elsewhere, which have been or later will be acquired for the purpose of being
delivered to, incorporated into or installed in or about the Premises;
TOGETHER with all books and records pertaining to any and all of the
property described above, including computer-readable memory and any computer
hardware or software necessary to access and process such memory ("Books and
Records"); and
2
<PAGE> 3
TOGETHER with all proceeds of, additions and accretions to,
substitutions and replacements for, and changes in any of the property
described above.
All of the land, estate and property hereinabove described, real,
personal and mixed, whether affixed or annexed or not (except where otherwise
hereinabove specified) and all rights hereby conveyed and mortgaged are
intended so to be as a unit and are hereby understood, agreed and declared to
form a part and parcel of the real estate and to be appropriated to the use of
the real estate, and shall for the purposes of this Mortgage be deemed to be
real estate and conveyed and mortgaged hereby.
Mortgagor covenants that it is lawfully seized of the Premises, that
the same are unencumbered except as heretofore approved by Mortgagee in
writing, and that it has good right, full power and lawful authority to convey
and mortgage the same, and that it will forever defend said Premises and the
quiet and peaceful possession of the same against the lawful claims of all
persons whomsoever.
TO HAVE AND TO HOLD the Premises mortgaged and conveyed unto the said
Mortgagee, its successors and assigns, forever, for the purposes and uses
herein set forth.
Mortgagor hereby further covenants and agrees to and with Mortgagee,
as follows:
1. PROTECTION AND MAINTENANCE OF THE PREMISES.
(a) Maintenance, Repair and Restoration of Improvements,
Payment of Indebtedness, Payment of Prior Liens.
Mortgagor shall: (i) promptly repair, restore or rebuild any building
or improvements now or hereafter on the Premises which may become damaged or
destroyed to substantially the same character as prior to such damage or
destruction; (ii) keep said Premises in good condition and repair, without
waste, and free from nuisance, mechanics' lien or other liens or claims for
lien not expressly subordinated to the lien hereof or insured over or permitted
hereunder; (iii) immediately pay when due any indebtedness which may be secured
by a lien or charge on the Premises superior to the lien hereof, and upon
request exhibit satisfactory evidence of the discharge of such prior lien to
Mortgagee; (iv) comply in all material respects with all requirements of
applicable law, including any applicable local, state or federal environmental
laws, municipal ordinances, and restrictions of record with respect to the
Premises and the use thereof; and (v) pay each item of indebtedness secured by
this Mortgage when due according to the
3
<PAGE> 4
terms hereof and of the Note and other loan documents securing the Note (the
"Loan Documents"). As used in this Paragraph 1 and elsewhere in this Mortgage,
the term "indebtedness" shall mean and include the principal sum evidenced by
the Note, together with all interest thereon, and all other sums at any time
due to Mortgagee pursuant to the Note, this Mortgage and all other Loan
Documents.
(b) Contested Liens. Notwithstanding anything to the
contrary herein contained, Mortgagor shall have the right to contest by
appropriate legal or administrative proceedings diligently prosecuted any
mechanics', materialmen's or other lien or claim for lien upon the Premises
(collectively referred to as a "Contested Lien") and no Contested Lien shall
constitute a Default (hereinafter defined) hereunder, provided that Mortgagor
shall furnish to Mortgagee such security as may be deemed reasonably
satisfactory to Mortgagee to insure payment thereof and to prevent any sale,
foreclosure or forfeiture of the Premises by reason of nonpayment thereof, and
provided further that, upon final determination of the lien or claim for lien,
Mortgagor shall immediately pay any judgment recorded, with all prior costs and
charges, and shall have the lien released and any judgment satisfied. Security
delivered to Mortgagee in the form of cash or its equivalent shall be released
to Mortgagor to be applied toward satisfaction of such judgment upon
presentation of appropriate documentation.
2. PAYMENT OF TAXES, TAX CONTESTS OR TAX DEPOSITS.
(a) Mortgagor's Obligation to Pay Taxes When Due.
Mortgagor shall pay when due and before any penalty or interest attaches all
general real estate taxes, and shall pay special taxes, special assessments,
water charges, sewer service charges, and all other like charges against the
Premises of any nature whatsoever when due and prior to delinquency (all
hereinafter referred to as "Taxes"), and shall, upon written request, furnish
to Mortgagee duplicate receipts therefor.
(b) Right to Contest Taxes. Mortgagor may contest the
validity or amount of any such Taxes by appropriate legal or administrative
proceedings diligently prosecuted, provided that if in conjunction with such
contest Mortgagor shall not pay such contested tax, pending any such legal
proceedings, Mortgagor shall give Mortgagee such security as may be deemed
reasonably satisfactory to Mortgagee to insure payment of the amount of the
tax, assessment, tax lien or other imposition or charge, and any and all
interest and penalties thereon, including Mortgagee's reasonable attorneys'
fees as may be required. Security delivered to Mortgagee in the form of cash
or its equivalent shall be
4
<PAGE> 5
released to Mortgagor to discharge any tax due with respect to said contest,
upon presentation of appropriate documentation.
(c) Tax Deposits. After a default by Mortgagor
hereunder and if Mortgagee so requests, Mortgagor shall deposit with Mortgagee
on the first day of each month until the indebtedness secured by this Mortgage
is fully paid, at such place as Mortgagee may from time to time in writing
appoint, and in the absence of such appointment, then at the office of
Mortgagee in Chicago, Illinois, a sum equal to (i) one-twelfth of the annual
Taxes on the Premises for the last ascertainable year (unless said taxes are
based upon assessments which exclude the improvements or any part thereof now
constructed, or to be constructed, in which event the amount of such deposits
shall be based upon Mortgagee's reasonable estimate as to the amount of Taxes
to be levied and assessed), plus (ii) an amount reasonably estimated by
Mortgagee to provide for any tax increase. The deposits for Taxes posted with
Mortgagee may be held in a nonsegregated, non-interest bearing account. In the
event of any Default, any part or all of such reserve fund may be applied to
any part of the loan indebtedness secured by this Mortgage and in refunding
any part of such reserve fund, Mortgagee may deal with whomever is represented
to be the owner of the Premises at that time. If, one month prior to the due
date of any of the aforementioned Taxes, the amounts then on deposit therefor
shall be insufficient for the payment of such Taxes in full, Mortgagor, within
ten (10) days after written notice from Mortgagee, shall deposit the amount of
the deficiency with or as directed by Mortgagee.
3. INSURANCE.
(a) Mortgagor to Maintain Insurance. Mortgagor shall
maintain the following policies of insurance with respect to the Premises with
carriers rated A7 or higher: (a) flood insurance whenever in the opinion of
Mortgagee such protection is necessary and is available, (b) All-risk builder's
risk insurance no less broad than "standard multi-peril", with a full
replacement cost endorsement and 25% soft cost coverage whenever improvements
to the Premises are undertaken, (c) Worker's Compensation Insurance in
statutory limits, (d) casualty insurance for the full replacement cost of the
Improvements, including loss or damage by fire, lightning, wind storm, hail
storm, aircraft, vehicles, smoke, earthquake, explosion, riot or civil
commotion as provided by the standard fire and extended coverage policy, (e) if
the Premises is a rental property, rent interruption insurance insuring
Mortgagor for one years' rental income; and (f) commercial general liability
insurance for injury to or death of any person in an amount of not less than
Two Million Dollars ($2,000,000) combined single limit
5
<PAGE> 6
coverage with umbrella coverage of at least Two Million Dollars ($2,000,000);
(g) if Borrower has employees on the Premises, employer's liability insurance
with a limit of at least One Million Dollars ($1,000,000). All policies of
insurance to be furnished hereunder shall be in forms, companies and amounts
satisfactory to Mortgagee, with standard mortgagee clauses attached to all
policies in favor of and in form satisfactory to Mortgagee, including a
provision requiring that the coverage evidenced thereby shall not be terminated
or materially modified without less than thirty (30) days' prior written notice
to Mortgagee, and with Mortgagee named as an additional insured with respect to
all general commercial liability insurance carried by Mortgagor. Mortgagor
shall deliver to Mortgagee all policies, including additional and renewal
policies, or certificates therefor or other evidence thereof, reasonably
satisfactory to Mortgagee, and, in the case of insurance about to expire, shall
deliver renewal policies not less than thirty (30) days prior to their
respective dates of expiration.
(b) No Separate Insurance. Mortgagor shall not take out
separate insurance concurrent in form or contributing in the event of loss with
that required to be maintained hereunder unless Mortgagee is included thereon
under a standard mortgage clause acceptable to Mortgagee. Mortgagor shall
immediately notify Mortgagee whenever any such separate insurance is taken out
and shall promptly deliver to Mortgagee the policy or policies of such
insurance.
(c) Monthly Insurance Premium Deposits. If Mortgagor
shall default in its obligation and undertaking to pay the insurance premiums
as set forth above, and the same shall not have been cured within ten (10) days
after written notice and demand from Mortgagee to do so, then in addition to
any other remedies of Mortgagee set forth in this Mortgage in case of a Default
(defined below) by Mortgagor, the Mortgagee shall have the right to demand and
require that Mortgagor deposit with Mortgagee on the 1st day of each month
thereafter until the indebtedness secured by this Mortgage is fully paid, at
such place as Mortgagee may from time to time in writing appoint, and in the
absence of such appointment, then at the office of Mortgagee in Chicago,
Illinois, a sum equal to one-twelfth of the aggregate annual insurance premium
as evidenced by the most recent invoice for same. Any deposits for insurance
premiums posted with Mortgagee may be held in non-segregated accounts and
without any allowance of interest. In the event of any Default, any part or all
of such reserve fund may be applied to any part of the loan indebtedness
secured by this Mortgage and in refunding any part of such reserve fund,
Mortgagee may deal with whomever is represented to be the owner of the Premises
at that time. If, one month prior to the due date of any
6
<PAGE> 7
of the aforementioned premiums for insurance, the amounts then on deposit
therefor shall be insufficient for the payment of such insurance premiums in
full, Mortgagor, within ten days after written notice from Mortgagee shall
deposit the amount of the deficiency with or as directed by Mortgagee.
4. ADJUSTMENT OF LOSSES WITH INSURER AND APPLICATION OF PROCEEDS
OF INSURANCE. In case of loss or damage by fire or other casualty which causes
damage to the Premises, which damage or destruction shall cost in excess of One
Hundred Thousand Dollars ($100,000) to repair, Mortgagee shall have the right,
but not the obligation, to settle (with Mortgagor's consent as to amount if no
Default exists hereunder) and collect such proceeds, and Mortgagee may elect
either to apply such proceeds to the payment of amounts due hereunder and under
the Note, or provided no Default (as hereinafter defined) exists hereunder, to
hold such proceeds, without interest, to reimburse Mortgagor for the cost of
the rebuilding or restoration of any or all Improvements on said Premises. If
Mortgagee elects to apply said proceeds to the repayment of amounts due
hereunder and under the Note, then, at Mortgagee's option, the entire amount
due thereunder shall immediately become due and payable. Mortgagee shall not
be responsible for any failure to collect any amount in connection with any
casualty regardless of the cause of such failure.
Insurance proceeds held by Mortgagee for restoration or repairing of
the Premises shall be disbursed from time to time upon Mortgagee being
furnished with (i) plans and specifications for such restoration, which shall
provide for the reconstruction of the Premises to be of at least equal value as
prior to the subject casualty, and which shall be approved by Mortgagee, which
approval shall not be unreasonably withheld or delayed, (ii) evidence
reasonably satisfactory to it of the estimated cost of the restoration or
repair, (iii) funds sufficient in addition to the proceeds of insurance, to
fully pay for the restoration or repair, and (iv) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of survey and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. No payment made
prior to the final completion of the restoration or repair shall exceed ninety
percent (90%) of the value of the work performed from time to time, as such
value shall be determined by Mortgagee in its reasonable judgment; funds other
than insurance proceeds shall be disbursed prior to disbursement of such
proceeds, and at all times the undisbursed balance of such proceeds remaining
in the hands of Mortgagee together with funds deposited or irrevocably
committed, to the satisfaction of Mortgagee by or on behalf of Mortgagor to pay
the cost of such repair or restoration, shall be sufficient in
7
<PAGE> 8
the reasonable judgment of Mortgagee to pay the entire unpaid cost of the
restoration or repair, free of all liens or claims for lien. Any surplus
remaining out of insurance proceeds held by Mortgagee after payment of such
costs of restoration or repair shall be paid to Mortgagor, provided that no
Default then exits hereunder. No interest shall be allowed to Mortgagor on
account of any proceeds of insurance or other funds held by Mortgagee
In the event of loss or casualty which causes damage to the Premises,
which damage shall cost One Hundred Thousand Dollars ($100,000) or less to
repair, all insurance proceeds in connection therewith shall be turned over to
Mortgagor and applied to the repair of such damage.
5. STAMP TAX. If, by the laws of the United States of America,
or of any state having jurisdiction over Mortgagor, any tax is due or becomes
due in respect of the issuance of the Note (other than income taxes or other
like taxes customarily payable by Mortgagee) hereby secured, the Borrower
covenants and agrees to pay such tax in the manner required by any such law.
Mortgagor further covenants to reimburse Mortgagee for any reasonable sums
which Mortgagee may expend by reason of the imposition of any tax on the
issuance of the Note secured hereby or the recording of this Mortgage.
6. INTENTIONALLY OMITTED.
7. ASSIGNMENT OF RENTS. As further security for Mortgagor's
obligations to Mortgagee pursuant to the Loan Documents, Mortgagor hereby
assigns unto Mortgagee, and grants to Mortgagee a security interest in, all of
the rents, leases and income now or hereafter due with respect to the Premises,
it being the intention hereby to establish an absolute transfer and assignment
of all such leases, rents and income thereunder to Mortgagee, whether such
leases now exist or shall or shall exist in the future. Mortgagor hereby
irrevocably appoints Mortgagee its attorney-in-fact (this power of attorney
and any other powers of attorney granted herein are powers coupled with an
interest and cannot be revoked, modified or altered without the written consent
of Mortgagee) with or without taking possession of the Premises as provided in
Paragraph 12 hereof, to lease any portion of the Premises to any party upon
such terms as Mortgagee shall determine, and to collect all rents due under
each of the leases, with the same rights and powers and subject to the same
immunities, exoneration of liability and rights of recourse and indemnity as
Mortgagee would have upon taking possession pursuant to the provisions of
Paragraph 12 hereof. Mortgagor represents that no rent has been or will be
paid by any person in possession of any portion of the Premises for more than
one
8
<PAGE> 9
installment in advance and that the payment of none of the rents for any
portion of the Premises has been or will be waived, reduced or otherwise
discharged or compromised by Mortgagor. Mortgagor waives any rights of set-off
against any person in possession of any portion of the Premises. Mortgagor
agrees that it will not assign any of the rents or profits of the Premises,
except to a purchaser or grantee of the Premises. Nothing herein contained
shall be construed as constituting Mortgagee a mortgagee in possession in the
absence of the taking of actual possession of the Premises by Mortgagee
pursuant to Paragraph 12(b) hereof. Mortgagor expressly waives all liability
of Mortgagee in the exercise of the powers herein granted Mortgagee or at law
or in equity. Mortgagor shall execute and deliver, at the request of
Mortgagee, all such further assurances and assignments in the Premises as
Mortgagee shall from time to time require. Although the assignment contained
in this paragraph is a present assignment, Mortgagee shall not exercise any of
the rights or powers conferred upon it by this paragraph until a Default (as
hereinafter defined) shall exist under this Mortgage. Within thirty (30) days
of Mortgagee's written demand, Mortgagor will furnish Mortgagee with executed
copies of each of the leases and with estoppel letters from each tenant in a
form satisfactory to Mortgagee. If Mortgagee requires that Mortgagor execute
and record a separate collateral assignment of rents or separate assignments of
any of the leases to Mortgagee, the terms of those assignments shall control in
the event of a conflict with the terms of this Mortgage. Mortgagee shall apply
revenues collected in accordance herewith, first to the payment of any expenses
incurred by Mortgagor in connection with said collection, second to the payment
of amounts due to Mortgagee pursuant to the Loan Documents in such order and
priority as it may elect, and third, to such person or entity entitled thereto,
as their interests may appear.
8. EFFECT OF EXTENSIONS OF TIME. If the payment of any
indebtedness due from Mortgagor or Mortgagor or any part thereof be extended or
varied or if any part of any security for the payment of the indebtedness be
released, all persons now or at any time hereafter liable therefor, or
interested in said Premises, shall be held to assent to such extension,
variation or release, and their liability and the lien and all provisions
hereof shall continue in full force, the right of recourse against all such
persons being expressly reserved by the Mortgagee, notwithstanding such
extension, variation or release.
9. MORTGAGEE'S PERFORMANCE OF DEFAULTED ACTS. In case of Default
(defined below), Mortgagee may, but need not, make any payment or perform any
act herein required of Mortgagor in any form and manner deemed expedient, and
may be made or accomplished either
9
<PAGE> 10
before or after acceleration of the indebtedness secured hereby or foreclosure
of the lien hereof and during the period of redemption, if any. Mortgagee may,
but need not, make full or partial payments of principal or interest on prior
encumbrances, if any, and purchase, discharge, compromise or settle any tax
lien or other prior lien or title encumbrance or claim thereof, or redeem from
any tax sale or forfeiture affecting said Premises or contest any tax or
assessment or cure any default of landlord in any lease of the Premises. All
monies paid for any of the purposes herein authorized and all expenses paid or
incurred in connection therewith, including attorneys' fees (which may include
in-house counsel), and any other monies advanced by Mortgagee in regard to any
tax if not paid and or to protect the Premises or the lien hereof, shall be so
much additional indebtedness secured hereby, and shall become immediately due
and payable without notice and with interest thereon at the Default Rate
specified in the Note. Inaction of Mortgagee shall never be considered as a
waiver of any right accruing to it on account of any default on the part of
Mortgagor.
10. MORTGAGEE'S RELIANCE. Mortgagee in making any payment hereby
authorized: (a) relating to taxes and assessments, may do so according to any
bill, statement or estimate procured from the appropriate public office without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax, assessment, sale, forfeiture, tax lien or title or claim
thereof; or (b) for the purchase, discharge, compromise or settlement of any
other prior lien, may do so without inquiry as to the validity or amount of any
claim for lien which may be asserted, subject to Mortgagor's rights as set
forth in sub-paragraphs 1(b) and 2(b) hereof.
11. ACCELERATION OF INDEBTEDNESS IN CASE OF DEFAULT. Mortgagor
further covenants and agrees with Mortgagee, that if: (a) a "Default" (as
defined therein) under the Note shall occur; or (b) Mortgagor shall file a
petition in voluntary bankruptcy or under any Chapter of Title Eleven of the
United States Code or any similar law, state or federal, whether now or
hereafter existing, or any answer admitting insolvency or inability to pay its
debts, or fail to obtain a vacation or stay of involuntary proceedings within
sixty (60) days, as hereinafter provided; or (c) Mortgagor shall be adjudicated
a bankrupt, or a trustee or a receiver shall be appointed for Mortgagor or the
major part thereof in any involuntary proceeding or any court shall have taken
jurisdiction of the property of Mortgagor in any involuntary proceeding for the
reorganization, dissolution, liquidation or winding up of such Mortgagor, and
such trustee or receiver shall not be discharged or such jurisdiction
relinquished or vacated or stayed on appeal or
10
<PAGE> 11
otherwise stayed within sixty (60) days; or (d) Mortgagor shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall consent to
the appointment of a receiver or trustee or liquidator of all of its property
or the major part thereof; or (e) default shall be made in the due observance
or performance of any other of the covenants, agreements or conditions
hereinbefore or hereinafter contained, required to be kept or performed or
observed by Mortgagor, which shall not be cured within thirty (30) days after
written notice thereof is sent by Mortgagee to Mortgagor, or commenced to be
corrected and diligently pursued to completion within sixty (60) days after
such notice if correction is impossible to perform within a 30-day period; or
(f) the occurrence of a Prohibited Transfer (as defined in Paragraph 26 below);
or (g) default which shall not have been cured within the applicable grace
period, if any, shall be made under any of the Loan Documents, or (h) a Default
shall occur under any other Loan Document, and in every such case the whole of
the indebtedness hereby secured shall, at once, at the option of Mortgagee,
become immediately due and payable without notice to Mortgagor. For purposes
of this Mortgage, each of the events described in (a) through (h) above after
expiration of any grace or cure periods permitted therein shall be referred to
as a "Default". If while any insurance proceeds or condemnation awards are
being held by Mortgagee to reimburse Mortgagor for the cost of rebuilding or
restoration of any or all Improvements on the Premises, as set forth in this
Mortgage, Mortgagee shall be or become entitled to, and shall accelerate the
indebtedness secured hereby, then and in such event, Mortgagee shall be
entitled to apply all such insurance proceeds and condemnation awards then held
by it in reduction of the indebtedness hereby secured and any excess held by it
over the amount of indebtedness then due hereunder shall be returned to
Mortgagor or any subsequent party holding record title to the Premises or
otherwise entitled thereto, without interest.
12. OTHER REMEDIES. In addition to the acceleration of
indebtedness provided for in Paragraph 11 above, and other remedies provided
for herein and under the Note and other Loan Documents, Mortgagee shall have
the following remedies, as well as all remedies available at law and in equity:
(a) Receiver. Mortgagee shall, as a matter of right,
without notice and without giving bond to Mortgagor or anyone claiming by,
under or through Mortgagor, and without regard for the solvency or insolvency
of Mortgagor or the then value of the Premises, to the extent permitted by
applicable law, be entitled to have a receiver appointed for all or any part of
the Premises and for the rents, proceeds, issues and profits thereof, with the
11
<PAGE> 12
rights and powers referenced below and such other rights and powers as the
court making such appointment shall confer, and Mortgagee hereunder or any
holder of the Note may be appointed such receiver. Mortgagor hereby consents
to the appointment of such a receiver and waives the right to assert any
objection thereto. Such receiver shall have all powers and duties prescribed
by Section 15-1704 of the Illinois Mortgage Foreclosure Law (the "Act"), all
other powers which are necessary or usual in such cases for the protection,
possession, control, management and operation of the Premises, and such rights
and powers as Mortgagee would have, upon entering and taking possession of the
Premises under section (b) below, including but not limited to, the power to
collect the rents, issues and profits of said Premises before and during the
pendency of any foreclosure suit and, in case of a sale and a deficiency during
the full statutory period of redemption, whether there be redemption or not, as
well as during any further times when Mortgagor, except for the intervention of
such receiver, would be entitled to collect such rents, issues and profits.
The court from time to time may authorize the receiver to apply the net income
in his hands in payment in whole or in part of: (i) the indebtedness secured
hereby, or by any decree foreclosing this Mortgage, or any tax, special
assessment or other lien which may be or become superior to the lien hereof or
of such decree, provided such application is made prior to a foreclosure; and
(ii) the deficiency in case of a sale and deficiency.
(b) Entry. Mortgagee, in person, by agent or by
court-appointed receiver, may enter, take possession of, manage and operate all
or any part of the Premises, and may also do any and all other things in
connection with those actions as Mortgagee in its sole discretion shall
consider necessary or appropriate to protect the security of this Mortgage.
Such other things may include, but shall not be limited to: taking possession
of the Books and Records; entering into, enforcing, modifying or canceling
leases on such terms and conditions as Mortgagee may consider proper,
including, without limitation, extending the term of any such lease beyond the
Maturity Date; obtaining and evicting tenants; fixing or modifying rents;
collecting and receiving any payment of money owing to Mortgagor; completing
any unfinished construction; and/or contracting for and making such repairs and
alterations as Mortgagee shall deem necessary. If Mortgagee so requires,
Mortgagor shall assemble all of the personal property pledged to Mortgagee
hereunder that has been removed from the Premises and make all of it available
to Mortgagee at the Premises. Mortgagor hereby irrevocably constitutes and
appoints Mortgagee as Mortgagor's attorney-in-fact to perform such acts and
execute such documents as Mortgagee in its sole discretion may consider
appropriate in connection with taking these measures, including
12
<PAGE> 13
endorsement of Mortgagor's name on any instruments. Mortgagee shall not be
obligated to perform or discharge, nor does it hereby undertake to perform or
discharge, any obligation, duty or liability under any leases or other
agreements affecting the Premises. Mortgagor shall and does hereby agree to
indemnify and hold Mortgagee harmless of and from any and all liability, loss
or damage which it may or might incur under said leases or agreements or under
or by reason of the assignment thereof and of and from any and all claims and
demands whatsoever which may be asserted against it by reason of any alleged
obligations or undertakings on its part to perform or discharge any of the
terms, covenants or agreements contained in said leases or agreements, except
those which result from Mortgagee's gross negligence or wilful misconduct.
Should Mortgagee incur any such liability, loss or damage, under said leases or
under or by reason of the assignment thereof, or in the defense of any claims
or demands, the amount thereof, including costs, expenses and attorneys' fees,
shall be secured hereby, and Mortgagor shall reimburse Mortgagee therefor
immediately upon demand with interest therein at the Default Rate from the date
of disbursement until the date repaid.
(c) Application of Income Received by Mortgagee.
Mortgagee, in the exercise of the rights and powers hereinabove conferred upon
it shall have full power to use and apply the avails, rents, issues and profits
of the Premises to the payment of or on account of the following, in such order
as Mortgagee may determine:
(i) to the payment of the operating expenses of
the Premises, including cost of management and sale or leasing thereof
(which shall include reasonable compensation to Mortgagee and its
agent or agents, if management be delegated to an agent or agents, and
shall also include lease or sale commissions and other compensation
and expenses of seeking and procuring tenants or purchasers and
entering into leases or sales contracts), established claims for
damages, if any, and premiums on insurance hereinabove authorized;
(ii) to the payment of taxes and special
assessments now due or which may hereafter become due on the Premises;
and, if this is a leasehold mortgage, of all rents due or which may
become hereafter due under the underlying lease;
(iii) to the payment of all repairs, decorating,
renewals, replacements, alterations, additions, betterments, and
improvements of the Premises, including the cost from time to time of
installing or replacing personal property such as appliances therein,
and of placing the Premises in such
13
<PAGE> 14
condition as will, in the judgment of Mortgagee are necessary to make
it readily rentable or saleable; and
(iv) to the payment of any indebtedness secured
hereby or any deficiency which may result from any foreclosure sale.
(d) Uniform Commercial Code Remedies. Mortgagee may
exercise any or all of the remedies granted to a secured party under the
Illinois Uniform Commercial Code (the "Code").
(e) Foreclosure; Lawsuits. Mortgagee shall have the
right to foreclose the lien hereof for the indebtedness secured hereby or part
thereof in accordance with the Act, and to exercise any other remedies of
Mortgagee at law or in equity or as otherwise granted pursuant to the Loan
Documents. In any suit to foreclose the lien hereof, there shall be allowed
and included as additional indebtedness in the decree for sale all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for reasonable attorneys' fees, appraiser's fees, outlays for
documentary and expert evidence, stenographers' charges, publication costs, and
costs (which may be estimated as to items to be expended after entry of the
decree) of procuring all such abstracts of title, title searches and
examinations, title insurance policies and similar data and assurances with
respect to the title as Mortgagee may deem necessary either to prosecute such
suit or to evidence to bidders at any sale which may be had pursuant to such
decree the true condition of the title to or the value of the Premises. All
costs and expenses of the nature mentioned in this paragraph and such
reasonable expenses and fees as may be incurred in the protection of said
Premises and the maintenance of the lien of this Mortgage, including the
reasonable fees of any attorney employed by Mortgagee in any litigation or
proceeding affecting this Mortgage, the Loan Documents or said Premises,
including probate and bankruptcy proceedings, or in preparations for the
commencement or defense of any proceeding or threatened suit or proceeding
shall immediately become due and payable by Mortgagor, with interest thereon at
the Default Rate (as defined in the Note) from the time of such expenditure
until paid. Anything herein to the contrary notwithstanding, any costs or fees
of Mortgagee that is awarded or confirmed by any court in conjunction with the
foreclosure proceedings set forth herein shall be deemed reasonable.
Mortgagee's in-house counsel fees shall be included in the expenses described
herein. Without limiting the foregoing, Mortgagee may proceed by a suit or
suits in law or equity, whether for specific performance of any covenant or
agreement
14
<PAGE> 15
(f) Failure to Join a Tenant. Mortgagee shall have the
right and option to commence a civil action to foreclose this Mortgage and to
obtain a Decree of Foreclosure and Sale subject to the rights of any tenant or
tenants of the Premises. The failure to join any such tenant or tenants as
party defendant or defendants in any such civil action or the failure of any
Decree of Foreclosure and Sale to foreclose their rights shall not be asserted
by Mortgagor as a defense in any civil action instituted to collect the
indebtedness secured hereby, or any part thereof or any deficiency remaining
unpaid after foreclosure and sale of the Premises, any statute or rule of law
at any time existing to the contrary notwithstanding.
(g) Mortgagee May Bid. Upon any foreclosure sale,
Mortgagee may bid for and purchase the Premises and shall be entitled to apply
all or part of the indebtedness secured hereby as a credit to the purchase
price.
(h) Single or Multiple Foreclosure Sales. If the
Premises consists or more than one lot or parcel, Mortgagee may:
(i) designate the order in which the lots or
parcels shall be sold or disposed of or offered for sale or
disposition; and
(ii) elect to dispose of the lots or parcels
through a single consolidated sale or disposition to be held or made
under or in connection with judicial proceedings, or by virtue of a
judgment and decree of foreclosure and sale; or through two or more
such sales or dispositions; or in any other manner Mortgagee may deem
to be in its best interest.
13. APPLICATION OF PROCEEDS OF FORECLOSURE SALE. The proceeds of
any foreclosure sale of the Premises shall be distributed and applied in the
following order of priority: first, on account of all costs and expenses
incident to the foreclosure proceedings, including all such items as are
mentioned in the preceding paragraph hereof; second, to reimburse Mortgagee for
all sums expended pursuant to Paragraph 9 hereof to the extent unpaid together
with interest thereon at the Default Rate; third, to pay all other sums due to
Mortgagee in any order and proportion as Mortgagee in its sole discretion may
choose; and fourth, any surplus to any party entitled thereto as their rights
may appear.
14. RIGHTS AND REMEDIES CUMULATIVE; NO WAIVER. Each right, power
and remedy herein conferred upon Mortgagee is cumulative and in addition to
every other right, power or remedy, express or implied, given now or hereafter
existing, at law or in equity, and
15
<PAGE> 16
each and every right, power and remedy herein set forth or otherwise so
existing may be exercised from time to time as often and in such order as may
be deemed expedient by Mortgagee, and the exercise or the beginning of the
exercise of one right, power or remedy shall not be a waiver of the right to
exercise at the same time or thereafter any other right, power or remedy, and
no delay or omission of Mortgagee in the exercise of any right, power or remedy
accruing hereunder or arising otherwise shall impair any such right, power or
remedy, or be construed to be a waiver of any default or acquiescence therein.
15. MORTGAGEE'S RIGHT OF INSPECTION. Mortgagee shall have the
right to inspect the Premises and to inspect the Books and Records and
documents of Mortgagor pertaining thereto at all reasonable times and access
thereto shall be permitted for that purpose upon at least 24 hours notice and
during the business day.
16. CONDEMNATION. Mortgagor hereby assigns, transfers and sets
over unto Mortgagee the entire proceeds of any award or any claim for damages
for any of the Premises taken or damaged under the power of eminent domain or
by condemnation. Mortgagee may elect to apply the proceeds of the award upon
or in reduction of the indebtedness secured hereby without prepayment premium,
whether due or not, or if no Default exists, Mortgagor may hold such proceeds
in account and to make said proceeds available for restoration or rebuilding of
the Premises. If said proceeds shall be made available for repair or
restoration, same shall be governed by the provisions of Paragraph 4 hereof for
the payment of insurance proceeds toward the cost of rebuilding or restoration.
Any surplus of said award after payment of such cost of rebuilding or
restoration shall, at the option of Mortgagee, be applied on account of the
indebtedness secured hereby or be paid to any party entitled thereto.
Mortgagor agrees to execute such further assignments of any compensation,
awards, claims, and damages as Mortgagee may reasonably require from time to
time. Mortgagee shall not be responsible for any failure to collect any amount
in connection with any such proceeding regardless of the cause of such failure.
17. Intentionally Omitted.
18. RELEASE UPON PAYMENT AND DISCHARGE OF MORTGAGOR'S OBLIGATIONS.
Mortgagee shall release this Mortgage and the lien thereof by proper instrument
upon payment and discharge of all indebtedness secured hereby. Mortgagee may
require from Mortgagor reimbursement of any reasonable attorneys' fees and
other out of pockets expenses incurred for preparation and delivery of any
release.
16
<PAGE> 17
19. GIVING OF NOTICE. Any notice which shall be required to be
given hereunder shall be in writing, and the mailing thereof in the United
States mail by certified or registered mail addressed to Mortgagor and
Mortgagee at their respective addresses as set forth in Paragraph 27 (c)
hereof, or at such other place as Mortgagor or Mortgagee may by notice in
writing designate as a place for service of notice, or personal delivery, or
overnight courier, shall constitute service of notice hereunder. Any notice
mailed shall be deemed to have been given two (2) business days after the date
of mailing. Notice may also be given by hand delivery or overnight courier
and, in such case, shall be deemed to have been given as of the date of
receipt.
20. WAIVER OF DEFENSE. No action for the enforcement of the lien
or of any provision hereof shall be subject to any defense which would not be
good and available to the party interposing same in an action at law upon the
Note hereby secured.
21. WAIVERS.
(a) Waiver of Statutory Rights. Mortgagor hereby
expressly waives any and all rights of redemption from sale under any order or
decree of foreclosure of this Mortgage, or under any sale pursuant to any
statute, order, decree or judgment of any court, on its own behalf and on
behalf of each and every person (except decree or judgment creditors of
Mortgagor) acquiring any interest in or title to the Premises subsequent to the
date of this Mortgage, and to the extent permitted by law, hereby waives any
homestead right in and to the Premises.
(b) Waiver of Claims. Mortgagor further waives any and
all right to claim or recover against Mortgagee, its officers, employees,
agents and representatives for loss or damage to Mortgagor, the Premises,
Mortgagor's other property, or the property of others under Mortgagor's control
from any cause except for the gross negligence and willful or malicious acts of
Mortgagee, its employees, agents and representatives. All sums payable by
Mortgagor hereunder shall be paid without notice, demand, counterclaim, setoff,
deduction, or defense, and without abatement, suspension, deferment,
diminution, or reduction, and the obligations and liabilities of Mortgagor
hereunder shall in no way be released, discharged, or otherwise affected
(except as expressly provided herein) by reason of: (i) any damage to or
destruction of or any condemnation or similar taking of the Premises or any
part thereof; (ii) any restriction or prevention of or interference with any
use of the Premises or any part thereof; (iii) any title defect or encumbrance
or any eviction from the Premises or any part thereof by title paramount or
otherwise; (iv) any bankruptcy, insolven-
17
<PAGE> 18
cy, reorganization, composition, adjustment, dissolution, liquidation, or other
like proceeding relating to Mortgagee, or any action taken with respect to this
Mortgage by any trustee or receiver of Mortgagee, or by any court, in any such
proceeding; (v) any claim which Mortgagor has or might have against Mortgagee;
(vi) any default or failure on the part of Mortgagee to perform or comply with
any of the terms hereof of any other agreement with Mortgagor; or (vii) any
other occurrence whatsoever, whether similar or dissimilar to the foregoing; or
whether or not Mortgagor shall have notice or knowledge of any of the
foregoing. Except as expressly provided herein, Mortgagor waives all rights
now or hereafter conferred by statute or otherwise to any abatement,
suspension, deferment, diminution, or reduction of any obligations secured
hereby.
22. FILING AND RECORDING FEES. Mortgagor will pay all filing,
registration or recording fees, and all expenses incident to the execution and
acknowledgment of this Mortgage and all federal, state, county and municipal
taxes, and other taxes (other than Mortgagee's income on other like taxes
accruing by reason of the interest payable on the loan), duties, imposts,
assessments and charges arising out of or in connection with the execution and
delivery of said Note and this Mortgage.
23. LATE CHARGE. The Note secured hereby requires the payment of
a late charge in the event any installment of principal or interest due
thereunder shall become overdue for a period in excess of ten (10) days. Said
Note requires the payment to Mortgagee of a late charge of five cents ($.05)
for each dollar so overdue to defray part of the cost of collection. Said late
charge shall be secured hereby as indebtedness as that term is defined in
Paragraph 1 hereof.
24. NO MERGER. It being the desire and intention of the parties
hereto that the Mortgage and the lien thereof do not merge in fee simple title
to the Premises, it is hereby understood and agreed that should Mortgagee
acquire any additional or other interests in or to the Premises or the
ownership thereof, then, unless a contrary intent is manifested by Mortgagee as
evidenced by an express statement to that effect in an appropriate document
duly recorded, this Mortgage and the lien thereof shall not merge in the fee
simple title, toward the end that this Mortgage may be foreclosed as if owned
by a stranger to the fee simple title.
25. TRUTH-IN-LENDING. Mortgagor represents and agrees that the
obligations secured hereby is an exempt transaction under the Truth-In-Lending
Act, 15 U.S.C., Section 1601 et seq.
18
<PAGE> 19
26. RESTRICTIONS ON TRANSFER.
(a) Prohibited Transfers. It shall be an immediate event
of default hereunder if, without the prior written consent of the Mortgagee,
(i) Mortgagor shall create, effect or consent to or shall suffer or permit, any
sale, assignment, transfer, lien, pledge, mortgage, security interest or other
encumbrance or alienation of all or any part of the Premises, or interest
therein, except for the liens contemplated hereby, or (ii) Mortgagor shall sell
or otherwise transfer its ownership of its Barcalounger division to a third
party, including without limitation, the creation by Mortgagor of a separate
entity to own said division or the transfer by Mortgagor of its Barcalounger
division to another company owned by Mortgagor, its parent or affiliates, or
any type or merger, consolidation or other transaction, the result of which
would be that the income generated by the Barcalounger division would no longer
be the property of Mortgagor.
(b) Reasonableness of Restrictions. Mortgagor
acknowledges and agrees, for itself and its successors, that the foregoing
restrictions on sale, transfer, or conveyance are reasonable. Any violation of
the terms of this paragraph shall entitle Mortgagee to declare the whole
outstanding principal balance of the Note, together with interest accrued
thereon and any other sums owing under the terms of this Mortgage or any other
Loan Documents, immediately due and payable and to foreclose the lien and
security interest granted in this Mortgage.
(c) Binding Upon Successors. The provisions of this
Section 26 shall be operative with respect to, and shall be binding upon, any
persons who, in accordance with the terms hereof or otherwise, shall acquire
any part or interest in or encumbrance upon the Premises.
27. SECURITY AGREEMENT AND FINANCING STATEMENT.
(a) Security Agreement. Mortgagor and Mortgagee agree:
(i) that this Mortgage shall constitute a Security Agreement within the meaning
of the Code with respect to (x) all sums, now or hereinafter on deposit with
the Mortgagee for taxes and insurance premiums, if any, and any insurance or
condemnation proceeds attributable to the Premises, or any part thereof
("Deposits"), (y) with respect to any property included in the definition
herein of the word "Premises", which property may be deemed to form a part of
the real estate described in Exhibit "A" or may constitute a
19
<PAGE> 20
"fixture" (within the meaning of Section 9-313 of the Code) ("Fixtures"), and
necessary for the operation of the Premises, but excluding any of Mortgagee's
trade fixtures, inventory and equipment used in the operation of its business,
and all replacements of, substitutions for and additions to such property, and
the proceeds thereof (said Deposits, Fixtures and Personal Property,
replacements, substitutions, additions and the proceeds thereof being sometimes
herein collectively referred to as the "Collateral"); and (ii) that a security
interest in and to the Collateral is hereby granted to the Mortgagee; and (iii)
that the Collateral and all of Mortgagor's right, title and interest therein
are hereby assigned to the Mortgagee; all to secure payment of the indebtedness
and to secure performance by the Mortgagor of the terms, covenants and
provisions hereof.
(b) Applicability of Commercial Code in Case of Default.
If a Default occurs under this Mortgage, Mortgagee, pursuant to the appropriate
provisions of the Code, shall have an option to proceed with respect to both
the real property and Collateral in accordance with its rights, powers and
remedies with respect to the real property, in which event the default
provisions of the Code shall not apply. The parties agree that if the
Mortgagee shall elect to proceed with respect to the Collateral separately from
the real property, Mortgagee shall have all remedies available to a secured
party under the Code and ten (10) days written notice of the sale of the
Collateral shall be reasonable notice. The expenses of retaking, holding,
preparing for sale, selling and the like incurred by Mortgagee shall include,
but not be limited to, attorneys' fees and legal expenses incurred by
Mortgagee. Mortgagor agrees that, without the written consent of Mortgagee,
Mortgagor will not remove or permit to be removed from the Premises any of the
Collateral except that so long as the Mortgagor is not in Default hereunder,
Mortgagor shall be permitted to sell or otherwise dispose of the Collateral
when obsolete, worn out, inadequate, unserviceable or unnecessary for use in
the operation of the Premises, but only upon replacing the same or substituting
for the same other Collateral at least equal in value and utility to the
initial value and utility of that disposed of and in such a manner that said
replacement or substituted Collateral shall be subject to the security interest
created hereby and that the security interest of Mortgagee shall be perfected
and first in priority, it being expressly understood and agreed that all
replacements, substitutions and additions to the Collateral shall be and become
immediately subject to the security interest of this Mortgage and covered
hereby. Mortgagor covenants and represents that all Collateral now is, and
that all replacements thereof, substitutions therefor or additions thereto,
unless the Mortgagee
20
<PAGE> 21
otherwise consents, will be free and clear of liens, encumbrances, title
retention devices and security interests of others.
(c) Financing Statement. This Mortgage is intended to be
a financing statement within the purview of Section 9-402(b) of the Illinois
Uniform Commercial Code with respect to the Collateral. The addresses of the
Mortgagor (Debtor) and Mortgagee (Secured Party) are hereinafter set forth:
Address of Mortgagor: Futurion Furnishings, Inc.
95 Revere Drive, Suite J
Northbrook, IL 60062
Address of Mortgagee: Banco Popular
4801 W. Fullerton
Chicago, Illinois 60639
Attn: Michael Houlihan
This Mortgage is to be filed for record with the Recorder of Deeds of the
county where the Premises are located. Mortgagor is the record owner of the
Premises.
(d) Separate Security Agreements and Financing
Statements. Mortgagor, upon request by Mortgagee from time to time, shall
execute, acknowledge and deliver to Mortgagee, a separate Security Agreement,
Financing Statement or other similar security instruments, in form satisfactory
to Mortgagee, covering all property of the kind and nature set forth in Exhibit
B owned by Mortgagor, which is used in the operation of the Premises (as
opposed to the operation of Mortgagor's business) and which constitutes goods
within the meaning of the Code or concerning which there may be any doubt
whether the title to same has been conveyed by or security interest perfected
by this Mortgage under the laws of the state in which the Premises are located,
and will further execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, any financing statement, affidavit, continuation
statement or certificate or other document as Mortgagee may request in order to
perfect, preserve, maintain, continue and extend the security interest under
and the priority of this Mortgage and such security instrument. Mortgagor
further agrees to pay to Mortgagee on demand all reasonable costs and expenses
incurred by Mortgagee in connection with the preparation, execution, recording,
filing and re-filing of any such document. Mortgagor shall from time to time,
but not more frequrently than once every year on request of Mortgagee, deliver
to Mortgagee an inventory of the Collateral in reasonable detail.
21
<PAGE> 22
28. MAXIMUM ALLOWABLE RATE OF INTEREST. All agreements herein and
in the Note are expressly limited so that in no contingency or event
whatsoever, whether by reason of advancement of the proceeds hereof,
acceleration of maturity of the unpaid principal balance of the Note, or
otherwise, shall the amount paid or agreed to be paid to Mortgagee for the use,
forbearance or detention of the money to be advanced hereunder exceed the
highest lawful rate permissible under applicable usury laws. If, from any
circumstances whatsoever, fulfillment of any provision hereof or of the Note or
any other agreement referred to herein, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law which a court of competent jurisdiction may deem applicable
hereto, then, ipso facto, the obligation to be fulfilled shall be reduced to
the limit of such validity and if from any circumstance Mortgagee shall ever
receive as interest an amount which would exceed the highest lawful rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due under the Note and not to the payment of
interest.
29. MORTGAGEE'S LIEN FOR SERVICE CHARGE AND EXPENSES; FUTURE
ADVANCES. At all times, regardless of whether any loan proceeds have been
disbursed, this Mortgage secures (in addition to any loan proceeds disbursed
from time to time) the payment of any and all loan fees or service charges,
liquidated damages, loan expenses including but not limited to reasonable
attorneys' fees of Mortgagee's counsel to prepare loan documents, appraisal
fees, and advances due to or incurred by Mortgagee in connection with the loan
to be secured hereby; provided, however, that in no event shall the total
amount of loan proceeds disbursed plus such additional amounts exceed three
hundred percent (300%) of the face of the Note. All advances pursuant to the
Note including future advancements shall be a lien from the time this Mortgage
is recorded, as provided in the Act.
30. MISCELLANEOUS. The following understandings shall be
applicable to this Mortgage.
(a) Successors. This Mortgage and all provisions hereof
shall extend to and be binding upon Mortgagor and his successors, grantees and
assigns, any subsequent owner or owners of the Premises and all persons
claiming under or through any Mortgagor, and the word "Mortgagor" or
"Mortgagors" when used herein shall include all such persons and all persons
liable for the payment of the indebtedness or any part thereof, whether or not
such persons shall have executed said Note or this Mortgage. The word
"Mortgagee" when used herein shall include the successors and assigns of
22
<PAGE> 23
Mortgagee named herein, and the holder or holders, from time to time, of any
Note secured hereby.
(b) Invalidity of a Provision. In the event one or more
of the provisions contained in this Mortgage or any Note secured hereby or in
any other security documents given to secure the payment of the Note secured
hereby shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall at the
option of Mortgagee, not affect any other provision of this Mortgage, and this
Mortgage shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein or therein.
(c) Notices. Any notice which any party hereto may be
required or may desire to give hereunder shall be in writing and shall be
deemed to have been given on the second business day after mailing if mailed by
United States registered or certified mail in Illinois addressed as set forth
in Paragraph 27(c) above, or on the day of receipt if given by personal
delivery, overnight courier or by facsimile transmission.
(d) Illinois Law. This Mortgage and the Note it secures
are to be construed and governed by the laws of the state of Illinois.
(e) Estoppel Certificates. Mortgagor, on written request
of Mortgagee, will furnish a signed statement of the amount of the indebtedness
secured hereby and whether or not any default then exists hereunder and
specifying the nature of such default.
(f) Subordination. At the option of Mortgagee, this
Mortgage shall become subject and subordinate, in whole or in part (but not
with respect to priority of entitlement to insurance proceeds or any award in
condemnation) to any and all leases of all or any part of the Premises upon the
execution by Mortgagee and recording thereof, at any time hereafter, in the
Office of the Recorder of Deeds in and for the county wherein the Premises are
situated, of a unilateral declaration to that effect.
(g) Grammatical Adjustments. Whenever the context
requires, the singular form of any word herein shall include the plural form,
and vice versa, and the neuter form of any word shall include the masculine and
feminine forms, and vice versa.
(h) Waiver of Jury Trial. MORTGAGOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS MORTGAGE OR
THE LOAN OR ANY OF THE LOAN DOCUMENTS OR ANY
23
<PAGE> 24
OTHER STATEMENTS OR ACTIONS OF MORTGAGEE. MORTGAGOR ACKNOWLEDGES THAT THIS
WAIVER HAS BEEN REVIEWED BY MORTGAGOR AND MORTGAGOR'S COUNSEL AND THAT IT IS A
MATERIAL INDUCEMENT FOR MORTGAGEE TO MAKE THE LOAN AND ENTER INTO THE LOAN
DOCUMENTS AND THAT THIS WAIVER SHALL BE EFFECTIVE AS TO EACH OF THE LOAN
DOCUMENTS AS IF FULLY INCORPORATED THEREIN.
IN WITNESS WHEREOF, Mortgagor has executed this instrument the day and year
first above written.
Futorian Furnishings, Inc.
By: [SIG]
-----------------------------
Its: [SIG]
-------------------------
24
<PAGE> 25
State of Illinois )
) SS
County of Cook )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, DO HEREBY CERTIFY, that LAWRENCE M. ADELMAN personally known to me
to be the CEO & CHAIRMAN of Futorian Furnishings, Inc., an Illinois corporation
and personally known to me to be the same person whose name is subscribed to
the foregoing instrument, appeared before me this day in person acknowledged
that as such CEO & CHAIRMAN he signed, as his free and voluntary act, and as
the free and voluntary act and deed of said corporation, the foregoing
instrument for the uses and purposes therein set forth.
Given under my hand and official seal, this 12th day of November,
1997.
PEARL A. ZAGER
-----------------------------
Notary Public
25
<PAGE> 26
EXHIBIT "A"
LEGAL DESCRIPTION
THAT PART OF THE SOUTH 351.04 FEET (AS MEASURED PERPENDICULARLY TO THE SOUTH
LINE THEREOF) OF THE SOUTH HALF OF THE SOUTHWEST 1/4 OF SECTION 17, TOWNSHIP 43
NORTH, RANGE 12, EAST OF THE THIRD PRINCIPAL MERIDIAN, LYING EASTERLY OF THE
EASTERLY LINE OF WAUKEGAN ROAD AS DESCRIBED IN DEED RECORDED APRIL 8, 1964 AS
DOCUMENT 1221390 AND LYING WESTERLY OF A LINE DRAWN FROM A POINT 750.00 FEET
(AS MEASURED ALONG THE SOUTH LINE OF SAID SOUTHWEST 1/4) EAST OF THE AFORESAID
EASTERLY LINE OF WAUKEGAN ROAD TO THE SOUTHEAST CORNER OF PROPERTY DESCRIBED IN
DOCUMENT 1221388, RECORDED APRIL 8, 1964, IN LAKE COUNTY, ILLINOIS.
A - 1
<PAGE> 27
EXHIBIT "B"
PERSONAL PROPERTY
All personal property located on the Premises and affixed to the
Premises or used in the operation of the Premises as a building (as opposed to
use by Mortgagor in the operation if its business on the Premises), described
below, and all substitutions therefor, replacements thereof, and proceeds
thereof and specifically excluding all personal property which is not a fixture
or otherwise necessary for the operation of the Premises:
air conditioner, antennas, apparatus, awnings, basins, bathtubs,
bidets, blinds, boilers, built-in bookcases, built-in cabinets, carpets,
coolers, curtains, dehumidifiers, disposals, doors, drapes, dryers, ducts,
dynamos, elevators, equipment, escalators, fans, fittings, floor coverings,
furnaces, hardware, heaters, humidifiers, incinerators, lighting fixtures,
machinery, motors, ovens, pipes, plumbing, pumps, radiators, ranges,
recreational facilities, refrigerators, screens, screen and storm doors, storm
windows, security systems, shades, shelving, sinks, sprinklers, stoves,
toilets, ventilators, wall coverings, washers, window coverings, wiring and all
renewals or replacements thereof and substitutions therefor.
B - 1
<PAGE> 1
EXHIBIT 4.50
MORTGAGE NOTE
$2,100,000 ----------, 1997
Chicago, Illinois
1. PROMISE TO PAY. For value received, the undersigned, Futorian
Furnishings, Inc., a Delaware corporation ("Maker"), hereby promises to pay to
the order of Banco Popular, a state banking corporation (the "Lender") at its
office at 4801 W. Fullerton, Chicago, Illinois 60639, or at such other place as
the holder hereof may from time to time designate in writing, the principal sum
of Two Million One Hundred Thousand Dollars ($2,100,000), together with
interest thereon, to be paid in lawful money of the United States of America.
2. PAYMENT OF PRINCIPAL AND INTEREST.
A. Interest Rate. From the date of the disbursement of
the proceeds hereof until November 30, 2002 (the "Fixed Interest Period"),
interest on the outstanding principal balance of this Note shall accrue at the
annual rate of eight and one half percent (8.5%). From and after the
expiration of the Fixed Interest Period, interest shall be adjusted every five
(5) years, so that said rate shall change on December 1, 2002, December 1, 2007
and December 1, 2012 (each a "Change Date"). On each Change Date, the
interest rate shall be adjusted to a per annum rate equal to two hundred (200)
basis points in excess of the then current yield for United State treasury
securities adjusted to a constant maturity of five (5) years.
B. Monthly Payments of Interest and Principal. On
December 1, 1997, Maker shall pay to Lender interest only for the period
commencing on the date of disbursement of the proceeds hereof, and thereafter,
on the first day of every month until the Maturity Date (as defined below),
Maker shall make monthly payments of principal and interest based upon the then
current interest rate amortized over twenty (20) years. The monthly payments of
principal and interest for the Fixed Interest Period shall be Eighteen Thousand
Two Hundred Twenty-Four and 29/100 Dollars ($18,224.29).
C. Maturity Date. All unpaid principal and accrued
interest, if not sooner due or paid, shall be due and payable on December 1,
2017.
D. Calculation of Interest. Interest payable under this
Note shall be computed for the actual number of days elapsed in any
<PAGE> 2
portion of a month for which interest may be due and on the basis of a year
consisting of 360 days. Prior to the occurrence of a Default (defined below),
all payments received on account of this Note shall first be applied to interest
and the remainder, if any, shall be applied to principal.
E. Default Rate. In the event that there shall occur (a) any
Default (as hereinafter defined) hereunder, or (b) maturity of the indebtedness
evidenced hereby without repayment thereof, whether by passage of time,
acceleration, declaration or otherwise, then the entire principal balance
hereof and all accrued interest but unpaid interest thereon shall thereafter at
the option of the holder hereof bear interest at a rate equal to four percent
(4%) above the then current interest rate (the "Default Rate") until the loan
is repaid in full, or at the option of Lender, until the Default shall have
been cured. Interest accruing at the Default Rate shall be payable on demand.
F. Late Charge. In the event any monthly payment due hereunder
shall become overdue for a period in excess of fifteen (15) days, Maker shall
pay to the holder hereof a late charge of five ($.05) cents for each dollar so
overdue, in order to defray part of the cost of collection.
G. Right to Prepay. Maker may prepay this Note during the Fixed
Interest Period upon payment of the following prepayment premium, which shall be
the percentage set forth below of the then outstanding principal balance:
<TABLE>
<CAPTION>
Prepayment Period Prepayment Premium
- ----------------- ------------------
<S> <C>
12/1/97 - 11/30/98 5%
12/1/98 - 11/30/99 4%
12/1/99 - 11/30/00 3%
12/1/00 - 11/30/01 2%
12/1/01 - 11/30/02 1%
</TABLE>
From and after expiration of the Fixed Interest Period, Maker shall have the
right to prepay this Note in whole or in part at any time and from time to time
without penalty or premium of any kind.
H. Payment on Non-Banking Day. Whenever any payment on
account of the loan evidenced by this Note is stated to be due on a day which
is not a banking day, such payment will be payable on the next succeeding
banking day, and such extension of time will in such case be included in the
computation of interest.
3. SECURITY. This Note shall be secured by, among other things, a
Mortgage, Security Agreement, Assignment of Rents and Financing
2
<PAGE> 3
Statement of even date herewith (the "Mortgage") on the property described
therein.
4. DEFAULT. It is agreed that the occurrence of any of the
following shall be a default under this Note (a "Default"):
(a) prior to the Maturity Date, failure to make any monthly
payment in accordance with the terms hereof, which failure is not fully
cured within five (5) business days after the date due;
(b) default in the due and punctual payment of all
outstanding principal and interest hereon on the Maturity Date; or
(c) occurrence of any "Default" (as defined therein) after
the expiration of the applicable cure period under the Mortgage or any
other document securing this Note (collectively, the "Loan Documents"),
as defined in the applicable document.
5. REMEDIES. In the event of any Default, at the election of the
holder hereof and without further notice to the Maker, said holder may declare
the entire unpaid principal and interest accrued thereon and all other sums due
from Maker hereunder or any other instrument related hereto or thereto, to be
immediately due and payable, notice hereby being expressly waived by Maker, and
Lender may proceed to pursue any and all rights and remedies granted under this
Note, as well as all remedies available at law or in equity, and all remedies
granted under the Mortgage and other Loan Documents.
The remedies of the holder hereof shall be cumulative and concurrent and
may be pursued singly, successively or together against Maker.
After occurrence of a Default, Lender may apply funds received by it
from or on account of Maker to expenses of collection, interest and principal
in such priority as it may elect.
If (i) any Loan Document is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceeding; (ii) an attorney is retained to represent Lender in any bankruptcy,
reorganization, receivership or other proceedings affecting creditor's rights
and involving a claim under the Loan Documents, (iii) an attorney is retained
to protect or enforce the lien of the Mortgage or any other Loan Document, or
(iv) an attorney is retained to represent Lender in any other proceeding
whatsoever in connection with this Note, the Mortgage or other Loan Documents,
then in all such events, Maker shall pay to Lender, upon demand, in addition to
all other amounts due hereunder, all such reasonable attorneys' fees and costs
associated therewith.
3
<PAGE> 4
6. BUSINESS LOAN. The Maker of this Note hereby certifies that
the indebtedness evidenced hereby was incurred as a result of a business
transaction; and that said indebtedness is in law and in fact a business
purpose loan within the operation and purview of Section 205/4 of Chapter 815
of the ILCS.
7. WAIVER. Maker (and each guarantor hereof) jointly and
severally waive all applicable exemption rights and also severally waive
valuation and appraisement, presentment for payment, demand, notice of
nonpayment, notice of dishonor, protest of any dishonor, notice of protest and
protest of this Note, and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of the payment of this Note,
except as otherwise specifically provided for herein, and agree that the
liability of each of them shall be joint, several and unconditional without
regard to the liability of any other party and shall not be in any manner
affected by any indulgence, extension of time, renewal, waiver or modification
granted or consented to by the holder hereof; and Maker (and each guarantor
hereof, if any) consent to any and all extensions of time, renewals, waivers or
modifications that may be granted by the holder hereof with respect to the
payment or other provisions of this Note, and to the release of any collateral
given to secure the payment hereof, or any part thereof, with or without
substitution, and agree that additional makers or guarantors may become parties
hereto without notice to them or affecting their liability hereunder.
The holder hereof shall not, by any action of omission or commission, be
deemed to waive any of its rights or remedies hereunder unless such waiver be
in writing and signed by the holder hereof, and then only to the extent
specifically set forth therein; a waiver of one event shall not be construed as
continuing or as a bar to or waiver of such right or remedy on a subsequent
event. Failure of Lender, for any period of time or on more than one occasion,
to exercise its option to accelerate the Maturity Date of this Note shall not
constitute a waiver of the right to exercise said right at any time thereafter
or in the event of any subsequent Default.
8. GOVERNING LAW; EXCESS INTEREST. It being the intention of
Lender and Maker to comply with the laws of the State of Illinois with regard
to the rate of interest charged hereunder, it is agreed that, notwithstanding
any provision to the contrary in this Note or Security Agreement no such
provision, including without limitation any provision of this Note providing
for the payment of interest or other charges shall require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted by law ("Excess Interest") to be charged for the use or detention, or
the forbearance in the collection, of all or any portion of the indebtedness
evidenced by this Note. If any Excess Interest is provided for, or is
adjudicated to be provided for, in this Note, the
4
<PAGE> 5
Security Agreement , or any of the other documents securing this Note, then in
such event:
(a) the provisions of this paragraph shall govern and
control;
(b) Maker shall not be obligated to pay any Excess
Interest;
(c) any Excess Interest that Lender may have received
hereunder shall, at the option of Lender, shall be (i) applied as a
credit against the then outstanding principal balance due under this
Note, accrued and unpaid interest thereon not to exceed the maximum
amount permitted by law, or both, (ii) refunded to the payor thereof,
or (iii) any combination of the foregoing;
(d) the applicable interest rate or rates shall be
automatically subject to reduction to the maximum lawful rate allowed to
be contracted for in writing under the applicable usury laws of the
aforesaid State, and this Note, the Security Agreement, and the other
Loan Documents shall be deemed to have been, and shall be, reformed and
modified to reflect such reduction in such interest rate or rates; and
(e) Neither Maker (nor any guarantor hereof) shall have any
action or remedy against Lender for any damages whatsoever or any
defense to enforcement of the Note, Security Agreement, or any other
Loan Document arising out of the payment or collection of any Excess
Interest.
9. APPLICATION OF PROVISIONS. If any provision of this Note or
the application thereof to any party or circumstance is held invalid or
unenforceable, the remainder of this Note and the application of such provision
to other parties or circumstance is held invalid or unenforceable, the
remainder of this Note and the application of such provision to other parties
or circumstances shall not be affected thereby, the provisions of this Note
being severable in any such instance.
10. NOTICE. All notices required herein shall be in writing and
shall be deemed given when personally delivered, or on the second business day
after being deposited in the United States mail, registered or certified,
postage prepaid, addressed as set forth below, or at such other address as a
party may have designated in writing to all other parties:
If to Lender: Banco Popular
4801 W. Fullerton
Chicago, Illinois 60639
Attn: Michael Houlihan
5
<PAGE> 6
If to Maker: Futurion Furnishings, Inc.
95 Revere Drive
Suite J
Northbrook, Illinois 60062
With a copy served
in like manner to: Vedder Price Kaufman & Kammholz
222 N. LaSalle Street
Suite 2600
Chicago, IL 60601-1003
Attn: Robert Washlow or
Pearl A. Zager
11. TIME OF ESSENCE. It is hereby expressly agreed by Maker that
time is of the essence hereof.
12. WAIVER OF TRIAL BY JURY. MAKER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS NOTE OR THE LOAN
EVIDENCED HEREBY OR ANY OF THE DOCUMENTS GIVEN IN CONNECTION THEREWITH OR ANY
OTHER STATEMENTS OR ACTIONS OF LENDER. MAKER ACKNOWLEDGES THAT THIS WAIVER HAS
BEEN REVIEWED BY MAKER AND MAKER'S COUNSEL AND THAT IT IS A MATERIAL INDUCEMENT
FOR LENDER TO MAKE THE LOAN AND ENTER INTO THE LOAN DOCUMENTS AND THAT THIS
WAIVER SHALL BE EFFECTIVE AS TO EACH OF THE LOAN DOCUMENTS AS IF FULLY
INCORPORATED THEREIN.
MAKER FURTHER AGREES THAT THE CIRCUIT COURT OF COOK COUNTY,
ILLINOIS SHALL HAVE JURISDICTION AND VENUE WITH RESPECT TO ANY ACTION BROUGHT
IN CONNECTION HEREWITH AND THAT IT WILL NOT BRING ANY OBJECTION WITH RESPECT TO
SAID JURISDICTION OR VENUE.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed,
sealed and delivered as of the day and year first above written.
MAKER:
Futorian Furnishings, Inc.
By:
--------------------
Its
----------------
6
<PAGE> 1
EXHIBIT 4.51
WAIVER AND NINETEENTH AMENDMENT
TO CREDIT AGREEMENT
THIS WAIVER AND NINETEENTH AMENDMENT TO CREDIT AGREEMENT, dated as of
January 30, 1998 (the "Nineteenth 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)("Consolidated"), Futorian Furnishings, Inc. (formerly known as
Mohasco Upholstered Furniture Corporation, and as Furniture Comfort Corporation)
(on its behalf and on behalf of each of its Stratford and Barcalounger operating
units) ("Futorian"), 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 Nineteenth 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 Nineteenth Amendment, to such amendment.
C. The Borrowers have also requested that the Lender waive certain
provisions of the Credit Agreement applicable with respect to certain periods as
set forth herein, and the Lender has agreed, subject to the terms and conditions
of this Nineteenth Amendment, to such waiver.
TERMS
In consideration of the mutual covenants and agreements contained
herein, and intending to be legally bound, the Lender and the Borrowers hereby
agree as follows:
Section 1 - Overadvance Amount.
The Lender hereby agrees to waive compliance by Borrowers with
respect to the prompt payment of aggregate unpaid principal balance of all
Revolving Credit Loans exceeding the Borrowing Base plus the Overadvance Amount
as discussed in Section 1.1.7 of the Credit Agreement for the period beginning
December 31, 1997 and ending March 1, 1998.
Section 2 - Revolving Credit Maturity Date.
<PAGE> 2
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 4, 1999,
when the Revolving Credit Note shall become due and payable in full.
Section 3 - Covenants.
The Lender hereby agrees to waive compliance by Borrowers with
respect to the covenants set forth in Section 4.1.1, Section 4.1.5, Section
4.1.6 and Section 4.1.7 of the Credit Agreement for the period beginning
December 31, 1997 and ending March 1, 1998
The Credit Agreement is hereby amended by deleting the period at the
end of Section 4.10 Liens on Collateral and replacing it with the following:
(f) liens granted pursuant to that certain Loan and
Security Agreement dated February __, 1998 by and between Congress
Financial Corporation and Futorian and the agreements contemplated
thereby (the "Congress Loan Agreement"); or
(g) liens and security interests of Simmons Upholstered
Furniture Corporation ("Simmons") on assets of Futorian granted
pursuant to intercompany loans by Simmons to Futorian provided for in
the Congress Loan Agreement.
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, and 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 clauses (d), (e), (f) or (g) 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.
The Credit Agreement is hereby amended by deleting the period at the
end of Section 4.12 Loans and Investments and replacing it with the following:
-2-
<PAGE> 3
and
(f) loans by Futorian to Simmons and Consolidated pursuant
to intercompany loans permitted under the Congress Loan Agreement.
Section 4 - Conditions to Effectiveness. This Nineteenth Amendment shall be
effective when, and only when, the Lender shall have received counterparts of
this Nineteenth Amendment executed by each of the Borrowers and copies of such
approvals, opinions or documents as the Lender may reasonably request.
Section 5 - 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 Nineteenth 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
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 Nineteenth Amendment, all the
representations and warranties of the Borrowers contained in
the Credit Agreement shall be true and correct in all material respects.
Section 6 - 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 Nineteenth 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 Nineteenth 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 Nineteenth
Amendment may refer to the "Credit Agreement dated as of September 22, 1989"
without making specific reference to the
-3-
<PAGE> 4
Nineteenth Amendment, but nevertheless all such references shall be
deemed to include this Nineteenth Amendment unless the context shall otherwise
require.
(e) This Nineteenth Amendment shall be governed by, and construed in
accordance with, the law of the State of New York.
[SIGNATURE PAGES FOLLOW]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Lender and the Borrowers have caused this
instrument to be executed and delivered by their duly authorized officers as of
the date and year first above written.
COURT SQUARE CAPITAL LIMITED
By:
---------------------------------------
M. Saleem Muqaddam
Vice President
CONSOLIDATED FURNITURE CORPORATION
By: /s/ JOHN B. SGANGA
---------------------------------------
John B. Sganga
Executive Vice President,
Chief Financial Officer,
Secretary, Treasurer and
Controller
FUTORIAN FURNISHINGS, INC.
By: /s/ JOHN B. SGANGA
---------------------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
SSC CORPORATION
By: /s/ JOHN B. SGANGA
---------------------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
CHOICE SEATS CORPORATION
By:
---------------------------------------
John B. Sganga
Treasurer, Vice President and
Secretary
-5-
<PAGE> 1
EXHIBIT 4.52
TWENTIETH AMENDMENT
TO CREDIT AGREEMENT
THIS TWENTIETH AMENDMENT TO CREDIT AGREEMENT, dated as of January 31,
1998 (the "TWENTIETH 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)("Consolidated"), Futorian Furnishings, Inc. (formerly known as
Mohasco Upholstered Furniture Corporation, and as Furniture Comfort Corporation)
(on its behalf and on behalf of each of its Stratford and Barcalounger operating
units) ("Futorian"), 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 TWENTIETH 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 TWENTIETH Amendment, to such amendment.
TERMS
In consideration of the mutual covenants and agreements contained
herein, and intending to be legally bound, the Lender and the Borrowers hereby
agree as follows:
Section 1 - Overadvance Amount.
The definition of "Overadvance Amount" in Section 6.1 of the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"Overadvance Amount" means $305,000,000 during the first
fiscal quarter of 1998 and thereafter.
Section 2 - Covenants.
Section 4.1 of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
<PAGE> 2
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 0.25 to 1 on the last day of any fiscal quarter.
4.1.2 [Intentionally Omitted.]
4.1.3 [Intentionally Omitted.]
4.1.4 [Intentionally Omitted.]
4.1.5 Consolidated Net Worth. Permit Consolidated
Net Worth to be less than: (i) $(350,000,000) on the last day of any
fiscal quarter on or prior to March 31, 1998, (ii) $(365,000,000) on
the last day of the fiscal quarter ended June 30, 1998, and each
fiscal quarter thereafter.
4.1.6 Working Capital. Permit Working Capital to be
less than: (i) $(280,000,000) on the last day of any fiscal quarter
on or prior to March 31, 1998, and each fiscal quarter thereafter.
4.1.7 Total Debt. Permit Consolidated Indebtedness
to exceed (i) $375,000,000 at any time prior to March 31, 1998, (ii)
$390,000,000 at any time during the period from April 1, 1998 to June
30, 1998, (iii) $405,000,000 at any time during the period from July
1, 1998 to September 30, 1998 and (iv) $420,000,000 at any time after
September 30, 1998.
Section 3 - Conditions to Effectiveness. This TWENTIETH Amendment shall be
effective when, and only when, the Lender shall have received counterparts of
this TWENTIETH 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 TWENTIETH 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
registration with any governmental authority or other
-2-
<PAGE> 3
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 TWENTIETH Amendment, all the
representations and warranties of the Borrowers contained in the Credit
Agreement shall be true and correct in all material respects.
Section 6 - 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 TWENTIETH 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 TWENTIETH 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 TWENTIETH
Amendment may refer to the "Credit Agreement dated as of September 22, 1989"
without making specific reference to the TWENTIETH Amendment, but nevertheless
all such references shall be deemed to include this TWENTIETH Amendment unless
the context shall otherwise require.
(e) This TWENTIETH 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:
----------------------------------------
John B. Sganga
Executive Vice President,
Chief Financial Officer,
Secretary, Treasurer and
Controller
FUTORIAN FURNISHINGS, INC.
By:
----------------------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
SSC CORPORATION
By:
----------------------------------------
John B. Sganga
Vice President, Treasurer and
Secretary
CHOICE SEATS CORPORATION
By:
----------------------------------------
John B. Sganga
Treasurer, Vice President and
Secretary
-4-
<PAGE> 1
EXHIBIT 4.53
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (CENTRAL)
AS LENDER
AND
FUTORIAN FURNISHINGS, INC.
AS BORROWER
DATED: AS OF FEBRUARY 11, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. CREDIT FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Letter of Credit Accommodations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4 Availability Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3. INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Closing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.4 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.5 Changes in Laws and Increased Costs of Loans . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations . . . . . . . . . 25
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations . . . . . . . . . . . 27
SECTION 5. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6. COLLECTION AND ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Borrower's Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 Collection of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.5 Authorization to Make Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 7. COLLATERAL REPORTING AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Accounts Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.3 Inventory Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.4 Equipment Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.6 Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.7 Access to Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.1 Corporate Existence, Power and Authority; Subsidiaries . . . . . . . . . . . . . . . . . . . 36
8.2 Financial Statements; No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 36
8.3 Chief Executive Office; Collateral Locations. . . . . . . . . . . . . . . . . . . . . . . . 36
8.4 Priority of Liens; Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.7 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.8 Compliance with Other Agreements and Applicable Laws . . . . . . . . . . . . . . . . . . . . 37
8.9 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.10 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.11 Governmental Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.12 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.13 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.14 Accuracy and Completeness of Information. . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.15 Survival of Warranties; Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.2 New Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3 Compliance with Laws, Regulations, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.4 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.6 Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. . . . . . . . . . . . . . . . . . . 46
9.8 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.9 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.10 Loans, Investments, Guarantees, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.11 Dividends and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.13 Additional Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.14 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.15 Adjusted Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.16 Minimum EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.17 After Acquired Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.18 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.19 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW . . . . . . . . . . . . . . . . 62
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver . . . . . . . . . . . 62
11.2 Waiver of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.4 Waiver of Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
12.3 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.4 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
12.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
(iii)
<PAGE> 5
INDEX TO
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Information Certificate
Schedule 1.32 List of Factoring Agreements with Capital Factors
Schedule 8.4 Existing Liens
Schedule 8.9 ERISA Matters
Schedule 8.10 Environmental Matters
Schedule 8.12 Bank Accounts
Schedule 9.8 List of Insurance Policies Subject to Premium Financing
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
</TABLE>
(iv)
<PAGE> 6
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated February 11, 1998 is entered
into by and between Congress Financial Corporation (Central), an Illinois
corporation ("Lender") and Futorian Furnishings, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans
and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless
the context otherwise requires. All references to Borrower and Lender pursuant
to the definitions set forth in the recitals hereto, or to any other person
herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
any particular provision of this Agreement and as this Agreement now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue
or be continuing until such Event of Default is waived in accordance with
Section 11.3 or is cured in a manner satisfactory to Lender, if such Event of
Default is capable of being cured as determined by Lender. Any accounting term
used herein unless otherwise defined in this Agreement shall have the meanings
customarily given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
1.1 "Accounts" shall mean all present and future rights of Borrower
to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance (but shall not include Receivables Sales Proceeds).
<PAGE> 7
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b)
a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "Reserve Percentage" shall mean the reserve percentage,
expressed as a decimal, prescribed by any United States or foreign banking
authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such deposits
or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the
effective day of any change in the Reserve Percentage.
1.3 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to: (a) the difference between (i) the aggregate net book value of all
assets of such Person and its Subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after deducting from
such book values all appropriate reserves in accordance with GAAP (including
all reserves for doubtful receivables, obsolescence, depreciation and
amortization) and (ii) the aggregate amount of the Indebtedness and other
liabilities of such Person and its Subsidiaries (including tax and other proper
accruals), plus (b) in the case of Borrower, the principal amount of the
Indebtedness of Borrower owing to Court Square and to Guarantor permitted under
Section 9.9 hereof, and accrued interest in respect thereof, to the extent such
Indebtedness is subordinated in right of payment to the full and final payment
of all Obligations on terms and conditions acceptable to Lender.
1.4 "Affiliate" shall mean, as to any specified Person, any other
Person which directly or indirectly through one or more intermediaries
controls, or is controlled by or is under common control, with such specified
Person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to effectively direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise.
1.5 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and
revise in good faith reducing the amount of Revolving Loans and Letter of
Credit Accommodations which would otherwise be available to Borrower under the
lending formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith, do or may
(i) adversely affect either (A) any Collateral or any other property which is
security for the Obligations or the rights of Lender in any Collateral or other
property which is security for the Obligations or the rights of Lender in any
Collateral or other property or (B) the security interests and other rights of
Lender in the Collateral or other property which is security for
2
<PAGE> 8
the Obligations (including the enforceability, perfection and priority thereof)
or (ii) adversely affect any assets (other than any Collateral) or business of
any Borrower or Obligor; (b) to reflect Dilution with respect to the Accounts
as calculated by Lender for any period to the extent such Dilution is greater
than seven (7%) percent; (c) to reflect the good faith belief of Lender that
any collateral report or financial information furnished by or on behalf of
Borrowers to Lender is or may have been incomplete, inaccurate or misleading in
any material respect; (d) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof; or (e) in respect of any
state of facts which Lender determines in good faith constitutes an Event of
Default or may, with notice or passage of time or both, constitute an Event of
Default.
1.6 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.7 "Board of Directors" shall mean the board of directors or any
duly constituted committee of any corporation or of a corporate general partner
of a partnership and any similar body empowered to direct the affairs of any
other entity.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday,
or other day on which commercial banks are authorized or required to close
under the laws of the State of Illinois or the Commonwealth of Pennsylvania,
and a day on which the Reference Bank and Lender are open for the transaction
of business, except that, if a determination of a Business Day shall relate to
any Eurodollar Rate Loans, the term Business Day shall also exclude any day on
which banks are closed for dealings in dollar deposits in the London interbank
market or other applicable Eurodollar Rate market.
1.9 "Capital Leases" shall mean, as applied to any Person, any lease
of (or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such Person.
1.10 "Capital Stock" shall mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock, partnership interests or limited liability
company interests at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
1.11 "Cash Equivalents" shall mean, at any time, (a) any evidence of
indebtedness with a maturity of one (1) year or less issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and credit of the
United States of America is pledged in support thereof; (b) certificates of
deposit or bankers' acceptances with a maturity of one (1) year or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$250,000,000; (c) commercial paper (including variable rate demand notes) with
a maturity of one (1) year or less issued by a corporation
3
<PAGE> 9
(except an Affiliate of Borrower or Guarantor) organized under the laws of any
State of the United States of America or the District of Columbia and rated at
least A-1 by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into
with any bank meeting the qualifications specified in clause (b) above; (e)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or issued by any governmental agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
one (1) year or less from the date of acquisition; provided, that, the terms of
such agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above.
1.12 "Change of Control" shall mean (a) the transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of Borrower or Guarantor to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act) other than pursuant to a merger or
disposition permitted hereunder; (b) the liquidation or dissolution of Borrower
or Guarantor or the adoption of a plan by the stockholders of Borrower or
Guarantor relating to the dissolution or liquidation of Borrower or Guarantor;
(c) the acquisition by any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act), except for one or more Permitted Holders, of
beneficial ownership, directly or indirectly, of fifty (50%) percent or more of
the voting power of the total outstanding Voting Stock of Borrower or the Board
of Directors of Guarantor; (d) during any period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of Borrower or the Board of Directors of Guarantor (together with any
new directors who have been appointed by CVC, Citicorp N.A., or any Affiliate
of CVC or whose nomination for election by the stockholders of Borrower or
Guarantor, as the case may be, was approved by a vote of at least sixty-six and
two-thirds (66 2/3%) percent of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Borrower or Guarantor, as
the case may be, then still in office; (e) the failure of Guarantor to own more
than fifty (50%) percent of the voting power of the total outstanding Voting
Stock of Borrower; or (f) the failure of 399 Venture Partners, Inc. to own more
than fifty (50%) percent of the voting power of the total outstanding Voting
Stock of Guarantor.
1.13 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.14 "Collateral" shall have the meaning set forth in Section 5
hereof.
4
<PAGE> 10
1.15 "Court Square" shall mean Court Square Capital Limited, a
Delaware corporation, formerly known as Citicorp Capital Investors, Ltd., and
its successors and assigns.
1.16 "CVC" shall mean Citicorp Venture Capital Ltd., a New York
corporation, and its successors and assigns.
1.17 "Dilution" shall mean, as to any Person for any period, the
fraction, expressed as a percentage, the numerator of which is the aggregate
amount of non-cash reductions in the Accounts of such Person for such period
and the denominator of which is the aggregate dollar amount of the sales of
such Person for such period.
1.18 "EBITDA" shall mean, as to any Person, with respect to any
period, an amount equal to: (a) the Net Income of such Person and its
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP, plus (b) depreciation, amortization and other non-cash charges
(including, but not limited to, imputed interest and deferred compensation) for
such period (to the extent deducted in the computation of Net Income), all in
accordance with GAAP, plus (c) Interest Expense for such period (to the extent
deducted in the computation of Net Income), plus (d) charges for Federal,
State, local and foreign income taxes for such period (to the extent deducted
in the computation of Net Income), plus (e) all extraordinary losses and
unusual losses related to costs associated with the refinancing transaction
contemplated by this Agreement, minus (f) all income (and plus all charges, up
to the amount of such income) attributable to any Subsidiary of Borrower, if
and to the extent such income was not distributed to Borrower in cash, plus (g)
charges in the fiscal year of Borrower ending December 26, 1998 for expenses
related to the reconfiguration of manufacturing facilities and consolidation of
corporate overhead, calculated in accordance with GAAP.
1.19 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than the earlier of: (i)
sixty (60) days after the original due date for them or (ii) ninety (90) days
after the date of the original invoice for them; provided, that, for those
Accounts with original payment terms of more than thirty (30) days, Lender may
(but shall not be required to) consider Accounts which are unpaid one hundred
twenty (120) days after the date of the original invoice for them to be
Eligible Accounts;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
5
<PAGE> 11
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America or Canada
(provided, that, at any time promptly upon Lender's request, Borrower shall
execute and deliver, or cause to be executed and delivered, such other
agreements, documents and instruments as may be required by Lender to perfect
the security interests of Lender in those Accounts of an account debtor with
its chief executive office or principal place of business in Canada in
accordance with the applicable laws of the Province of Canada in which such
chief executive office or principal place of business is located and take or
cause to be taken such other and further actions as Lender may request to
enable Lender as secured party with respect thereto to collect such Accounts
under the applicable Federal or Provincial laws of Canada) or, at Lender's
option, if the chief executive office and principal place of business of the
account debtor with respect to such Accounts is located other than in the
United States of America or Canada, then if either: (i) the account debtor has
delivered to Borrower an irrevocable letter of credit issued or confirmed by a
bank satisfactory to Lender and payable only in the United States of America
and in U.S. dollars, sufficient to cover such Account, in form and substance
satisfactory to Lender and, if required by Lender, the original of such letter
of credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender,
or (ii) such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender, or (iii) such
Account is otherwise acceptable in all respects to Lender (subject to such
lending formula with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill and
hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts or
reduce the amount payable or delay payment thereunder (and without limiting the
generality of the foregoing, Accounts due to Borrower from Montgomery Ward and
Levitz Furniture Co. arising prior to the commencement of the pending
proceedings of Montgomery Ward and Levitz Furniture Co. under the U.S.
Bankruptcy Code, respectively, shall not be deemed Eligible Accounts);
6
<PAGE> 12
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are
not, and were not at the time of the sale thereof, subject to any liens except
those permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee, agent
or otherwise an Affiliate of Borrower (and without limiting the generality of
the foregoing, Accounts due to Borrower from Simmons shall not be Eligible
Accounts) directly or indirectly by virtue of family membership, ownership,
control, management or otherwise;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates
(other than Accounts due to Borrower from Sears Roebuck & Co., Accounts due to
Borrower from Montgomery Ward arising after the commencement of the pending
proceedings of Montgomery Ward under the U.S. Bankruptcy Code and Accounts due
to Borrower from Heilig Meyers) do not constitute more than fifteen (15%)
percent of all otherwise Eligible Accounts (but the portion of the Accounts not
in excess of such percentages may be deemed Eligible Accounts) and (i) as to
Accounts due to Borrower from Sears Roebuck & Co., do not constitute more than
twenty (20%) percent of all otherwise Eligible Accounts, (ii) as to Accounts
due to Borrower from Montgomery Ward arising after the commencement of the
pending proceedings of Montgomery Ward under the U.S. Bankruptcy Code, do not
constitute more than twenty (20%) percent of all otherwise Eligible Accounts
and (iii) as to Accounts due to Borrower from Heilig Meyers, do not constitute
more than twenty (20%) percent of all otherwise Eligible Accounts;
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than the earlier of (i) sixty (60) days after the original
due date for them or (ii) ninety (90) days after the date of the original
invoice for them, which constitute more than fifty (50%) percent of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may be deemed Eligible
Accounts); and
7
<PAGE> 13
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.20 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and
raw materials for such finished goods which are acceptable to Lender based on
the criteria set forth below. In general, Eligible Inventory shall not include
(a) work-in-process or semi-in-process; (b) spare parts for equipment; (c)
packaging and shipping materials; (d) supplies used or consumed in Borrower's
business; (e) Inventory at premises other than those owned and controlled by
Borrower, except if Lender shall have received an agreement in writing from the
person in possession of such Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Lender acknowledging Lender's
first priority security interest in the Inventory, waiving security interests
and claims by such person against the Inventory and permitting Lender access
to, and the right to remain on, the premises so as to exercise Lender's rights
and remedies and otherwise deal with the Collateral; (f) Inventory subject to a
security interest or lien in favor of any person other than Lender except those
permitted in this Agreement; (g) bill and hold goods; (h) unserviceable,
obsolete or slow moving Inventory; (i) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; (j) returned,
damaged and/or defective Inventory; (k) "seconds"; (l) trim; (m) frames; (n)
cut leather; (o) logos and (p) Inventory purchased or sold on consignment
(including without limitation, all "locker stock" inventory). General criteria
for Eligible Inventory may be established and revised from time to time by
Lender in good faith. Any Inventory which is not Eligible Inventory shall
nevertheless be part of the Collateral.
1.21 "Eligible Receivables Sales Proceeds" shall mean Receivables
Sales Proceeds payable by Factor to Borrower under the Factoring Agreement, as
in effect on the date hereof, until July 31, 1998, arising from the sale of
Accounts by Borrower to Factor in the ordinary course of the business of
Borrower, which are and continue to be acceptable to Lender based on the
criteria set forth below. In general, Receivables Sales Proceeds shall be
Eligible Receivables Sales Proceeds if:
(a) the Accounts sold by Borrower to Factor giving rise to such
Receivables Sales Proceeds arise from the actual bona fide sale and delivery of
goods or rendition of services by Borrower in the ordinary course of the
business of Borrower which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;
(b) Lender shall have received, in form and substance
satisfactory to Lender, an agreement from Factor acknowledging Lender's first
priority security interest in the Receivables Sales Proceeds and any other
monies due and to become due to Borrower
8
<PAGE> 14
(including, without limitation, credits and reserves), agreeing to transfer all
such amounts to the Blocked Accounts and such other matters as Lender may
require;
(c) such Receivables Sales Proceeds are not past due pursuant
to the terms set forth in the Factoring Agreement (as in effect on the date
hereof);
(d) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Receivables Sales
Proceeds or reduce the amount payable or delay payment thereunder;
(e) such Receivables Sales Proceeds are subject to the first
priority, valid and perfected security interest of Lender and any goods giving
rise thereto are not, and were not at the time of the sale thereof, subject to
any liens except those permitted in this Agreement;
(f) no default or event of default has occurred under the
Factoring Agreement and the Factoring Agreement is otherwise in full force and
effect;
(g) Factor has not sent any notice of default or of its
intention to cease or suspend payments to Borrower in respect of such
Receivables Sales Proceeds.
General criteria for Eligible Receivables Sales Proceeds may be established and
revised from time to time by Lender in good faith. Any Receivables Sales
Proceeds which are not Eligible Receivables Sales Proceeds shall nevertheless
be part of the Collateral.
1.22 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
governmental authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety; (b) relating to the exposure to, or the use,
storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials; or (c) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term "Environmental Laws"
includes (i) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization
Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water
Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery
Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the
Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe
Drinking Water Act of 1974, (ii) applicable state counterparts to such laws,
and (iii) any common law or equitable doctrine that may impose liability or
obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Materials.
9
<PAGE> 15
1.23 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.24 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.25 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.26 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (Chicago time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.27 "Eurodollar Rate Loans" shall mean any Loans or portion thereof
on which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof.
1.28 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.29 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts,
the Net Amount of Eligible Receivables Sales Proceeds and the Value of Eligible
Inventory, as determined in good faith by Lender, and subject to the Revolving
Loan Limit, sublimits and Availability Reserves from time to time established
by Lender hereunder, and (ii) the Maximum Credit (less the then outstanding
principal amount of the Term Loan), minus (1) the sum of: (i) the amount of all
then outstanding and unpaid Obligations (but not including for this purpose the
then outstanding principal amount of the Term Loan), plus (ii) the aggregate
amount of all then outstanding and unpaid trade payables of Borrower which are
more than forty-five (45) days past due as of such time.
10
<PAGE> 16
1.30 "Exchange Act" shall mean the Securities and Exchange Act of
1934, as the same now exists or may hereafter from time to time be amended,
modified, recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.31 "Factor" shall mean Capital Factors, Inc., a Florida corporation,
and its successors and assigns.
1.32 "Factoring Agreement" shall mean, collectively, the agreements
listed on Schedule 1.32 hereto, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.33 "Fairwood" shall mean Fairwood Corporation, a Delaware
corporation, and its successors and assigns.
1.34 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
1.35 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except
that, for purposes of Sections 9.15 and 9.16 hereof, GAAP shall be determined
on the basis of such principles in effect on the date hereof and consistent
with those used in the preparation of the audited financial statements
delivered to Lender prior to the date hereof.
1.36 "Governmental Authority" shall mean any nation or government, any
state, province or other political subdivisions thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.37 "Guarantor" shall mean Consolidated Furniture Corporation, a New
York corporation, and its successors and assigns.
1.38 "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including hydrocarbons (including
naturally occurring or man-made petroleum and hydrocarbons), flammable
explosives, asbestos, urea formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants (including materials
which
11
<PAGE> 17
include hazardous constituents), sewage, sludge, industrial slag, solvents
and/or any other similar substances, materials, or wastes and including any
other substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.39 "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof) or evidenced by bonds, notes, debentures or
similar instruments; (b) representing the balance deferred and unpaid of the
purchase price of any property or services (except any such balance that
constitutes an account payable to a trade creditor (whether or not an
Affiliate) created, incurred, assumed or guaranteed by such Person in the
ordinary course of business of such Person in connection with obtaining goods,
materials or services that is not overdue by more than ninety (90) days, unless
the trade payable is being contested in good faith); (c) all obligations as
lessee under leases which have been, or should be, in accordance with GAAP
recorded as Capital Leases; (d) any contractual obligation, contingent or
otherwise, of such Person to pay or be liable for the payment of any
indebtedness described in this definition of another Person, including, without
limitation, any such indebtedness, directly or indirectly guaranteed, or any
agreement to purchase, repurchase, or otherwise acquire such indebtedness,
obligation or liability or any security therefor, or to provide funds for the
payment or discharge thereof; or to maintain solvency, assets, level of income,
or other financial condition; (e) all obligations with respect to redeemable
stock and redemption or repurchase obligations under any Capital Stock or other
equity securities issued by such Person; (f) all reimbursement obligations and
other liabilities of such Person with respect to surety bonds (whether bid,
performance or otherwise), letters of credit, banker's acceptances or similar
documents or instruments issued for such Person's account; and (g) all
indebtedness of such Person in respect of indebtedness of another Person for
borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest,
collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time.
1.40 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.41 "Interest Expense" shall mean, for any period, as to any Person
and its Subsidiaries, total interest expense, whether paid or accrued
(including the interest component of Capital Leases for such period), as
determined in accordance with GAAP, including, without limitation, all bank
fees, commissions, discounts and other fees and charges owed with respect to
letters of credit, but excluding (a) amortization of discount and amortization
of deferred financing fees and closing costs paid in cash in connection with
the transactions contemplated hereby, (b) interest paid in property other than
cash and (c) any other interest
12
<PAGE> 18
expense not payable in cash, provided, that, for purposes of Section 1.18, as
to Borrower, Interest Expense shall not include interest paid by Borrower to
Court Square or Guarantor in respect of the Indebtedness of Borrower to Court
Square permitted under Section 9.9 hereof.
1.42 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.43 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of one
(1%) percent per annum in excess of the Prime Rate and, as to Eurodollar Rate
Loans, a rate of three and one-quarter (3 1/4%) percent per annum in excess of
the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the
Interest Period selected by Borrower as in effect three (3) Business Days after
the date of receipt by Lender of the request of Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is higher or
lower than any rate previously quoted to Borrower); provided, that:
(a) the Interest Rate shall mean, as to Prime Rate Loans, the
rate of one-half (1/2%) percent per annum in excess of the Prime Rate and, as
to Eurodollar Rate Loans, the rate of two and three-quarters (2 3/4%) percent
per annum in excess of the Adjusted Eurodollar Rate, effective on the first day
of the month after each of the following conditions is satisfied as determined
by Lender: (i) the Pre-Tax Net Income of Borrower for the immediately
preceding fiscal year (commencing with the fiscal year ending on December 31,
1998) as set forth in the audited financial statements of Borrower for such
fiscal year delivered to Lender, together with the unqualified opinion of the
independent certified accountants, in accordance with Section 9.6 hereof shall
equal or exceed $1,000,000 and (ii) no Event of Default or act, condition or
event which with notice or passage of time would constitute an Event of Default
shall exist or have occurred and be continuing; and
(b) notwithstanding anything to the contrary contained herein,
the Interest Rate shall mean the rate of three (3%) percent per annum in excess
of the Prime Rate as to Prime Rate Loans and the rate of five and one-quarter
(5 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to
Eurodollar Rate Loans, at Lender's option, without notice, (i) either (A) for
the period on and after the date of termination or non-renewal hereof until
such time as all Obligations are indefeasibly paid in full, or (B) for the
period from and after the date of the occurrence of any Event of Default, and
for so long as such Event of Default is continuing as determined by Lender and
(ii) on the Loans at any time outstanding in excess of the amounts available to
Borrower under Section 2 (whether or not such excess(es) arise or are made with
or without Lender's knowledge or consent and whether made before or after an
Event of Default).
1.44 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
13
<PAGE> 19
1.45 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any
Obligor or (b) with respect to which Lender has agreed to indemnify the issuer
or guaranteed to the issuer the performance by Borrower of its obligations to
such issuer.
1.46 "Loans" shall mean the Revolving Loans and the Term Loan.
1.47 "Material Adverse Effect" shall mean an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing, a material
adverse change in any of (a) the condition (financial or otherwise), business,
performance, operations or properties of Borrower; (b) the legality, validity
or enforceability of this Agreement or any of the other Financing Agreements;
(c) the legality, validity, enforceability, perfection or priority of the
security interests and liens of Lender upon the Collateral or any other
property which is security for the Obligations; (d) the Collateral or any other
property which is security for the Obligations, or the value of the Collateral
or such other property; (e) the ability of Borrower to repay the Obligations or
of Borrower or any Obligor to perform its obligations under this Agreement or
any of the other Financing Agreements; or (f) the ability of Lender to enforce
the Obligations or realize upon the Collateral or otherwise with respect to the
rights and remedies of Lender under this Agreement or any of the other
Financing Agreements.
1.48 "Maximum Credit" shall mean the amount of $30,750,000.
1.49 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the
amount thereof and (b) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
1.50 "Net Amount of Eligible Receivables Sales Proceeds" shall mean
the Eligible Receivables Sales Proceeds less all commissions, charges, fees,
expenses and other amounts payable by Borrower under the Factoring Agreement.
1.51 "Net Income" shall mean, as to any Person, for and through the
end of any applicable period, the net income (loss) of such Person for such
period (excluding to the extent included therein any extraordinary gains) after
deducting all charges which should be deducted before arriving at the net
income (loss) for such period, all in accordance with GAAP, and after deducting
the Provision for Taxes for such period. For the purposes of this definition,
(a) net income excludes any gain (but not loss) together with any related
Provision for Taxes for such gain (but not loss) realized upon the sale or
other disposition of (i) any assets that are not sold in the ordinary course of
business or (ii) any Capital Stock of such Person; and (b) net income excludes
any gain of income realized as a result of changes in accounting principles or
the application thereof to such Person. For purposes of this definition, the
term "Provision for Taxes" shall mean an amount equal to all taxes imposed on
or measured by net income, whether federal, state or local, and whether foreign
or domestic, that are paid or payable by any Person in respect of any period in
accordance with GAAP.
14
<PAGE> 20
1.52 "Obligations" shall mean any and all Revolving Loans, the Term
Loan, Letter of Credit Accommodations and all other obligations, liabilities
and indebtedness of every kind, nature and description owing by Borrower to
Lender, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, arising under or in connection with this Agreement or any of the
other Financing Agreements, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to Borrower under
the United States Bankruptcy Code or any similar statute (including the payment
of interest and other amounts which would accrue and become due but for the
commencement of such case, whether or not such amounts are allowed or allowable
in whole or in part in such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, and however acquired by Lender.
1.53 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations (including, without
limitation, Guarantor), or who is the owner of any property which is security
for the Obligations, other than Borrower.
1.54 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.55 "Permitted Holders" shall mean (a) CVC, (b) Citicorp N.A. or any
other Affiliate of CVC, (c) any officer, employee or director of CVC, or (d) in
the case of any natural Person specified in the foregoing clause, any spouse or
lineal descendant (including by adoption) of such Person.
1.56 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.
1.57 "Pre-Tax Net Income" shall mean, as to any Person, for and
through the end of any applicable period, the net income (loss) of such Person
for such period (excluding to the extent included therein any extraordinary
gains) after deducting all charges which should be deducted before arriving at
the net income (loss) for such period, all in accordance with GAAP, and without
deduction for the Provision for Taxes for such period and, as to Borrower,
without deduction for the interest paid by Borrower to Court Square on the
Indebtedness of Borrower to Court Square permitted under Section 9.9 hereof for
such period. For the purposes of this definition, (a) net income excludes any
gain (but not loss) together with any related Provision for Taxes for such gain
(but not loss) realized upon the sale or other disposition of (i) any assets
that are not sold in the ordinary course of business or (ii) any Capital Stock
of such Person; and (b) net income excludes any gain of income realized as a
result of changes in accounting principles or the application thereof to such
Person. For purposes of this definition, the term "Provision for Taxes" shall
mean an amount equal to all taxes imposed on or measured by net income, whether
federal, state or local, and
15
<PAGE> 21
whether foreign or domestic, that are paid or payable by any Person in respect
of any period in accordance with GAAP.
1.58 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.59 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.60 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.61 "Receivables Sales Proceeds" shall mean the right of Borrower to
payment from Factor under the Factoring Agreement in consideration of the sale
or transfer by Borrower to Factor of Accounts pursuant thereto.
1.62 "Records" shall mean all of Borrower's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
1.63 "Reference Bank" shall mean CoreStates Bank, N.A., or such other
bank as Lender may from time to time designate.
1.64 "Revolving Loan Limit" shall mean $29,730,000.
1.65 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.66 "Simmons" shall mean Simmons Upholstered Furniture Corporation, a
Delaware corporation, and its successors and assigns.
1.67 "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, (a) any corporation, association or other business entity of which more
than fifty (50%) percent of the total voting power of shares of Voting Stock
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof and (b) any partnership in which such Person or any of its Subsidiaries
is a general partner.
16
<PAGE> 22
1.68 "Term Loan" shall mean shall mean the term loan made by Lender to
Borrower as provided for in Section 2.3 hereof.
1.69 "Term Promissory Note" shall mean the Term Promissory Note, dated
of even date herewith, issued by Borrower payable to the order of Lender in the
original principal amount of $1,020,000, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.70 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.71 "Voting Stock" shall mean with respect to any Person, (a) one (1)
or more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts, provided, that, such percentage shall be increased
to ninety (90%) percent in the event Dilution with respect to the
Accounts as calculated by Lender for any twelve (12) consecutive month
period commencing on the first day of any month shall be less than two
(2%) percent, effective as of the last day of the month after the end
of such twelve (12) month period, plus
(ii) eighty-five (85%) percent of the Net Amount of
Eligible Receivables Sales Proceeds until July 31, 1998, provided,
that, at all times on and after July 31, 1998 such amount shall not be
included in the calculation of the Revolving Loans available to
Borrower hereunder, plus
(iii) the lesser of: (A) the sum of sixty (60%) percent of
the Value of Eligible Inventory consisting of finished goods and raw
materials for such finished goods or (B) $15,000,000, less
17
<PAGE> 23
(iv) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than ten (10) days prior notice to Borrower, (i) reduce the lending
formula with respect to Eligible Accounts to the extent that Lender determines
in good faith that the general creditworthiness of account debtors has declined
or (ii) reduce the lending formula(s) with respect to Eligible Inventory to the
extent that Lender determines that: (A) the number of days of the turnover of
the Inventory for any period has changed in any material respect or (B) the
liquidation value of the Eligible Inventory, or any category thereof, has
decreased, or (C) the nature, quality or mix of the Inventory has deteriorated.
In determining whether to reduce the lending formula(s), Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves.
(c) Except in Lender's discretion, (i) the aggregate amount of
the Revolving Loans outstanding at any time shall not exceed the Revolving Loan
Limit and (ii) the aggregate amount of the Loans and the Letter of Credit
Accommodations outstanding at any time shall not exceed the Maximum Credit.
Subject to the terms and conditions of this Agreement, Borrower may borrow,
shall repay, and may reborrow such amounts (if any) as are determined in good
faith by Lender to be available to Borrower as Revolving Loans and Letter of
Credit Accommodations. In the event that the outstanding amount of any
component of the Revolving Loans, or the aggregate amount of the outstanding
Revolving Loans and Letter of Credit Accommodations, exceed the amounts
available under the lending formulas or the Revolving Loan Limit, or the
outstanding amount of the Letter of Credit Accommodations exceed the sublimit
for Letter of Credit Accommodations set forth in Section 2.2(d), or the
aggregate amount of the outstanding Loans and Letter of Credit Accommodations
exceed the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded, or in the case in which the
outstanding Letter of Credit Accommodations exceed the sublimit for Letter of
Credit Accommodations set forth in Section 2.2(d), immediately pay to Lender
the entire amount of any such excess, which amount shall be held by Lender as
cash collateral for the Obligations on terms and conditions acceptable to
Lender.
(d) For purposes only of applying the sublimit on Revolving
Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may
treat the then undrawn amounts of outstanding Letter of Credit Accommodations
for the purpose of purchasing Eligible Inventory as Revolving Loans to the
extent Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being purchased with such
Letter of Credit Accommodations. In determining the actual amounts of such
Letter of Credit Accommodations to be so treated for purposes of the sublimit,
the outstanding Revolving Loans and Availability Reserves shall be attributed
first to any
18
<PAGE> 24
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending
formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms
and conditions acceptable to Lender and the issuer thereof. Any payments made
by Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one (1%) percent
per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable
in arrears as of the first day of each succeeding month, except that Borrower
shall pay to Lender such letter of credit fee, at Lender's option, without
notice, at a rate equal to three (3%) percent per annum on such daily
outstanding balance for: (i) the period from and after the date of termination
or non-renewal hereof until Lender has received full and final payment of all
Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the
period from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing as determined in good faith by
Lender. Such letter of credit fee shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed and the obligation of
Borrower to pay such fee shall survive the termination or non-renewal of this
Agreement.
(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Revolving Loan Limit, the Maximum Credit and any Availability Reserves) are
equal to or greater than: (i) if the proposed Letter of Credit Accommodation
is for the purpose of purchasing Eligible Inventory, the sum of (A) the
percentage equal to one hundred (100%) percent minus the then applicable
percentage set forth in Section 2.1(a)(ii)(A) above of the Value of such
Eligible Inventory, plus (B) freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon arrival
and for delivery to one of Borrower's locations for Eligible Inventory within
the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, an Availability Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii) hereof.
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in
19
<PAGE> 25
connection therewith shall not at any time exceed $2,000,000. At any time an
Event of Default exists or has occurred and is continuing, upon Lender's
request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.2(c) hereof to the
extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation; provided, that, Borrower shall have no obligation to
indemnify Lender for any such losses, claims, damages, liabilities, costs and
expenses to the extent directly caused by the willful misconduct or gross
negligence of Lender as determined pursuant to a final, non-appealable order of
a court of competent jurisdiction. Borrower assumes all risks with respect to
the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay,
all foreign, Federal, State and local taxes, duties and levies relating to any
goods subject to any Letter of Credit Accommodations or any documents, drafts
or acceptances thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation, except any of the foregoing
that is directly caused by the willful misconduct or gross negligence of Lender
as determined pursuant to a final, non-appealable order of a court of competent
jurisdiction. The provisions of this Section 2.2(e) shall survive the payment
of Obligations and the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter
of Credit Accommodation provided by an issuer other than Lender unless Lender
has duly executed and delivered to such issuer the application or a guarantee
or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good
faith by Lender, or any other issuer or correspondent under or in connection
with any Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of Borrower. Lender shall have the sole and exclusive right
and authority to, and Borrower shall not: (i) at any time an Event of Default
exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or
time of presentation of, any drafts, acceptances, or
20
<PAGE> 26
documents, and (B) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letter of Credit Accommodations, or documents, drafts
or acceptances thereunder or any letters of credit included in the Collateral.
Lender may take such actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for
any Letter of Credit Accommodation, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall
be deemed to have been granted or undertaken by Borrower to Lender. Any duties
or obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender
and to apply in all respects to Borrower.
2.3 Term Loan. Lender is making the Term Loan to Borrower in the
original principal amount of $1,020,000. The Term Loan is (a) evidenced by the
Term Note in the original principal amount thereof, duly executed and delivered
by Borrower to Lender concurrently herewith, (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term Note,
and the other Financing Agreements and (c) secured by all of the Collateral.
The Term Loan may be prepaid in full by Borrower at any time without premium or
penalty, subject only to the early termination fee provided for in Section 12.1
hereof if it is prepaid together with all other non-contingent Obligations as
provided therein.
2.4 Availability Reserves. All Revolving Loans otherwise available
to Borrower pursuant to the lending formulas and subject to the Revolving Loan
Limit, the Maximum Credit and other applicable limits hereunder shall be
subject to Lender's continuing right to establish and revise in good faith
Availability Reserves.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar
Rate Loans continue for an additional Interest Period. Such request from
Borrower shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below)
21
<PAGE> 27
and the Interest Period to be applicable to such Eurodollar Rate Loans.
Subject to the terms and conditions contained herein, three (3) Business Days
after receipt by Lender of such a request from Borrower, such Prime Rate Loans
shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall
continue, as the case may be, provided, that, (i) no Event of Default, or event
which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of this Agreement, (iii)
Borrower shall have complied with such customary procedures as are established
by Lender and specified by Lender to Borrower from time to time for requests by
Borrower for Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods
may be in effect at any one time, (v) the aggregate amount of the Eurodollar
Rate Loans must be in an amount not less than $5,000,000 or an integral
multiple of $1,000,000 in excess thereof, (vi) the maximum amount of the
Eurodollar Rate Loans at any time requested by Borrower shall not exceed the
amount equal to (A) the principal amount of the Term Loan which it is
anticipated will be outstanding as of the last day of the applicable Interest
Period plus (B) eighty-five (85%) percent of the lowest principal amount of the
Revolving Loans which it is anticipated will be outstanding during the
applicable Interest Period, in each case as determined by Lender (but with no
obligation of Lender to make such Revolving Loans) and (vii) Lender shall have
determined that the Interest Period or Adjusted Eurodollar Rate is available to
Lender through the Reference Bank and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by Borrower. Any request by
Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue
any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Lender and Reference Bank shall not
be required to purchase United States Dollar deposits in the London interbank
market or other applicable Eurodollar Rate market to fund any Eurodollar Rate
Loans, but the provisions hereof shall be deemed to apply as if Lender and
Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate
Loan at least three (3) Business Days prior to such last day in accordance with
the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon
notice by Lender to Borrower, convert to Prime Rate Loans in the event that (i)
an Event of Default or event which with the notice or passage of time, or both,
would constitute an Event of Default, shall exist or (ii) this Agreement shall
terminate or not be renewed.
(d) If the sum of the initial principal amount of the Loans
initially made as Eurodollar Rate Loans or of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate
Loans continued, as the case may be, to a Borrower shall at any time exceed the
aggregate principal amount of the Loans to Borrower then outstanding, then, at
Lender's option, there shall be converted to Prime Rate Loans such amount of
Eurodollar Rate Loans outstanding under the then-effective Interest Periods, as
shall be sufficient to reduce the principal balance of the remaining Eurodollar
Rate Loans to not more than eighty-five (85%) percent of the amount of Loans
which it is anticipated (i)
22
<PAGE> 28
will be outstanding at all times during the remaining Interest Periods and (ii)
will be outstanding at all times during such remaining Interest Periods within
the amounts available to Borrower under Section 2 hereof, in each case as
determined by Lender in good faith. The actual amount of Eurodollar Rate Loans
converted to Prime Rate Loans under this Section 3.1(d) shall be the smallest
amount equal to or exceeding the required reduction resulting from the
conversion of the full initial amounts of Eurodollar Rate Loans for one or more
Interest Periods in effect at the time of conversion.
(e) Borrower shall pay to Lender, upon demand by Lender (or
Lender may, at its option, charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or any participant with
Lender for any loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of Eurodollar Rate Loans
to Prime Rate Loans pursuant to any of the foregoing.
(f) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no
event shall charges constituting interest payable by Borrower to Lender exceed
the maximum amount or the rate permitted under any applicable law or
regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $153,750, which shall be fully earned as of and payable on the date
hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing
fee in an amount equal to $5,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to three-eighths (3/8%) percent per annum calculated
upon the amount by which $21,500,000 exceeds the average daily principal
balance of the outstanding Revolving Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement
is in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be payable on the first day of each month in
arrears.
23
<PAGE> 29
3.5 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the
costs to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed in good faith by Lender to be
material, or (C) reduce the amounts received or receivable by Lender in respect
thereof, by an amount deemed by Lender to be material or (ii) the cost to
Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. In the circumstances described in clauses (i)(B), (i)(C) or (ii)
above, instead of conversion to Prime Rate Loans, Borrower shall have the
option, for the balance of the Interest Period(s) for then outstanding
Eurodollar Rate Loans, of paying any and all increased costs and expenses
incurred in good faith by Lender, the Reference Bank or any participant,
together with the aggregate amount received or receivable by Lender and which
has been reduced in respect of such Eurodollar Rate Loans. Borrower shall pay
to Lender, upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the Reference
Bank or any participant with Lender for any loss (including loss of anticipated
profits), cost or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such person to make or maintain the Eurodollar Rate Loans or any portion
thereof. A certificate of Lender setting forth the basis for the determination
of such amount necessary to compensate Lender as aforesaid shall be delivered
to Borrower and shall be conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the applicable
Interest Period (whether pursuant to acceleration, upon maturity or otherwise),
including any payments pursuant to the application of collections under Section
6.3 or any other payments made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional loss
(including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such person to make or
maintain such Eurodollar Rate Loans or any portion thereof.
24
<PAGE> 30
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property
which is intended to be security for the Obligations or the liability of any
Obligor in respect thereof, subject only to the security interests and liens
permitted herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received
all information and copies of all documents, including records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower, the results
of which shall be satisfactory to Lender, not more than three (3) Business Days
prior to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements, including acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by
such persons to the Collateral and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(f) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
25
<PAGE> 31
(g) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than $10,600,000 after giving effect to the
initial Loans made or to be made and Letter of Credit Accommodations issued or
to be issued in connection with the initial transactions hereunder;
(h) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Borrower has received on the date hereof net cash
proceeds from amounts advanced to it on terms and in a manner acceptable to
Lender of not less than $1,800,000 (which Indebtedness arising from such
advances is and shall be subordinated in right of payment to the Obligations on
terms and conditions acceptable to Lender) and such proceeds are available to
be used by Borrower for working capital;
(i) Lender shall have received, in form and substance
satisfactory to Lender, an intercreditor agreement by and between Court Square
and Lender, as acknowledged and agreed to by Borrower and Guarantor, duly
authorized, executed and delivered by Court Square, Borrower and Guarantor,
providing for, inter alia, the subordination in right of payment of
Indebtedness of Borrower to Court Square to the prior indefeasible payment and
satisfaction in full of the Obligations and such parties' relative rights and
priorities with respect to the assets and properties of Borrower and its
Subsidiaries;
(j) Lender shall have received, in form and substance
satisfactory to Lender, an intercreditor agreement by and between Factor and
Lender, as acknowledged and agreed to by Borrower, duly authorized, executed
and delivered by Factor and Borrower, providing for, inter alia, the remittance
by Factor of Receivables Sales Proceeds to Lender;
(k) Lender shall have received, in form and substance
satisfactory to Lender, the amendments to the Factoring Agreement, duly
authorized, executed and delivered by Factor and Borrower, which amendments
shall provide, inter alia, that Factor shall not make any loans to Borrower or
any advance or anticipated payments against monies, credit balances or other
amounts due to Borrower under the Factoring Agreement;
(l) Lender shall have received environmental audits of
Borrower's plants and the Real Property conducted by an independent
environmental engineering firm acceptable to Lender, and in form, scope and
methodology satisfactory to Lender, confirming (i) Borrower is in compliance
with all material applicable Environmental Laws and (ii) the absence of any
material environmental problems;
(m) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with
respect to the Financing Agreements and such other matters as Lender may
request; and
(n) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
26
<PAGE> 32
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
5.1 To secure payment and performance of all Obligations, Borrower
hereby grants to Lender a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Lender as security, the
following property and interests in property of Borrower, whether now owned or
hereafter acquired or existing, and wherever located (collectively, the
"Collateral"):
(a) Accounts;
(b) all present and future contract rights, general intangibles
(including Receivables Sales Proceeds), tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, good will, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses
in action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
(c) all present and future monies, securities and other
investment property, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in transit to
Lender or its Affiliates or at any other depository or other institution from
or for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Accounts and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of
an unpaid vendor, lienor
27
<PAGE> 33
or secured party, (iii) goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, Accounts
or other Collateral, including returned, repossessed and reclaimed goods, and
(iv) deposits by and property of account debtors or other persons securing the
obligations of account debtors;
(d) Inventory;
(e) Equipment;
(f) Real Property;
(g) Records; and
(h) all products and proceeds of the foregoing, in any form,
including insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
5.2 Notwithstanding anything to the contrary set forth in Section 5.1
above, the types or items of Collateral described in such Section shall not
include any rights or interests in any lease covering Real Property, as such,
if under the terms of such lease, the valid grant of a security interest or
lien therein to Lender is prohibited and such prohibition has not been or is
not waived or the consent of the other party to such lease has not been or is
not otherwise obtained or under applicable law such prohibition cannot be
waived.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and (c) all other appropriate debits
and credits as provided in this Agreement, including fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be made in
accordance with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s)
maintained by Lender for Borrower pursuant to the provisions of this Agreement,
including principal, interest, fees, costs and expenses. Each such statement
shall be subject to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to
Borrower a written statement as provided above, the balance in Borrower's loan
account(s) shall be presumptive evidence of the amounts due and owing to Lender
by Borrower.
28
<PAGE> 34
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable
to Lender into which Borrower shall promptly deposit and direct its account
debtors to directly remit all payments on Accounts and all payments
constituting proceeds of Inventory or other Collateral in the identical form in
which such payments are made, whether by cash, check or other manner. The
banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Lender, providing that all
items received or deposited in the Blocked Accounts are the property of Lender,
that the depository bank has no lien upon, or right to setoff against, the
Blocked Accounts, the items received for deposit therein, or the funds from
time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Lender
as Lender may from time to time designate for such purpose ("Payment Account").
Borrower agrees that all payments made to such Blocked Accounts or other funds
received and collected by Lender, whether on the Accounts or as proceeds of
Inventory or other Collateral or otherwise shall be the property of Lender to
the extent of the Obligations.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
For the purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations one (1) Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account provided such payments or
other funds and notice thereof are received in accordance with Lender's usual
and customary practices as in effect from time to time and within sufficient
time to credit Borrower's loan account on such day, and if not, then on the
next Business Day.
(c) Borrower and all of its shareholders, directors, employees,
agents or other Affiliates shall, acting as trustee for Lender, receive, as the
property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no
event shall the same be commingled with Borrower's own funds. Borrower agrees
to reimburse Lender on demand for any amounts owed or paid to any bank at which
a Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The
29
<PAGE> 35
obligation of Borrower to reimburse Lender for such amounts pursuant to this
Section 6.3 shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may designate
from time to time. Lender may apply payments received or collected from
Borrower or for the account of Borrower (including the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines;
provided, that, so long as no Event of Default, or act, condition or event
which with notice or passage of time or both, exists or has occurred and is
continuing, Lender shall not apply any such payments or collections to the
Obligations in respect of the Term Loan not then due. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If
after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Lender is required to surrender or return
such payment or proceeds to any Person for any reason, then the Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Agreement shall continue in full force and effect as if such
payment or proceeds had not been received by Lender. Borrower shall be liable
to pay to Lender, and does hereby indemnify and hold Lender harmless for the
amount of any payments or proceeds surrendered or returned. This Section 6.4
shall remain effective notwithstanding any contrary action which may be taken
by Lender in reliance upon such payment or proceeds. This Section 6.4 shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
or other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a Business Day) and the amount of the requested Loan. Requests
received after 11:00 a.m. Chicago time on any day shall be deemed to have been
made as of the opening of business on the immediately following Business Day.
All Loans and Letter of Credit Accommodations under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each
of the persons listed in the disbursement direction letter furnished by
Borrower to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and
30
<PAGE> 36
delivery of this Agreement and the other Financing Agreements. All other Loans
made or Letter of Credit Accommodations provided by Lender to Borrower pursuant
to the provisions hereof shall be used by Borrower only for general operating,
working capital and other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof. None of the proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security or
for the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which might cause any of the Loans to be considered a "purpose credit" within
the meaning of Regulation G of the Board of Governors of the Federal Reserve
System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a daily basis, a
schedule of sales made, credits issued and cash received; (b) on a monthly
basis or more frequently as Lender may request, (i) perpetual inventory reports
by category and by location, (and including, without limitation, identifying
any goods held by Borrower under consignment or similar arrangements in such
detail as Lender may request and Inventory of Borrower held by third parties
pursuant to consignment or similar arrangements in such detail as Lender may
request), (ii) agings of accounts receivable by Account, and (iii) agings of
accounts payable by Account, (c) upon Lender's request, (i) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (ii) copies of shipping and delivery
documents, and (iii) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower and (d) such other reports as
to the Collateral as Lender shall request from time to time. If any of
Borrower's records or reports of the Collateral are prepared or maintained by
an accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its material obligations to any
account debtor, (ii) the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof, not yet reported to Lender
and involving an amount in excess of $50,000 for all such matters with any one
account debtor or $200,000 in the aggregate for all such matters with all
account debtors, (iii) all material adverse information known to Borrower
relating to the financial condition of any account debtor of Borrower and (iv)
any event or circumstance which, to Borrower's knowledge would cause Lender to
consider any then existing Accounts as no longer constituting Eligible
Accounts. No credit, discount, allowance or extension or agreement for any of
the foregoing shall be granted to any account debtor without Lender's
31
<PAGE> 37
consent, except in the ordinary course of Borrower's business in accordance
with practices and policies previously disclosed in writing to Lender. So long
as no Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with
any account debtor. At any time that an Event of Default exists or has
occurred and is continuing, Lender shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or
dispute with account debtors or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by any one account debtor if the inventory so returned in such case
has a value in excess of $25,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed
an Eligible Account. In the event any account debtor returns Inventory when an
Event of Default exists or has occurred and is continuing, Borrower shall, upon
Lender's request, (i) hold the returned Inventory in trust for Lender, (ii)
segregate all returned Inventory from all of its other property, (iii) dispose
of the returned Inventory solely according to Lender's instructions, and (iv)
not issue any credits, discounts or allowances with respect thereto without
Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender
in accordance with this Agreement and except for credits, discounts, allowances
or extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient
under such laws and regulations and all such documentation will be legally
enforceable in accordance with its terms, subject to the effect on
enforceability of (A) any bankruptcy, reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and (B) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by
mail, telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower,
all chattel paper and instruments which Borrower now owns or may at any time
acquire immediately upon Borrower's receipt thereof, except as Lender may
otherwise agree.
32
<PAGE> 38
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto; provided, that, such agents or attorneys are selected with due
care and (iv) take whatever other action Lender may deem necessary or desirable
for the protection of its interests. At any time that an Event of Default
exists or has occurred and is continuing, at Lender's request, all invoices and
statements sent to any account debtor shall state that the Accounts and such
other obligations have been assigned to Lender and are payable directly and
only to Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to
Lender, keeping correct and accurate records itemizing and describing the kind,
type, quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any Inventory
from the locations set forth or permitted herein, without the prior written
consent of Lender, except for sales of Inventory in the ordinary course of
Borrower's business and except to move Inventory directly from one location set
forth or permitted herein to another such location; (d) upon Lender's request,
Borrower shall, at its expense, no more than twice in any twelve (12) month
period, but at any time or times as Lender may request on or after an Event of
Default and for so long as the same is continuing, deliver or cause to be
delivered to Lender written reports or appraisals as to the Inventory in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to
rely; (e) Borrower shall produce, use, store and maintain the Inventory with
all reasonable care and caution and in accordance with applicable standards of
any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and
all rules, regulations and orders related thereto); (f) Borrower assumes all
responsibility and liability arising from or relating to the production, use,
sale or other disposition of the Inventory; (g) Borrower shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate Borrower to repurchase such Inventory; (h)
Borrower shall keep the Inventory in good and marketable condition; and (i)
Borrower
33
<PAGE> 39
shall not, without prior written notice to Lender, acquire or accept Inventory
having a value in any one case or in the aggregate in excess of $1,000,000 on
consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon
Lender's request, Borrower shall, at its expense, at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Equipment in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to
rely; (b) Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (c) Borrower shall use
the Equipment with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with all applicable
laws; (d) the Equipment is and shall be used in Borrower's business and not for
personal, family, household or farming use; (e) Borrower shall not remove any
Equipment from the locations set forth or permitted herein, except to the
extent necessary to have any Equipment repaired or maintained in the ordinary
course of the business of Borrower or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of Borrower in the
ordinary course of business; (f) the Equipment is now and shall remain personal
property and Borrower shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (g) Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and open and dispose of all
mail addressed to Borrower, and (ix) do all acts and things which are
necessary, in Lender's determination, to fulfill Borrower's obligations under
this Agreement and the other Financing Agreements and (b) at any time to (i)
take control in any manner of any item of payment or proceeds thereof deposited
or received for credit to the Blocked Accounts or constituting part of the
Collateral or otherwise received by Lender, (ii) have access to any lockbox or
postal box into which Borrower's customer remittances are sent and the contents
thereof, (iii) endorse Borrower's name upon any items of payment or proceeds
thereof deposited or received for credit to the Blocked Accounts or
constituting part of the Collateral or otherwise received by Lender and
transfer the same to, or deposit the same in the account of Lender for
application to the Obligations, (iv) endorse Borrower's name upon any chattel
paper, document, instrument,
34
<PAGE> 40
invoice, or similar document or agreement relating to any Account or any goods
pertaining thereto or any other Collateral, (v) sign Borrower's name on any
verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and to
the extent selected with due care, their agents from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of their own gross
negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any default
by Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's good faith judgment, is necessary or appropriate to
preserve, protect, insure or maintain the Collateral and the rights of Lender
with respect thereto. Lender may add any amounts so expended to the
Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the reasonable cost and expense of Borrower, (a) Lender or its designee shall
have complete access to all of Borrower's premises during normal business hours
and after notice to Borrower, or at any time and without notice to Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of Borrower's
books and records, including the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records or extracts therefrom
as Lender may request, and (c) use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral; provided, that, in exercising the rights under clauses (b) and (c)
of this Section 7.7, Lender and its designees will, so long as no Event of
Default exists or has occurred and is continuing, use reasonable efforts not to
unnecessarily interfere with the conduct of Borrower's business.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
35
<PAGE> 41
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
is a corporation duly organized and in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary where the failure to so qualify would have a Material
Adverse Effect. The execution, delivery and performance of this Agreement, the
other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within Borrower's corporate powers, have been duly
authorized and are not in contravention of law or the terms of Borrower's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, material agreement or undertaking to which Borrower is a
party or by which Borrower or its property are bound. This Agreement and the
other Financing Agreements constitute legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms. Borrower does
not have any Subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered
by or on behalf of Borrower to Lender have been prepared consistent with GAAP
and fairly present the financial condition and the results of operation of
Borrower as at the dates and for the periods set forth therein, subject to the
footnotes and departures from GAAP set forth therein. Except as disclosed in
any interim financial statements furnished by or on behalf of Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by or on behalf of Borrower to Lender prior to the date of
this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of Borrower and Borrower's Records concerning Accounts are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof.
8.4 Priority of Liens; Title to Properties. The security interests
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof
other than Collateral consisting of motor vehicles owned by Borrower; provided,
that, at the request of Lender, Borrower shall, in form and substance
satisfactory to Lender, note on the certificates of title of any of Borrower's
motor vehicles the security interest of Lender or otherwise comply with
applicable certificate of title statutes so as to perfect the security interest
of Lender therein. Borrower has good and marketable title to all of its
properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of
36
<PAGE> 42
any kind, except those granted to Lender and such others as are specifically
listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it (without requests for extension except as previously disclosed
in writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it and has withheld, collected and remitted all
employee liabilities and contributions for income tax, pension plan,
unemployment insurance and other similar liabilities arising under Federal,
State, Provincial or other local law, except, in each case, taxes the validity
of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made
for the payment of all accrued and unpaid Federal, State, county, local,
foreign and other taxes whether or not yet due and payable and whether or not
disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any Governmental Authority pending, or to
the best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
has or has a reasonable likelihood of having a Material Adverse Effect.
8.7 Intellectual Property. Borrower owns or licenses all material
patents, trademarks, service-marks, logos, trade names, trade secrets,
know-how, copyrights, or licenses and other rights with respect to any of the
foregoing, which are necessary for the operation of its business as presently
conducted or proposed to be conducted. To the best of the knowledge of
Borrower, no product, process, method, substance, part or other material
presently contemplated to be sold by or employed by Borrower infringes any
patent, trademark, service-mark, trade name, copyright, license or other right
owned by any other Person and no claim or litigation is pending or to the best
of the knowledge of Borrower, threatened against or affecting Borrower
contesting its right to sell or use any such product, process, method,
substance, part or other material which has or has a reasonable likelihood of
having a Material Adverse Effect.
8.8 Compliance with Other Agreements and Applicable Laws. Borrower
is not in default under, or in violation of any of the terms of, any agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound where such default or violation has or
has a reasonable likelihood of having a Material Adverse Effect and Borrower is
in compliance in all respects with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders of any foreign, Federal,
State or local Governmental Authority where such failure to comply would have a
Material Adverse Effect.
37
<PAGE> 43
8.9 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection
with which Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code where such penalty or tax could be more than $100,000
in any one case or $250,000 in the aggregate.
(b) No liability to the Pension Benefit Guaranty Corporation
has been or is expected by Borrower to be incurred with respect to any employee
benefit plan of Borrower or any of its ERISA Affiliates where such liability
has or has a reasonable likelihood of having a Material Adverse Effect. There
has been no reportable event (within the meaning of Section 4043(b) of ERISA)
or any other event or condition with respect to any employee pension benefit
plan of Borrower or any of its ERISA Affiliates which presents a risk of
termination of any such plan by the Pension Benefit Guaranty Corporation.
(c) Except as set forth on Schedule 8.9 hereto, full payment
has been made of all amounts which Borrower or any of its ERISA Affiliates is
required under Section 302 of ERISA and Section 412 of the Code to have paid
under the terms of each employee benefit plan as contributions to such plan as
of the last day of the most recent fiscal year of such plan ended prior to the
date hereof, and no accumulated funding deficiency (as defined in Section 302
of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any employee benefit plan.
(d) Except as set forth on Schedule 8.9 hereto, the current
value of all vested accrued benefits under all employee benefit plans
maintained by Borrower that are subject to Title IV of ERISA does not exceed
the current value of the assets of such plans allocable to such vested accrued
benefits. The terms "current value" and "accrued benefit" have the meanings
specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has
ever been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 Environmental Compliance.
(a) Except as set forth on Schedule 8.10 hereto, (i) Borrower
has not generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates any
applicable Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder in any manner which has or has a reasonable
likelihood of having a Material Adverse Effect and (ii) the operations of
Borrower comply in all respects with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder where
the failure to so comply has or has a reasonable likelihood of having a
Material Adverse Effect.
38
<PAGE> 44
(b) Except as set forth on Schedule 8.10 hereto, there has been
no investigation, proceeding, complaint, order, directive, claim, citation or
notice of violation by any Governmental Authority or any other person nor is
any pending or to the best knowledge of Borrower threatened, with respect to
any non-compliance with or violation of the requirements of any Environmental
Law by Borrower or the release, spill or discharge, threatened or actual, of
any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects
Borrower or its business, operations or assets or any properties at which
Borrower has transported, stored or disposed of any Hazardous Materials, which
has or has a reasonable likelihood of having a Material Adverse Effect.
(c) Except as set forth on Schedule 8.10 hereto, Borrower has
no liability (contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials, which has or has a reasonable likelihood
of having a Material Adverse Effect.
(d) Except as set forth on Schedule 8.10 hereto, Borrower has
all licenses, permits, certificates, approvals or similar authorizations
required to be obtained or filed in connection with the operations of Borrower,
under any Environmental Law, where the failure to obtain, file or maintain as
valid and effective any such licenses, permits, certificates, approvals or
similar authorizations has or has a reasonable likelihood of having a Material
Adverse Effect. All of such licenses, permits, certificates, approvals or
similar authorizations are valid and in full force and effect.
8.11 Governmental Authority. No consent, approval or other action of,
or filing with, or notice to any Governmental Authority is required in
connection with the execution, delivery and performance of this Agreement, the
other Financing Agreements or any of the instruments or documents to be
delivered pursuant hereto or thereto, except for those consents or approvals
already obtained by Borrower and the filing of UCC financing statements.
8.12 Bank Accounts. All of the deposit accounts, investment accounts
or other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.12 hereto, subject to
the right of Borrower to establish new accounts in accordance with Section 9.13
below.
8.13 Capitalization. All of the issued and outstanding shares of
Capital Stock of Guarantor are directly and beneficially owned and held as of
the date hereof by Fairwood. A majority of the issued and outstanding shares
of Capital Stock of Fairwood are owned and held by 399 Venture Partners, Inc.,
an Affiliate of CVC. All of the issued and outstanding shares of Capital Stock
of Guarantor have been duly authorized and are fully paid and non-assessable,
free and clear or all claims, liens, pledges and encumbrances of any kind,
except in favor of Lender and as permitted hereunder. All of issued and
outstanding shares of Capital Stock of Borrower are directly and beneficially
owned and held by Guarantor and all
39
<PAGE> 45
of such shares have been duly authorized and are fully paid and non-assessable,
free and clear of all claims, liens, pledges and encumbrances of any kind,
except in favor of Lender and as permitted hereunder.
8.14 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any material
fact necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.15 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder (except with respect to any representation
or warranty expressly stated to have been made as of a specified date, which
shall only be made as of such specified date) and shall be conclusively
presumed to have been relied on by Lender regardless of any investigation made
or information possessed by Lender. The representations and warranties set
forth herein shall be cumulative and in addition to any other representations
or warranties which Borrower shall now or hereafter give, or cause to be given,
to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open, maintain or move
Inventory to any new location within the continental United States provided
Borrower (a) gives Lender thirty (30) days prior written notice of the intended
opening of any such new location and (b) executes and delivers, or causes to be
executed and delivered, to Lender such agreements, documents, and instruments
as Lender may deem reasonably necessary or desirable to protect its interests
in the Collateral or any other property which is security for the Obligations
at such location, including UCC financing statements.
40
<PAGE> 46
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local Governmental Authority, including ERISA, the Occupational Safety and
Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as
amended, the code and all statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and employee health and
safety, including all of the Environmental Laws, where the failure to so comply
with or observe such requirements has or has a reasonable likelihood of having
a Material Adverse Effect.
(b) Borrower shall establish and maintain, at its expense, a
system to assure and monitor its continued compliance with all Environmental
Laws in all of its operations, which system shall include annual reviews of
such compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
conducted or prepared by environmental consultants or professionals that may
have a material effect on the assets and properties or operations of Borrower
shall be promptly furnished, or caused to be furnished, by Borrower to Lender.
Borrower shall take prompt and appropriate action to respond to any
non-compliance with any of the Environmental Laws and shall regularly report to
Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any material non-compliance with or material
violation of any Environmental Law by Borrower or (B) the release, spill or
discharge, threatened or actual, of a reportable quantity of any Hazardous
Material or (C) the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials not in
material compliance with all Environmental Laws or (D) any other environmental,
health or safety matter, which affects Borrower or its business, operations or
assets or any properties at which Borrower transported, stored or disposed of
any Hazardous Materials in any way which has or has a reasonable likelihood of
having a Material Adverse Effect.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall, at
Lender's request and Borrower's expense: (i) cause an independent environmental
engineer acceptable to Lender to conduct such tests of the site where
Borrower's non-compliance or alleged non-compliance with such Environmental
Laws has occurred as to such non-compliance and prepare and deliver to Lender a
report as to such non-compliance setting forth the results of such tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii)
41
<PAGE> 47
provide to Lender a supplemental report of such engineer whenever the scope of
such non-compliance, or Borrower's response thereto or the estimated costs
thereof, shall change in any material respect.
(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys' fees and legal expenses)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill,
discharge, disposal or presence of a Hazardous Material, including the costs of
any required or necessary repair, cleanup or other remedial work with respect
to any property of Borrower and the preparation and implementation of any
closure, remedial or other required plans, except that Borrower shall not be
required to indemnify any such person for any such losses, claims, damages,
liabilities, costs and expenses directly caused by such person's own gross
negligence or willful misconduct as determined by a final, non-appealable
judgment of a court of competent jurisdiction. All representations,
warranties, covenants and indemnifications in this Section 9.3 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books in accordance with GAAP. Borrower shall be
liable for any tax or penalties imposed on Lender as a result of the financing
arrangements provided for herein and Borrower agrees to indemnify and hold
Lender harmless with respect to the foregoing, and to repay to Lender on demand
the amount thereof, and until paid by Borrower such amount shall be added and
deemed part of the Loans, provided, that, nothing contained herein shall be
construed to require Borrower to pay any income or franchise taxes attributable
to the income of Lender from any amounts charged or paid hereunder to Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5 Insurance.
(a) Borrower shall at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral or any
other property which is security for the Obligations against loss or damage and
all other insurance of the kinds and in the amounts customarily insured against
or carried by corporations of established reputation engaged in the same or
similar businesses and similarly situated. Said policies of insurance shall be
satisfactory to Lender as to form, amount and insurer. Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall require as
proof of such insurance, and, if Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of Borrower. All
policies shall provide for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage and that
42
<PAGE> 48
Lender may act as attorney for Borrower in obtaining, and at any time an Event
of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies
in form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower.
(b) At any time before an Event of Default or an act, condition
or event which with notice or passage of time or both, would constitute an
Event of Default exists or occurs and is continuing, Lender, at its option, may
apply the proceeds of any insurance received by Lender under Section 9.5(a)
hereof, at any time to the cost of repairs or replacement of Collateral and/or
to payment of the Obligations, whether or not then due, in any order and in
such manner as Lender may determine or hold such proceeds as cash collateral
for the Obligations; provided, that,
(i) if Borrower sustains damage, destruction or loss of
its Inventory, Lender, at its option, may apply the net amount of any such
insurance proceeds received by Lender under Section 9.5(a) hereof at any time
to the cost of repairs or replacement of such Inventory or to payment of the
outstanding amount of the Obligations, other than to the then outstanding
principal amount of the Term Loan;
(ii) if Borrower sustains damage, destruction or loss of
Equipment or any portion of the improvements on its Real Property which results
in the payment of insurance proceeds of less than the aggregate amount of
$100,000 during the term of this Agreement, Borrower shall notify Lender, and at
Borrower's option, Borrower may direct Lender (A) to release to Borrower the net
amount of such insurance proceeds received by Lender with respect thereto to be
used by Borrower for working capital or other proper corporate purposes not
otherwise prohibited by this Agreement or (B) to apply the net amount of such
insurance proceeds to repay the then-outstanding amount of the Obligations of
Borrower so long as the insurance carrier shall have waived any right of
subrogation against Borrower under its policy; and
(iii) if Borrower sustains damage, destruction or loss of
Equipment or any portion of the improvements on its Real Property which results
in the payment of insurance proceeds of more than $100,000 but less than
$500,000 during the term of this Agreement, Borrower shall notify Lender, and at
Borrower's option, Borrower shall direct Lender to apply the net amount of such
insurance proceeds received by Lender to the then-outstanding amount of the
Obligations of Borrower or to hold such insurance proceeds as cash collateral
for the Obligations, which shall be released by Lender to Borrower to pay the
cost to repair, refurbish or replace such Equipment or improvements on its Real
Property so long as, in any of the foregoing options identified in this Section
9.5(b)(iii) selected by Borrower, the insurance carrier shall have waived any
right of subrogation against Borrower under its
43
<PAGE> 49
policy, and in the case where Borrower elects to repair, refurbish or replace
such Equipment or improvements, then each of the following additional
conditions shall be satisfied: (A) no Event of Default or act, condition or
event which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred and be continuing during the course of
such repair, refurbishing or replacement, (B) the amount of the insurance
proceeds are sufficient, in Lender's reasonable determination, to effect such
repair, refurbishing or replacement in a satisfactory manner, (C) such proceeds
shall be used solely to repair, refurbish or replace the property so lost,
damaged or destroyed (free and clear of any security interests, liens, claims
or other encumbrances other than those permitted under Sections 9.8(b), (c),
(d) and (e) hereof), (D) the repair, refurbishing or replacement of the
property so lost, damaged or destroyed shall be commenced as soon as reasonably
practicable and shall be diligently pursued to satisfactory completion, (E) the
proceeds shall be disbursed from such cash collateral, from time to time as
needed and/or, at Lender's option, released by Lender directly to the
contractor, subcontractor, materialmen, laborers, engineers, architects and
other persons rendering services or materials to repair, refurbish or replace
the property so lost, damaged or destroyed, (F) the property so lost, damaged
or destroyed shall be repaired, refurbished or replaced so as to be of at least
equal value and substantially the same character as prior to such casualty
event, and (G) such repair, refurbishing or replacement can, in the good faith
estimate of Lender, be completed prior to the end of the then current term of
this Agreement. Upon completion of the work and payment in full therefor, or
upon the failure to commence, or diligently to continue the work, Lender may,
at Lender's option, either apply the amount of any such proceeds then or
thereafter in the possession of Lender to the payment of the Obligations or
hold such proceeds as cash collateral for the Obligations on terms and
conditions acceptable to Lender and not release such funds to Borrower.
(c) At any time after an Event of Default or an act, condition
or event which with notice or passage of time or both would constitute an Event
of Default exists or occurs and is continuing or if Borrower sustains damage,
destruction or loss of Equipment or any portion of the improvements on its Real
Property in any one case or in the aggregate amount during the term of this
Agreement in excess of $500,000, Lender, at its option, may apply the net
amount of any such insurance proceeds received by Lender under Section 9.5(a)
hereof at any time to the cost of repairs or replacement of Collateral or to
payment of the Obligations, whether or not then due, in any order and in such
manner as Lender may determine or hold such proceeds as cash collateral for the
Obligations on terms and conditions acceptable to Lender.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower in accordance with GAAP
and Borrower shall furnish or cause to be furnished to Lender: (i) within
thirty (30) days after the end of each fiscal month, monthly unaudited
consolidated financial statements of Borrower, and if Borrower at any time
after the date hereof has any Subsidiaries, unaudited consolidating financial
statements of Borrower and such Subsidiaries (including in each case balance
sheets, statements of income and loss,
44
<PAGE> 50
statements of cash flow, and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower as of the end of and through such fiscal month and
(ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements of Borrower, and if Borrower at any time
after the date hereof has any Subsidiaries, unaudited consolidating financial
statements of Borrower and such Subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements
of shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Guarantor and its Subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for
the Obligations or which has a reasonable likelihood of having a Material
Adverse Effect and (ii) the occurrence of any Event of Default or act,
condition or event which, with the passage of time or giving of notice or both,
would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which
Borrower, Guarantor or Fairwood sends to its stockholders generally and copies
of all reports and registration statements which Borrower, Guarantor or
Fairwood files with the Securities and Exchange Commission, any national
securities exchange or the National Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request, subject to the provisions of Section 12.5 hereof to the
extent applicable. Upon Lender's request, Borrower shall, at its expense, no
more than once in any twelve (12) month period, but at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Real Property in
form, scope and methodology acceptable to Lender and by an appraiser acceptable
to Lender, addressed to Lender or upon which Lender is expressly permitted to
rely. Lender is hereby authorized to deliver a copy of any financial statement
or any other information relating to the business of Borrower to any court or
other Governmental Authority or to any participant or assignee or prospective
participant or assignee. Borrower hereby irrevocably authorizes and directs
all accountants or auditors to deliver to Lender, at Borrower's expense, copies
of the financial statements of Guarantor and Borrower and any reports or
management letters prepared by such accountants or auditors on behalf of
Borrower or Guarantor and to disclose to Lender such information as they may
have regarding the business of Borrower or Guarantor. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by
45
<PAGE> 51
Lender one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it;
(b) sell, assign, lease, transfer, abandon or otherwise dispose
of any Capital Stock or Indebtedness to any other Person or any of its assets
to any other Person, except for
(i) sales of Inventory in the ordinary course of
business; and
(ii) the disposition of worn-out or obsolete Equipment
or Equipment no longer used in the business of Borrower so long as (A) any
proceeds are paid to Lender and (B) such sales do not involve Equipment having
an aggregate fair market value in excess of $50,000 for all such Equipment
disposed of in any fiscal year of Borrower,
(iii) the sale by Borrower of the Accounts due to Borrower
from Montgomery Ward arising prior to the commencement of the pending
proceedings of Montgomery Ward under the U.S. Bankruptcy Code, provided, that,
each of the following conditions is satisfied: (A) such sale shall be in a bona
fide arm's length transaction on commercially reasonable prices and terms (and
in no event at a price less than the amount paid for similar claims on or about
such time in other similar transactions), (B) Lender shall have received not
less than three (3) Business Days prior written notice of such sale, which
notice shall set forth in reasonable detail satisfactory to Lender, the parties
thereto, the purchase price and the manner of payment thereof, the other
material terms of such sale and such other information with respect thereto as
Lender may reasonably request, (C) promptly upon Lender's request, Lender shall
have received true, correct and complete copies of all agreements, documents and
instruments executed and/or delivered in connection with such sale therewith, as
duly authorized, executed and delivered by the parties thereto, (D) immediately
upon the consummation of the sale, any and all proceeds payable or delivered to
Borrower in respect of such sale shall be paid or delivered, or caused to be
paid or delivered, directly to Lender for application to the installments of
principal in respect of such of the Term Loan as Lender determines, in the
inverse order of maturity, and (E) as of the date of such sale and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred; or
(iv) prior to July 31, 1998, sales by the Stratford
Division of Borrower of certain of its Accounts to Factor pursuant to and in
accordance with the terms of the Factoring Agreement (as in effect on the date
hereof after giving effect to the amendment referred to in Section 4.1 hereof);
provided, that, (A) all amounts payable to Borrower from Factor or otherwise in
connection therewith shall be sent by wire transfer to a Blocked
46
<PAGE> 52
Account as provided in Section 6.3 hereof, (B) Borrower shall not, directly or
indirectly, amend, modify, alter or change any of the terms of the Factoring
Agreement, (C) Lender shall have received a true, correct and complete copy of
the Factoring Agreement and all amendments thereto (including, but not limited
to, the amendments referred to in Section 4.1 hereof), (D) Borrower shall not
(1) borrow from, or obtain any loan from, Factor nor take any advance or
anticipated payment against any monies, credit balances or other amounts due to
Borrower under the Factoring Agreement, (2) have Factor guarantee any amount
due or to become due from Borrower to any other person or (3) have the Factor
issue or guarantee payment of any letters of credit or banker's acceptances on
behalf of Borrower, and (E) as soon as practicable, but in no event by no later
than July 31, 1998, Borrower shall terminate the Factoring Agreement and
deliver to Lender, or cause to be delivered to Lender, all releases,
terminations and such other documents as Lender may request, in form and
substance satisfactory to Lender, to evidence and effectuate the termination by
Factor of its factoring arrangements with Borrower and the termination and
release by Factor of any interest in and to any assets and properties of
Borrower and any Obligor, duly authorized, executed and delivered by Factor; or
(c) form or acquire any Subsidiaries; or
(d) wind up, liquidate or dissolve; or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books in accordance with
GAAP;
(c) non-consensual statutory liens (other than liens pursuant
to ERISA or any Environmental Laws or securing the payment of taxes) arising in
the ordinary course of Borrower's business to the extent: (i) such liens
secure Indebtedness which is not overdue for a period of more than forty-five
(45) days or (ii) such liens secure Indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower; in each
case under clauses (i) and (ii), prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books in accordance with GAAP;
47
<PAGE> 53
(d) liens and security interests of Simmons on assets of
Borrower to secure Indebtedness of Borrower to Simmons permitted under Section
9.9 hereof, which liens and security interests of Simmons are subordinated to
the liens and security interests of Lender;
(e) liens and security interests of Court Square to secure
Indebtedness of Borrower to Court Square permitted under Section 9.9 hereof,
which liens and security interests are subordinated to the liens and security
interests of Lender;
(f) deposits of cash or liens on assets of Borrower (other
than Collateral) in the ordinary course of the business of Borrower in
connection with worker's compensation, unemployment insurance or other types of
social security benefits in each case consistent with the current practices of
Borrower as of the date hereof; provided, that, such liens shall not interfere
in any material respect with the use of any property or the ordinary conduct of
the business of Borrower or impair the value of the assets and properties of
Borrower in any material respect;
(g) liens arising in connection with judgments for the payment
of money in an amount not to exceed $100,000 in any one case or $250,000 in the
aggregate; provided, that, (i) the judgment or other court order giving rise to
such lien is being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower prior to the commencement of
foreclosure or other similar proceedings, (ii) execution thereon is at all time
effectively stayed, and (iii) an adequate reserve for such Indebtedness has
been established on the books of Borrower in accordance with GAAP;
(h) minor encumbrances on or with respect to the Real Property
consisting of zoning restrictions, minor survey exceptions, utility easements,
access licenses, rights of way, easements of ingress or egress over the Real
Property or restrictions of record on the use of the Real Property, mechanics'
liens and vendors' liens on the Real Property, in each case to the extent the
same do not interfere in any material respect with the ordinary conduct of the
business of Borrower and do not impair the value of any Collateral or the
rights of Lender therein or thereto;
(i) liens and security interests arising after the date hereof
on the Real Property leased by Borrower as of the date hereof located in Rocky
Mount, North Carolina to secure Indebtedness permitted under Section 9.9(f)
below;
(j) liens and security interests of Factor on the Accounts of
the Stratford Division of Borrower under the Factoring Agreement (as in effect
on the date hereof after giving effect to the amendment referred to in Section
4.1 hereof) and the merchandise represented thereby, which liens and security
interests shall be released and terminated by no later than July 31, 1998 and
which liens and security interests secure only Indebtedness of Borrower to
Factor permitted under Section 9.9(g) hereof;
(k) purchase money security interests (including Capital
Leases) on Equipment and purchase money mortgages on real estate (except for
the Real Property), so long as such
48
<PAGE> 54
security interests and mortgages do not apply to any property of Borrower,
other than the Equipment or real estate so acquired, as the case may be, and
the Indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; and
(l) the liens and security interests set forth on Schedule 8.4.
9.9 Indebtedness. Borrower shall not incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any
Indebtedness, except
(a) the Obligations;
(b) Indebtedness arising in the ordinary course of the business
of Borrower in connection with worker's compensation, unemployment insurance or
other types of social security benefits in each case consistent with the
current practices of Borrower as of the date hereof; provided, that, such
Indebtedness is secured only by liens on assets and property of Borrower
permitted by Section 9.8(f) hereof;
(c) Indebtedness of Borrower to Simmons arising after the date
hereof pursuant to intercompany loans by Simmons to Borrower, provided, that,
(i) the aggregate amount of such Indebtedness shall not exceed $5,000,000, (ii)
Borrower shall provide Lender within thirty (30) days after the end of each
month, a report as to the outstanding amount of such Indebtedness as of the
last day of the immediately preceding month, (iii) such Indebtedness is subject
to, and subordinate in right of payment to, the right of Lender to receive the
prior indefeasible payment and satisfaction in full of all of the Obligations
on terms and conditions acceptable to Lender, and all liens and security
interests to secure such Indebtedness shall be subject and subordinate to the
liens and security interests of Lender on terms and conditions acceptable to
Lender, (iv) Lender shall have received, in form and substance satisfactory to
Lender, a subordination agreement providing for the terms of the subordination
in right of payment of such Indebtedness to Borrower to the prior indefeasible
payment and satisfaction in full of all of the Obligations, and the
subordination by Simmons of any liens and security interests to secure such
Indebtedness to the liens and security interests of Lender, duly authorized,
executed and delivered by Simmons and Borrower, (v) Borrower shall not,
directly or indirectly make, or be required to make, and payments in respect of
such Indebtedness so long as any of the Obligations are outstanding and unpaid,
except that Borrower may make payments in respect of such Indebtedness so long
as each of the following conditions is satisfied as determined by Lender: (A)
Lender shall have received not less than three (3) Business Days prior written
notice of the intention of Borrower to make such prepayment, (B) as of the date
of any such payment, the daily average of the Excess Availability of Borrower
for the immediately preceding thirty (30) consecutive days shall be not less
than $2,000,000 and as of the date of any such payment and after giving effect
thereto, the Excess Availability of Borrower shall be not less than $2,000,000,
and (C) as of the date of any such payment, and after giving effect thereto, no
Event of Default, or act, conditions or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have
occurred, (vi) Borrower shall not directly or indirectly, (A) amend,
49
<PAGE> 55
modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto, or (B) redeem, retire, defease,
purchase or otherwise acquire such Indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (vii) Borrower shall furnish
to Lender all notices, demands or other materials in connection with such
Indebtedness either received by Borrower or on its behalf, promptly after
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(d) Indebtedness of Borrower to Court Square, which
Indebtedness is subject and subordinate in right of payment to the right of
Lender to receive the prior final payment and satisfaction in full of all of
the Obligations; provided, that: (i) the principal amount of such Indebtedness
as of December 31, 1997 was estimated to be $409,000,000, and the principal
amount of such Indebtedness arising after the date hereof shall not exceed
$25,000,000, in each case, less the aggregate amount of all repayments,
repurchases or redemptions, whether optional or mandatory in respect thereof,
plus interest thereon at the rate provided for in such agreement or instrument
as in effect on the date hereof, (ii) Borrower shall not, directly or
indirectly, make, or be required to make, any payments in respect of such
Indebtedness, including, but not limited to, any prepayments or other
non-mandatory payments, (iii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose and (iv)
Borrower shall furnish to Lender all notices or demands concerning such
Indebtedness either received by Borrower or on its behalf, promptly after
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
(e) purchase money Indebtedness (including Capital Leases) to
the extent not incurred or secured by liens (including Capital Leases) in
violation of any other provision of this Agreement;
(f) Indebtedness of Borrower arising after the date hereof
pursuant to loans by a financial institution to Borrower based on the value of,
and secured only by, the Real Property currently leased by Borrower from the
Rocky Mount Business Development Authority in Rocky Mount, North Carolina,
provided, that, as to any such Indebtedness, (i) Lender shall have received not
less than ten (10) Business Days prior written notice of the intention to incur
such Indebtedness, which notice shall set forth in reasonable detail
satisfactory to Lender, the amount of such Indebtedness, the person to whom
such Indebtedness will be owed, the interest rate, the schedule of repayments
and maturity date with respect thereto and such other information with respect
thereto as Lender may request, (ii) Lender shall have received true, correct
and complete copies of all agreements, documents and instruments evidencing or
otherwise related to such Indebtedness, as duly authorized, executed and
delivered by the parties thereto, (iii) Lender shall have received an agreement
from the person to whom such Indebtedness is owed, in form and substance
satisfactory to Lender, which shall include, inter alia, the waiver by such
person of any security interest, lien or other claims by such person to the
Collateral and the agreement of such person to permit
50
<PAGE> 56
Lender access to, and the right to remain on, the Real Property which is
collateral for such Indebtedness to exercise the rights and remedies of Lender
and otherwise deal with the Collateral, (iv) such Indebtedness shall be
incurred by Borrower at commercially reasonable rates and terms in a bona fide
arm's length transaction, (v) such Indebtedness shall not at any time include
terms and conditions which in any manner adversely affect Lender or any rights
of Lender as determined in good faith by Lender and confirmed by Lender to
Borrower in writing or which are more restrictive or burdensome than the terms
or conditions of any other Indebtedness of Borrower as in effect on the date
hereof, (vi) such Indebtedness shall not be owed to any shareholder, officer,
director, agent, employee or other Affiliate of Borrower, (vii) to the extent
there are any monies in excess of the purchase price for such Real Property,
Borrower shall cause the person to whom such Indebtedness is owed to remit such
excess proceeds from the loans giving rise to such Indebtedness directly to
Lender for application to the Revolving Loans, (viii) such Real Property shall
be the only collateral for such Indebtedness, (x) as of the date of incurring
such Indebtedness and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would
constitute an Event of Default shall exist or have occurred and be continuing,
(xi) Borrower may only make regularly scheduled payments of principal and
interest in respect of such Indebtedness, (xii) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of the agreements with
respect to such Indebtedness or (B) redeem, retire, defease, purchase or
otherwise acquire such Indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (xiii) Borrower shall furnish to Lender
all notices or demands in connection with such Indebtedness either received by
Borrower or on its behalf promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be;
(g) Indebtedness of Borrower to Factor arising under the
Factoring Agreement (as in effect on the date hereof after giving effect to the
amendment referred to in Section 4.1 hereof) for the chargeback to Borrower of
disputed invoices and for commissions, fees, costs and expenses (but not for
any loans or advances or anticipated payments against monies, credit balances
or other amounts due to Borrower under the Factoring Agreement), provided,
that, (i) Borrower shall not, directly or indirectly, amend, modify alter or
change any terms of such Indebtedness or any agreement, document or instrument
related thereto as in effect on the date hereof, and (ii) Borrower shall
furnish to Lender all notices or demands concerning such Indebtedness either
received by Borrower or on its behalf, promptly after receipt thereof, or sent
by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be;
(h) Indebtedness of Borrower to Guarantor, which Indebtedness
is subject and subordinate in right of payment to the right of Lender to
receive the prior final payment and satisfaction in full of all of the
Obligations; provided, that, (i) such Indebtedness is and shall at all times be
unsecured, (ii) Borrower shall not make, or be required to make, any payments
in respect of such Indebtedness, but not limited to any prepayments or other
non-mandatory payments, (iii) Borrower shall not directly or indirectly, (A)
amend, modify, alter or change any terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, or (B)
redeem, retire, defease, purchase or otherwise acquire such
51
<PAGE> 57
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose and (iv) Borrower shall furnish to Lender all notices or demands
concerning such Indebtedness either received by Borrower or on its behalf,
promptly after receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(i) Indebtedness of Borrower set forth on Schedule 9.9 hereto;
provided, that, (i) Borrower may only make regularly scheduled payments of
principal and interest in respect of such Indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof (or as amended to the extent
permitted herein), (ii) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof, except,
that, Borrower may, after prior written notice to Lender, amend, modify, alter
or change the terms thereof so as to extend the maturity thereof or defer the
timing of any payments in respect thereof, or to forgive or cancel an portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce
the interest rate or any fees in connection therewith, or to release any of the
liens or security interests in any assets and properties of Borrower, or to
make any covenants contained therein less restrictive or burdensome as to
Borrower or otherwise more favorable to Borrower, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and (iii) Borrower shall
furnish to Lender all notices or demands in connection with such Indebtedness
either received by Borrower or on its behalf, promptly after the receipt
thereof, or sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the Capital Stock or Indebtedness or all or a
substantial part of the assets or property of any Person, or guarantee, assume,
endorse, or otherwise become responsible for (directly or indirectly) the
Indebtedness, performance, obligations or dividends of any Person or hold any
cash or Cash Equivalents or agree to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in
the ordinary course of business;
(b) investments in cash or Cash Equivalents so long as no Loans
are outstanding; provided, that, as to any of the foregoing, unless waived in
writing by Lender, Borrower shall take such actions as are deemed necessary by
Lender to perfect the security interest of Lender in such investments;
(c) loans by Borrower to Guarantor, after the date hereof not
to exceed the aggregate principal amount of $400,000 in any fiscal quarter of
Borrower or $1,500,000 in any fiscal year of Borrower, the proceeds of which
are used for actual and necessary reasonable out-of-pocket administrative and
operating expenses of Guarantor for the business of Guarantor as presently
conducted in the ordinary course of business, and for actual and
52
<PAGE> 58
necessary reasonable out-of-pocket legal and accounting, insurance, marketing,
payroll and similar types of services paid for by Guarantor on behalf of
Borrower, in the ordinary course of its business or as the same may be directly
attributable to Borrower, provided, that, (i) as of the date of any such loan
the daily average of the Excess Availability of Borrower for the immediately
preceding thirty (30) consecutive days shall be not less than $2,000,000, and
as of the date of any such loan and after giving effect thereto, the Excess
Availability shall be not less than $2,000,000, (ii) Guarantor shall not
conduct any business except to hold the Capital Stock of Guarantor and any
activities incidental thereto, (iii) Guarantor shall not own or hold any assets
or properties, except for (A) the Capital Stock of Guarantor which it owns and
holds as of the date hereof, and (B) nominal amounts of cash and deferred tax
assets and (iv) as of the date of any such loan and after giving effect
thereto, no Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing;
(d) loans by Borrower to Simmons from time to time after the
date hereof; provided, that, as to any such loan, each of the following
conditions shall be satisfied: (i) the aggregate amount of such loans by
Borrower to Simmons shall not exceed $5,000,000, (ii) as of the date of any
such loan, the daily average of the Excess Availability of Borrower for the
immediately preceding thirty (30) consecutive days shall be not less than
$2,000,000 and as of the date of any such loan and after giving effect thereto,
the Excess Availability of Borrower shall be not less than $2,000,000, (iii)
the Indebtedness of Simmons to Borrower arising pursuant to such loans by
Borrower to Simmons shall be secured by a valid, enforceable and perfected
security interest in, and lien upon, all of the assets and properties of
Simmons, (iv) the Indebtedness of Simmons to Borrower arising pursuant to each
such loan shall be evidenced by a single, original promissory note issued by
Simmons payable to the order of Borrower, duly authorized, executed and
delivered by Simmons, which original note shall be duly and validly assigned
and endorsed by Borrower payable to the order of Lender in a manner and on
terms acceptable to Lender and as so endorsed shall be delivered to, and held
by Lender as part of the Collateral, (v) all right, title and interest of
Borrower in and to the Indebtedness of Simmons to Borrower arising pursuant to
such loans and all right, title and interest of Borrower in, to and under such
note and all related security agreements and other documents shall be duly and
validly assigned to Lender on terms and conditions acceptable to Lender, (vi)
Lender shall have received, in form and substance satisfactory to Lender, the
acknowledgement of the assignment by Borrower to Lender of such Indebtedness
and related rights, duly authorized, executed and delivered by Simmons, and
(vii) as of the date of any such loan, and after giving effect thereto, no
Event of Default, or act, condition or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have
occurred;
(e) stock or obligations issued to Borrower by any Person (or
the representative of such Person) in respect of Indebtedness of such Person
owing to Borrower in connection with the insolvency, bankruptcy, receivership
or reorganization of such Person or a composition or readjustment of the debts
of such Person; provided, that, the original of any such stock or instrument
evidencing such obligations shall be promptly delivered to Lender,
53
<PAGE> 59
upon Lender's request, together with such stock power, assignment or
endorsement by Borrower as Lender may request;
(f) obligations of account debtors to Borrower arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to Borrower; provided, that, promptly upon the receipt of the
original of any such promissory note by Borrower, such promissory note shall be
endorsed by Borrower to the order of Lender in a manner and on terms acceptable
to Lender and promptly delivered to Lender as so endorsed;
(g) loans and advances by Borrower, to employees of Borrower,
not to exceed the principal amount of $50,000 in the aggregate at any time
outstanding for: (i) reasonably and necessary work-related travel or other
ordinary business expenses to be incurred by such employee in connection with
their work for Borrower, and (ii) reasonable and necessary relocation expenses
of such employees (including home mortgage financing for relocated employees);
and
(h) the loans, advances and guarantees set forth on Schedule
9.10 hereto; provided, that, as to such loans, advances and guarantees, (i)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such loans, advances or guarantees or any agreement, document or
instrument related thereto, or (B) as to such guarantees, redeem, retire,
defease, purchase or otherwise acquire the obligations arising pursuant to such
guarantees, or set aside or otherwise deposit or invest any sums for such
purpose, and (ii) Borrower shall furnish to Lender all notices or demands in
connection with such loans, advances or guarantees or other indebtedness
subject to such guarantees either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
its Capital Stock now or hereafter outstanding, or set aside or otherwise
deposit or invest any sums for such purpose, or redeem, retire, defease,
purchase or otherwise acquire any shares of any class of capital stock (or set
aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other Affiliate of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms no less
favorable to the Borrower than Borrower would obtain in a comparable arm's
length transaction with a Person other than an Affiliate or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any indebtedness owing to any officer, employee, shareholder,
director or other Affiliate of Borrower, except (i) reasonable compensation to
officers, employees and directors for services
54
<PAGE> 60
rendered to Borrower in the ordinary course of business, (ii) to the extent
permitted by Section 9.7 and 9.10 hereof and (iii) payments by Borrower to
Guarantor pursuant to the tax sharing arrangements between Guarantor and
Borrower (as in effect on the date hereof); provided, that, (A) Borrower is
included in the consolidated federal income tax return filed by Guarantor as to
which Borrower is making such payments, (B) the payments in any year shall not
exceed the federal income tax liability that Borrower would have been liable
for if Borrower were not part of such consolidated federal income tax return
filed by Guarantor, (C) such payments shall be made by Borrower no earlier than
ten (10) days prior to the date on which Guarantor is required to make its
payments to the Internal Revenue Service, (D) in the event that Borrower also
joins with Guarantor in filing any combined or consolidated (or similar) state
or local income tax returns, then the making of payments to Guarantor shall be
allowed in a manner as similar as possible to that provided herein with respect
to federal income taxes, and (E) as of the date of such payment and after
giving effect thereto, no Event of Default, or act, condition or event which
with notice or passage of time or both would constitute an Event of Default,
shall exist or have occurred and be continuing.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.12 hereto,
except: (a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as
Lender may establish and (b) as to any accounts used by Borrower to make
payments of payroll, taxes or other obligations to third parties, after prior
written notice to Lender.
9.14 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee benefit
plans" maintained by Borrower or any of its ERISA Affiliates: (i) terminate
any of such employee benefit plans so as to incur any material liability to the
Pension Benefit Guaranty Corporation established pursuant to ERISA, (ii) allow
or suffer to exist any prohibited transaction involving any of such employee
benefit plans or any trust created thereunder which would subject Borrower or
such ERISA Affiliate to a tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA, (iii) fail to pay
to any such employee benefit plan any contribution which it is obligated to pay
under Section 302 of ERISA, Section 412 of the Code or the terms of such plan,
(iv) allow or suffer to exist any accumulated funding deficiency, whether or
not waived, with respect to any such employee benefit plan, (v) allow or suffer
to exist any occurrence of a reportable event or any other event or condition
which presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings
55
<PAGE> 61
assigned to them in ERISA, and the term "prohibited transaction" shall have the
meaning assigned to it in Section 4975 of the Code and ERISA.
9.15 Adjusted Net Worth. Borrower shall have Adjusted Net Worth of
not less than the respective amount set forth below as of the last day of the
fiscal quarter ending on the date indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
March 28, 1998 $16,000,000
June 27, 1998 $14,000,000
September 26, 1998 $12,000,000
December 26, 1998 and
at all times thereafter $11,000,000
</TABLE>
9.16 Minimum EBITDA. Borrower shall not permit the EBITDA of Borrower
to be less than the respective amounts set forth below for the period
indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
From January 1, 1998
through and including
March 28, 1998 ($1,500,000)
From March 29, 1998 through
and including June 27, 1998 ($1,950,000)
From June 28, 1998 through
and including September 26,
1998 ($1,050,000)
From September 27, 1998 and for
each fiscal quarter thereafter $3,000
</TABLE>
The parentheses used with the amounts set forth above indicate that
such amounts are negative numbers.
9.17 After Acquired Real Property. If Borrower hereafter acquires any
Real Property or fixtures (other than the Real Property leased by Borrower as
of the date hereof located in Rocky Mount, North Carolina, to the extent such
Real Property is subject to liens and security interest permitted under Section
9.8(i) hereof) and such Real Property or fixtures at any one
56
<PAGE> 62
location has a fair market value in an amount equal to or greater than $100,000
(or if an Event of Default, or act, condition or event which with notice or
passage of time or both would constitute an Event of Default exists, then
regardless of the fair market value of such assets), without limiting any other
rights of Lender, or duties or obligations of Borrower, upon Lender's request,
Borrower shall execute and deliver to Lender a mortgage, deed of trust or deed
to secure debt, as Lender may determine, in form and substance satisfactory to
Lender, and in form appropriate for recording in the real estate records of the
jurisdiction in which such Real Property or other property is located granting
to Lender, a first and only lien and mortgage on and security interest in such
Real Property, fixtures or other property (except as Borrower would otherwise
be permitted to incur hereunder or as otherwise consented to in writing by
Lender) and such other agreements, documents and instruments as Lender may
require in connection therewith.
9.18 Costs and Expenses. Borrower shall pay to Lender on demand, all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including: (a) all
costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) costs and expenses
and fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees; (c) costs
and expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (d) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (e) costs and expenses of preserving and protecting the
Collateral; (f) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and
liens of Lender, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Lender arising
out of the transactions contemplated hereby and thereby (including preparations
for and consultations concerning any such matters); provided, that, Borrower
shall not be liable for the costs of defending claims asserted by (i) Borrower
against Lender, which claims are successfully established pursuant to a final,
non-appealable judgment of a court or competent jurisdiction rendered in favor
of Borrower against Lender, or (ii) a Person, other than Borrower, against
Lender, which claims result in a final, nonappealable judgment rendered in
favor of such Person against Lender, and which judgment clearly sets forth the
basis for liability as the willful misconduct, bad faith or gross negligence of
Lender; (g) all out-of-pocket expenses and costs heretofore and from time to
time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem
charge at the rate of $600 per person per day for Lender's examiners in the
field and office; and (h) the fees and disbursements of counsel (including
legal assistants) to Lender in connection with any of the foregoing.
57
<PAGE> 63
9.19 Further Assurances. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary
or proper to evidence, perfect, maintain and enforce the security interests and
the priority thereof in the Collateral and to otherwise effectuate the
provisions or purposes of this Agreement or any of the other Financing
Agreements. Lender may at any time and from time to time request a certificate
from an officer of Borrower representing that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in addition,
Lender has determined that such conditions are satisfied. Where permitted by
law, Borrower hereby authorizes Lender to execute and file one or more UCC
financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event
of Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within
two (2) Business Days after the due date thereof, or (ii) Borrower fails to
perform any of the terms, covenants, conditions or provisions contained in this
Agreement or any of the other Financing Agreements other than as described in
Section 10.1(a)(i), and, in the case of a failure to comply with the terms,
covenants, conditions or provisions contained in:
(1) Section 9.1, to the extent such failure consists
solely of a failure to be qualified as a foreign corporation to do
business in a jurisdiction, such failure shall continue for a period of
sixty (60) days, or
(2) Section 9.2(a), Lender shall fail to receive notice of
such new location within twenty (20) days after the opening or
establishment thereof (but such twenty (20) day period shall not apply
if any of the Inventory at such new location is included in any
Collateral report delivered to Lender), or
(3) the first sentence of Section 9.4, such failure shall
continue for a period of thirty (30) days, or
(4) Section 9.6(a)(i), to the extent such failure consists
solely of a failure to deliver timely financial statements for the
third, sixth, ninth or twelfth calendar months, such failure shall
continue for a period of five (5) days, or
58
<PAGE> 64
(5) Section 9.14, to the extent such failure shall
continue for a period of thirty (30) days, or
(6) Section 9.3(a), to the extent such failure shall
continue for a period of fifteen (15) days;
provided, that, such specified periods in clauses (1) through (5) above shall
not apply in the case of: (A) any failure to observe any such term, covenant,
condition or provision which is not capable of being cured at all or within
such specified periods or which has been the subject of a prior failure within
a six (6) month period or (B) an intentional breach by Borrower or any Obligor
of any such term, covenant, condition or provision or (C) any failure which has
or has a reasonable likelihood of having a Material Adverse Effect;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $100,000 in any one case or in excess of
$250,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of forty-five (45) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower
or any Obligor or any of their assets which would have a Material Adverse
Effect;
(e) dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed against Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within
forty-five (45) days after the date of its filing or Borrower or any Obligor
shall file any answer admitting or not contesting such petition or application
or indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
59
<PAGE> 65
(h) a case or proceeding under the bankruptcy laws of the
United States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property;
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any Indebtedness owing to any person other
than Lender, in any case in an amount in excess of $50,000 or any default by
Borrower under the Factoring Agreement, in any case, which default continues
for more than the applicable cure period, if any, with respect thereto, or any
default by Borrower or any Obligor under any material contract, lease, license
or other obligation to any person other than Lender, which default continues
for more than the applicable cure period, if any, with respect thereto;
(j) any Change of Control shall occur;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or any Obligor;
(l) there shall be an event or change of circumstances that
results in a Material Adverse Effect;
(m) there shall be an event of default under any of the other
Financing Agreements; or
(n) there shall be an event of default in any agreement,
document or instrument by and between Simmons and Lender, or executed by or on
behalf or for the benefit of Simmons and delivered to or for the benefit of
Lender.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and
other applicable law, all of which rights and remedies may be exercised without
notice to or consent by Borrower or any Obligor, except as such notice or
consent is expressly provided for hereunder or required by applicable law. All
rights, remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any
60
<PAGE> 66
time or times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and
demand immediate payment thereof to Lender (provided, that, upon the occurrence
of any Event of Default described in Sections 10.1(g) and 10.1(h), all
Obligations shall automatically become immediately due and payable), (ii) with
or without judicial process or the aid or assistance of others, enter upon any
premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair
of all or any portion of the Collateral, (iii) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (iv) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (v)
remove any or all of the Collateral from any premises on or in which the same
may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from
any right or equity of redemption of Borrower, which right or equity of
redemption is hereby expressly waived and released by Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased by Lender
upon credit terms or for future delivery, the Obligations shall not be reduced
as a result thereof until payment therefor is finally collected by Lender. If
notice of disposition of Collateral is required by law, ten (10) days prior
notice by Lender to Borrower designating the time and place of any public sale
or the time after which any private sale or other intended disposition of
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Borrower waives any other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of
the Collateral to payment of the Obligations, in whole or in part and in such
order as Lender may elect, whether or not then due. Borrower shall remain
liable to Lender for the payment of any deficiency with interest at the highest
rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any
61
<PAGE> 67
provision of this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Circuit Court of Cook County, Illinois and
the United States District Court for the Northern District of Illinois and
waive any objection based on venue or forum non conveniens with respect to any
action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary
or appropriate in order to realize on the Collateral or to otherwise enforce
its rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
ten (10) days after the same shall have been so deposited in the U.S. mails,
or, at Lender's option, by service upon Borrower in any other manner provided
under the rules of any such courts. Within thirty (30) days after such
service, Borrower shall appear in answer to such process, failing which
Borrower shall be deemed in default and judgment may be entered by Lender
against Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT,
62
<PAGE> 68
EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on Borrower which Lender may elect to give
shall entitle Borrower to any other or further notice or demand in the same,
similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement, signed in the case of amendments or
modifications, by authorized officers of Borrower and Lender, and signed, in
the case of waivers or discharges in favor of Borrower, by authorized officers
of Lender. Lender shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and
its directors, agents, employees and counsel, harmless from and against any and
all losses, claims,
63
<PAGE> 69
damages, liabilities, costs or expenses imposed on, incurred by or asserted
against any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the reasonable fees and expenses of counsel, but
excluding any such losses, claims, damages, liabilities, costs and expenses
directly caused to be incurred by reason of the gross negligence, willful
misconduct or bad faith of the Person otherwise to be indemnified and held
harmless under this Section, as determined by a final, non-appealable judgment
of a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received
final and indefeasible payment. Such payments in respect of the Obligations
and cash collateral shall be remitted by wire transfer in Federal funds to such
bank account of Lender, as Lender may, in its discretion, designate in writing
to Borrower for such purpose. Interest shall be due until and including the
next Business Day, if the amounts so paid by Borrower to the bank account
designated by Lender are received in such bank account later than 12:00 noon,
Chicago time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this
64
<PAGE> 70
Agreement or the other Financing Agreements until all Obligations have been
fully and finally discharged and paid, and Lender's continuing security
interest in the Collateral and the rights and remedies of Lender hereunder,
under the other Financing Agreements and applicable law, shall remain in effect
until all such Obligations have been fully and finally discharged and paid. At
any time thereafter Lender shall, at the request of Borrower, execute and
deliver to Borrower, at Borrower's cost and expense, such UCC termination
statements as are necessary to evidence the discharge and release of any then
remaining Collateral.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
<TABLE>
<CAPTION>
Amount Period
------ ------
<S> <C>
(i) 3% of Maximum Credit From the date hereof to and including
February 11, 1998;
(ii) 2% of Maximum Credit From February 12, 1998 to and including
February 11, 1999; and
(iii) 1% of Maximum Credit From February 12, 1999 to and including
February 10, 2000.
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver
the next Business Day, one (1) Business Day after sending; and if by certified
mail, return receipt requested, ten (10) days after mailing.
65
<PAGE> 71
12.3 Partial Invalidity. If any provision of this Agreement is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors.
(a) This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to any Borrower, assign its rights and delegate its obligations
under this Agreement and the other Financing Agreements and further may assign,
or sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
(b) If Lender shall assign its entire rights and delegate its
obligations under this Agreement and the other Financing Agreements, such that
Lender is no longer the person administering the financing arrangements
hereunder, including making the determinations of the amount of Revolving Loans
and Letter of Credit Accommodations available to Borrower pursuant to the
lending formulas hereunder (such an assignment and delegation, a "Full
Assignment"), unless (i) Lender shall have obtained Borrower's prior written
consent to such Full Assignment (which consent, if requested, shall not be
unreasonably withheld, delayed or conditioned) or (ii) such Full Assignment is
in connection with a sale of the business of Lender, or a sale of all or a
substantial portion of the loan portfolio of Lender, or (iii) such Full
Assignment is to an Affiliate of Lender, or (iv) such Full Assignment is made
after and during the continuance of an Event of Default, then, following a Full
Assignment not described in any of clauses (i), (ii), (iii) or (iv) of this
Section 12.4(b), Borrower shall have the option to terminate this Agreement
(the "Special Termination Option") in accordance with Section 12.1 hereof,
except without payment of any early termination fee otherwise payable pursuant
to Section 12.1(c) hereof; provided, however, such termination by Borrower
pursuant to the Special Termination Option must be completed in accordance with
Section 12.1 hereof, within one hundred eighty (180) days following Borrower's
receipt of notice of such Full Assignment.
12.5 Confidentiality.
(a) Lender shall use all reasonable efforts to keep
confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by Borrower pursuant to this
66
<PAGE> 72
Agreement which is clearly and conspicuously marked as confidential at the time
such information is furnished by Borrower to Lender, provided, that, nothing
contained herein shall limit the disclosure of any such information: (i) to
the extent required by statute, rule, regulation, subpoena or court order, (ii)
to bank examiners and other regulators, auditors and/or accountants, (iii) in
connection with any litigation to which Lender is a party, (iv) to any assignee
or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) shall have
first agreed in writing to treat such information as confidential in accordance
with this Section 12.5, or (v) to counsel for Lender or any participant or
assignee (or prospective participant or assignee).
(b) In no event shall this Section 12.5 or any other provision
of this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other
than Borrower, (iii) require Lender to return any materials furnished by
Borrower to Lender or (iv) prevent Lender from responding to routine
informational requests in accordance with the Code of Ethics for the Exchange
of Credit Information promulgated by The Robert Morris Associates or other
applicable industry standards relating to the exchange of credit information.
The obligations of Lender under this Section 12.5 shall supersede and replace
the obligations of Lender under any confidentiality letter signed prior to the
date hereof.
12.6 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
67
<PAGE> 73
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
<TABLE>
<CAPTION>
LENDER BORROWER
------ --------
<S> <C>
CONGRESS FINANCIAL CORPORATION (CENTRAL) FUTORIAN FURNISHINGS, INC.
By: [SIG]
------------------------------ By: [SIG]
-----------------------------------------
Title: Vice President
----------------------------- Title: Vice President
--------------------------------------
Address: Chief Executive Office:
-------- ----------------------
150 South Wacker Drive 2401 Waukegan Road
Chicago, Illinois 60606 Bannockburn, Illinois 60015
</TABLE>
68
<PAGE> 1
EXHIBIT 4.54
SEVENTH AMENDMENT
SEVENTH AMENDMENT, dated as of January 2, 1998, 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, 1998 to January 4, 1999.
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. 6 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. 6 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. 6 DATED AS OF JANUARY 2, 1998
WHICH IS ATTACHED HERETO."
1.2 The Indenture is hereby amended as follows:
(a) The date "January 2, 1998" is
deleted from the fourth line of the cover page of the Indenture and the date
"January 4, 1999" is inserted in lieu thereof.
<PAGE> 2
(b) The date "January 2, 1998" is
deleted from the second paragraph on page 1 of the Indenture and the date
"January 4, 1999" is inserted in lieu thereof.
(c) The date "January 2, 1998" is
deleted from the definition of "Securities" in Section 1.1 of the Indenture and
the date "January 4, 1999" is inserted in lieu thereof.
Section 2. Conditions to Effectiveness. This Seventh
Amendment shall become effective when the Endorsement No. 6 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 Seventh Amendment.
3.2 The execution, delivery and effectiveness of
this Seventh 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 Seventh
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 Seventh 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 Seventh
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Seventh Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Seventh Amendment to be duly executed by their respective officers as of the
date first above written.
- 2 -
<PAGE> 3
[SIGNATURE PAGES FOLLOW]
- 3 -
<PAGE> 4
ANNEX A
FORM OF ENDORSEMENT NO. 6
CONSOLIDATED FURNITURE CORPORATION and COURT SQUARE CAPITAL
LIMITED hereby agree that the promissory note to which this Endorsement No. 6 is
attached (the "Debentures") shall be and hereby is amended as follows:
A. Delete the words "January 2, 1998" appearing on the
front of the Debentures and substitute therefor the words "January 4, 1999."
B. Delete the words "due January 2, 1998" appearing on
the first page of the back of the Debentures and substitute therefor the words
"due January 4, 1999."
CONSOLIDATED FURNITURE CORPORATION
Dated: January 2, 1998 By:
---------------------------------
John B. Sganga
Executive Vice President
Dated: January 2, 1998 By:
---------------------------------
John B. Sganga
Chief Financial Officer,
Treasurer and Controller
COURT SQUARE CAPITAL LIMITED
Dated: January 2, 1998 By:
---------------------------------
M. Saleem Muqaddam
Vice President
A-1
<PAGE> 5
CONSOLIDATED FURNITURE CORPORATION
By:
---------------------------------
John B. Sganga
Executive Vice President
By:
---------------------------------
John B. Sganga
Chief Financial Officer,
Treasurer and Controller
COURT SQUARE CAPITAL LIMITED
By:
---------------------------------
M. Saleem Muqaddam
Vice President
- 4 -
<PAGE> 1
EXHIBIT 10.5
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of the 15th day of September, 1997 by and between Furniture
Comfort Corporation, a Delaware corporation ("Purchaser"), and American National
Bank and Trust Company, not personally, but solely as Trustee under Trust
Agreement dated July 17, 1978, and known as Trust No. 43449 ("Seller").
UNDERSTANDINGS
Seller is the legal owner of the real estate commonly known as 2401
Waukegan Road, Bannockburn, Lake County, Illinois, legally described on Exhibit
A attached hereto and made a part hereof, together with any and all improvements
thereon, and all of the rights, privileges, easements, and appurtenances
thereunto belonging or anywise appertaining (said real estate and all of said
improvements, rights, privileges, easements and appurtenances are sometimes
hereinafter collectively called the "Premises").
Purchaser agrees to purchase the Premises from Seller and Seller agrees
to sell the Premises to Purchaser upon and subject to the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the Understandings, the mutual
covenants, agreements, representations and warranties set forth herein, and for
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Seller agrees to sell to Purchaser, and Purchaser agrees to
purchase from Seller, the Premises at the price and upon the covenants, terms,
provisions and conditions herein set forth.
2. (a) The total purchase price for the Premises shall be Two
Million Five Hundred Fifty Thousand ($2,550,000) Dollars ("Purchase
Price"). Purchaser shall pay ten percent (10.0%) of the purchase price
as earnest money ("Earnest Money") within two business days after
Seller's acceptance of this Agreement. Purchaser shall pay the balance
of the Purchase Price, plus or minus prorations, at the Closing
(defined below) in cash, by cashier's or certified check or by wire
transfer of immediately available funds.
(b) The Earnest Money shall be held in a joint-order escrow
by the Title Company (defined below) for the mutual benefit of the
parties and shall be invested in an interest-bearing account until
Closing or earlier termination of this Agreement. All interest earned
on the Earnest Money shall be paid or credited to Purchaser at Closing
or earlier termination of this Agreement, unless otherwise specifically
provided herein.
3. Purchaser shall have the right to assign this Agreement to an
affiliate provided that Purchaser remains liable for performance hereof or to
designate a nominee as the grantee under
<PAGE> 2
the deed (collectively "Purchaser's Nominee"). Seller shall convey to Purchaser
or to Purchaser's Nominee good and marketable title to the Premises by stamped
and recordable Trustee's Deed. Seller, at Seller's expense, shall deliver or
cause to be delivered to Purchaser on the Date of Closing (defined below) an
Owner's Title Insurance Policy ("Title Policy") ALTA Form B-1990 (or such
successor form then in use) with extended coverage over each of the general
exceptions and with any of the following endorsements reasonably requested by
Purchaser based upon Purchaser's analysis of the Survey (defined below) and
Title Commitment (defined below): zoning, survey, access, location, and
contiguity. The Title Policy shall be issued by a national title insurance
company acceptable to Purchaser ("Title Company") in the amount of the Purchase
Price insuring title to the Premises in Purchaser or Purchaser's Nominee subject
only to those title matters which are described on Exhibit B attached hereto and
made a part hereof ("Permitted Title Exceptions").
4. Within thirty (30) days after Seller's execution and delivery
to Purchaser of this Agreement, Seller, at no expense to Purchaser, shall
deliver to Purchaser a Plat of Survey ("Survey") of the Premises, made
subsequent to the date hereof, certified to the Title Company, Purchaser and any
other party or parties designated by Purchaser by an Illinois Registered Public
Surveyor acceptable to Purchaser as having been made in compliance with Illinois
Land Survey Standards and American Land Title Association (ALTA) Standards. The
Survey shall certify and indicate the following:
(a) monuments placed at all major corners of the
Premises;
(b) the location of all building lines and the building
restrictions on the Premises;
(c) the location of all improvements on the Premises and
all utilities serving the Premises and the location of all easements
benefiting and burdening the Premises;
(d) all improvements on the Premises are located within
the Premises and are in conformity with any applicable building or set
back lines;
(e) no improvements on the Premises are constructed over
any easements, roads or ways;
(f) no encroachments on the Premises from improvements on
adjoining property;
(g) access to the Premises from public roads and ways;
(h) parking areas and number of parking spaces;
(i) the square footage of all buildings and the number of
acres of the Premises, calculated to the nearest one-thousandth (.001)
acre; and
-2-
<PAGE> 3
(j) the location and square footage area of any portion
of the Premises located within the 100-Year Flood Plain as designed by
the Federal Emergency Management Agency (or other governmental or other
agency having jurisdiction over the Premises).
Purchaser shall have ten (10) business days after receipt of the Survey to
review and approve or disapprove any matters shown on the Survey which were not
shown on the copy of that certain survey of the Premises last dated November 9,
1979 prepared by National Survey Service, Inc. If Purchaser does not notify
Seller in writing of its disapproval within said ten (10) business days, then
Purchaser shall be deemed to approve the Survey.
5. Within fifteen (15) days after Seller's execution and delivery
to Purchaser of this Agreement, Seller shall deliver to Purchaser a commitment
for the Title Policy ("Title Commitment"), together with a copy of all documents
of record and all exceptions to title shown, listed or described in the Title
Commitment which will not be removed or waived at or prior to closing. Purchaser
shall have ten (10) business days after delivery of the Title Commitment and
documents of record to review and approve or disapprove of any unpermitted title
exceptions in the Title Commitment and documents of record. If Purchaser does
not notify Seller in writing of its disapproval within said ten (10) business
days, then Purchaser shall be deemed to approve the Title Commitment. Purchaser
hereby acknowledges receipt of the documents of record underlying the Permitted
Title Exceptions numbered 3 through 9 on Exhibit B.
The Title Commitment shall be issued by the Title Company in the amount
of the Purchase Price, dated on or after the date hereof, showing title to the
Premises in Seller subject only to (a) the Permitted Title Exceptions and (b)
title exceptions pertaining to liens or encumbrances of a definite or
ascertainable amount which shall be removed by the payment of money on or before
the Date of Closing. If the Title Commitment or the Survey discloses any title
exceptions or Survey defects other than the title exceptions described in this
paragraph, Seller shall have thirty (30) days to have all of such exceptions
waived or otherwise removed from the Title Commitment or the Survey and to
deliver to Purchaser evidence reasonably acceptable to Purchaser that the
unpermitted title exceptions have been waived or otherwise removed from the
Title Commitment or the Survey. If Seller fails to have such exceptions waived
or otherwise removed from the Title Commitment or the Survey within such thirty
(30) day period, Purchaser, by giving notice to Seller, may either (i) terminate
this Agreement or (ii) elect (A) to extend the period during which Seller may
have the unpermitted title exceptions waived or otherwise removed from the Title
Commitment or the Survey, which extension shall be for a period of time
reasonably determined by Purchaser (based upon the nature of unpermitted title
exceptions and upon the surrounding circumstances) to be necessary to allow
Seller to have the unpermitted title exceptions waived or removed from the Title
Commitment or the Survey and to deliver to Purchaser evidence, reasonably
acceptable to Purchaser, that the unpermitted title exceptions have been waived
or otherwise removed from the Title Commitment or the Survey, or (B) to take the
title as it then is with the right to deduct from the Purchase Price liens and
encumbrances of a definite or ascertainable amount. The Title Commitment shall
be conclusive evidence of good title as therein shown as to all matters insured
by the policy, subject only to exceptions as therein stated.
-3-
<PAGE> 4
6. Purchaser's obligation to purchase the Premises is contingent
upon Purchaser's approval, within ten (10) business days after Seller's
acceptance of this Agreement, of the condition of the Premises and Purchaser's
proposed use of the Premises. If any of the foregoing are not acceptable to
Purchaser, Purchaser, within the time periods provided above in its sole and
absolute discretion and for any reason whatsoever, may terminate this Agreement.
In such event, Purchaser shall deliver to Seller copies of all inspection
reports, tests, surveys and studies of the Premises performed or obtained by
Purchaser and any originals thereof previously delivered to Purchaser by Seller.
In such event, this Agreement shall be of no further force or effect, the
Earnest Money, if any, shall be refunded to Purchaser, and all rights and
obligations of the parties under this Agreement shall terminate.
Seller hereby agrees that, at any time during the term of this
Agreement, Purchaser and the agents, employees and representatives of Purchaser
may enter upon the Premises and make, at Purchaser's sole cost, risk and
expense, any and all inspections, tests, surveys and studies of the Premises
which Purchaser may desire. In the event Purchaser does not purchase the
Premises in accordance with the terms and conditions of this Agreement,
Purchaser agrees to restore any alterations or damage to the Premises caused by
Purchaser or its agents, employees or representatives to its original condition.
Purchaser hereby agrees to indemnify and save Seller harmless from and against
any and all damages, costs, injuries and liabilities arising out of Purchaser's
rights and activities under this paragraph.
7. Seller and Seller's beneficiary represent and warrant to and
covenant with Purchaser that on the date hereof and on the Date of Closing:
(a) Seller has good and marketable title to the Premises,
subject only to the Permitted Title Exceptions.
(b) Seller's beneficiary has not received notice or
service of process of any suits or judgments against the Premises or
Seller or its beneficiary arising out of, and Seller and its
beneficiary have not received any notice of any violations of or
otherwise to the best of their actual knowledge, without inquiry, have
any knowledge of, any zoning, building, fire, health, pollution,
environmental protection or waste disposal ordinance, code, law, rule,
requirement or regulation relating to or at the Premises which has not
been heretofore corrected.
(c) Seller's beneficiary has not received notice or
service of process or, to the best of Seller's and Seller's
beneficiary's actual knowledge and belief, without inquiry, there are
no threatened condemnation, eminent domain or similar proceedings, oil
and gas exploration operations or assessments affecting the Premises or
any portion thereof, administrative hearings or governmental
requirements or other matters which might have a material adverse
impact on the ownership, operations or value of the Premises or any
part thereof, nor, to the best of Seller's beneficiary's actual
knowledge and belief, without inquiry, are any such proceedings,
operations, assessments, hearings, requirements or other matters
contemplated by any person or entity whatsoever.
(d) There are no parties in possession of the Premises
other than Seller.
-4-
<PAGE> 5
(e) All bills for work done or materials furnished for
any work at the Premises have been paid in full.
(f) To the best of their actual knowledge, without
inquiry, no portion of the Premises has been designated as wetlands by
the United States Army Corps of Engineers or by any other governmental,
quasi-governmental or other firms, agency or authority having
jurisdiction over the Premises, or any portion thereof, with respect to
such matters.
(g) There are no unrecorded liens or encumbrances against
any portion of the Premises which will not be removed or satisfied on
or prior to the Date of Closing.
(h) Neither Seller nor any beneficiary, agent or employee
of Seller has received any notice or to the best of their actual
knowledge, without inquiry, is otherwise aware that the assessed value
of any portion of the Premises for the purpose of determining real
estate taxes for the calendar year 1997 or any subsequent year has been
increased over the assessed value for any such portion of the Premises
for the years 1995 and 1996. Seller further represents that neither
Seller nor any beneficiary, agent or employee of Seller has any actual
knowledge or information, without inquiry, of any pending or
contemplated proceedings for public improvements which could or might
result in the levy of a special tax or assessment against any portion
of the Premises.
(i) This Agreement has been duly authorized, executed and
delivered by the Seller and is binding upon Seller in accordance with
its terms; all requisite action has been taken by Seller and Seller's
beneficiary to enable it legally to fulfill the obligations incurred by
it under the provisions of this Agreement.
(j) Other than the Declaration of Covenants and
Restrictions and Ordinance No. 97-29 concerning the Special Use Permit
adopted by the Village of Bannockburn disclosed to Purchaser by Seller,
neither Seller nor any beneficiary, agent or employee of Seller has
entered into, or has any actual knowledge, without inquiry, of or
information regarding, which has not been disclosed to Purchaser in
writing, any specific agreements with any governmental authority having
jurisdiction over the Premises, or any portion thereof, which would
limit or otherwise affect the development, use, occupancy or value of
the Premises.
(k) Seller's beneficiary has not used, treated, stored,
generated or disposed and shall not use, treat, store, generate or
dispose of Hazardous Substances (defined below) on, in or under the
Premises or any portion thereof (above or below ground), and Seller and
Seller's beneficiary have no actual knowledge that any current owner or
occupant used, treated, stored, generated or disposed of such Hazardous
Substances thereon. To the best of Seller's beneficiary's actual
knowledge, without inquiry other than that certain Phase I
Environmental Assessment dated July 30, 1997 prepared by Carlson
Environmental, Inc. as No. 9574A ("Environmental Report"), the Premises
and the use and operation of the Premises are not in violation of any
Environmental Law (defined below), and no Hazardous Substances are
currently located on, in or under the
-5-
<PAGE> 6
Premises or any portion thereof. Seller's beneficiary has not used the
Premises for or as a sanitary landfill or dump. To Seller's
beneficiary's actual knowledge, without inquiry, no underground storage
tank or tanks are located on or under the Premises. No underground
storage tanks are or have been installed by Seller's beneficiary on or
under the Premises. Seller's beneficiary shall indemnify and hold
Purchaser harmless from and against a breach by Seller's beneficiary of
any of the representations or warranties set forth in this subparagraph
(k). Such indemnity shall include any and all losses, liabilities,
damages, injuries, costs, expenses and claims of any and every kind
whatsoever paid, incurred or suffered by or asserted against Purchaser
for, with respect to, or as a direct or indirect result thereof
including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Resource Conservation and Liability Act of 1980,
as amended, the Resource Conservation and Recovery Act, as amended, any
so-called "Superfund" or "Superlien" law, or any other Federal, state
or local statute, law, ordinance, code, rule, regulation, order or
decree regulating, relating to or imposing liability or standards of
conduct concerning any Hazardous Substances by reason of such breach.
For purposes of this Agreement, "Hazardous Substances" means and
includes any waste, asbestos, polychorinated biphenyl compounds,
petroleum products, pesticides or toxic or hazardous substances or
materials of any kind any of which are defined as "hazardous
substances" or "toxic substances" or treated as such in or for purposes
of the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, or the Resource Conservation and Recovery Act,
as amended, or any so-called "Superfund" or "Superlien" law, or any
other Federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing
liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time
hereinafter in effect ("Environmental Laws"). The indemnification
hereunder shall include Purchaser and Purchaser's permitted assignees
under Section 3.
(l) The Premises is being sold to Purchaser in "as is,"
"where is" condition.
8. All representations, warranties and covenants made herein, and
in any certificates delivered pursuant hereto, shall be deemed remade as of the
Date of Closing and shall be true and correct on the Date of Closing and shall
be deemed to be material and to have been relied upon by the parties,
notwithstanding any investigation or other act of Purchaser heretofore or
hereafter made, and shall survive the Closing for a period of nine months months
from the Date of Closing. The obligations of Purchaser under this Agreement are
expressly conditioned upon the representations and warranties of Seller being
true and correct as of the Date of Closing.
9. The obligations of Purchaser are conditioned upon and subject
to the satisfaction (or waiver by Purchaser) of each of the following
conditions:
(a) Seller shall have performed and complied with all
agreements, covenants and conditions to be performed or complied with
prior to the Date of the Closing.
-6-
<PAGE> 7
(b) Purchaser shall have received a certificate executed
by Seller to the effect that the representations and warranties made by
Seller to Purchaser are true and correct in all material respects on
and as of the Date of the Closing with the same effect as if such
representations and warranties had been made on and as of the Date of
the Closing.
(c) All procedures to be taken in connection with the
consummation of all transactions contemplated on the Date of Closing,
and all documents incident thereto, shall be in form and substance
reasonably satisfactory to Purchaser and its counsel, and Purchaser and
its counsel shall have received copies of all documents which Purchaser
or its counsel may reasonably request in connection with said
transactions.
10. Unless otherwise agreed upon by Purchaser and Seller, the sale
and purchase of the Premises covered by this Agreement (the "Closing") shall
occur by a closing through a "New York style" escrow (the "Escrow") at the
Chicago office of the Title Company in accordance with the general provisions of
the usual form of "New York style" Deed and Money Escrow Agreement then in use
by the Title Company with such special provisions inserted in the escrow
agreement as may be required to conform with this Agreement. The cost of the
Escrow and the New York style fee shall be split equally between Seller and
Purchaser. Payment of the Purchase Price and the delivery of the deed and other
closing documents shall be made through the Escrow. This Agreement shall not be
merged into any escrow agreement, but the latter shall be deemed auxiliary to
this Agreement. The provisions of this Agreement shall always be controlling as
between the parties hereto.
11. The "Date of Closing" shall be the later of (a) the day which
is forty-five (45) days after acceptance of this Agreement by Seller, (b) the
day which is twenty (20) business days after Purchaser has approved or waived
the Contingency set forth in paragraph 6, or (c) the day on which the Title
Company is prepared to issue its Title Insurance Policy insuring title to the
Premises in Purchaser or Purchaser's Nominee provided the terms and provisions
of this Agreement and the escrow agreement have been performed. Seller shall
deliver possession of the Premises to Purchaser on the Date of Closing
broom-clean and otherwise in the same condition and state as exists on the date
hereof, except as otherwise expressly provided herein.
12. General taxes, service contracts that Purchaser elects to
continue, and other similar items shall be adjusted ratably as of midnight of
the day immediately preceding the Date of Closing. If the amounts of the general
taxes for the year of proration are not available as of the Date of Closing, the
taxes shall be prorated on the basis of one hundred five percent (105%) of the
most recent ascertainable taxes provided that the assessed value of the Premises
for 1997 is not greater than the assessed value of the Premises for 1996. If it
is, then taxes will be prorated based on the formula used to calculate the 1996
taxes using the 1997 assessed value in place of the 1996 assessed value. Final
readings shall be taken on the day of or the day preceding the Date of Closing
on all utilities. Seller shall pay the amounts due pursuant to such final
readings, and Purchaser shall pay the amounts due thereafter. If Seller is
unable to obtain a final reading on water/sewer, the parties shall prorate such
expense based on the last ascertainable bill therefor and shall reprorate upon
receipt of a final bill therefor. Except as otherwise specifically provided
herein, all prorations shall be final. Seller shall pay the amount of any
stamp tax imposed by State or County law, and Purchaser shall pay the amount of
any
-7-
<PAGE> 8
stamped tax imposed by local ordinance if such tax is customarily payable by
purchasers. Seller shall furnish completed state, county and local real estate
transfer declarations signed by Seller or Seller's agent in the form required.
13. If Seller defaults in any of its obligations under this
Agreement or has otherwise violated, breached or failed to perform any of the
conditions, covenants, representations or warranties herein set forth, Purchaser
may demand the return of its Earnest Money, if any, and avail itself of all
remedies provided at law or in equity, including the right to sue for specific
performance; in the event Purchaser elects to sue for specific performance, the
Earnest Money shall remain on deposit with the Title Company or the court. If
Purchaser fails or refuses to perform its obligations hereunder, Seller may
avail itself of all remedies provided at law or in equity. Notwithstanding the
preceding sentence, in the event Purchaser has made an Earnest Money deposit
hereunder, Seller's sole remedy for Purchaser's default shall be the retention
of the Earnest Money as liquidated damages therefor, and thereafter, this
Agreement shall be null and void, and neither party shall have any further
liability to the other hereunder. Tender of deed or purchase price shall not be
necessary where the other party has defaulted. A failure to enter into an escrow
agreement or to make the deposits required thereunder shall be a default. If
either party to this Agreement takes any steps or brings any action to enforce
such parties' rights or remedies under this Agreement (whether or not litigation
is involved), the successful party shall be entitled to reimbursement from the
unsuccessful party of all fees, costs and expenses (including reasonable
attorneys' fees) incurred by such successful party in connection with such steps
or actions.
14. All notices and all other items herein permitted or required
to be provided or furnished by either party to the other party shall be in
writing and shall be (a) delivered in person, or (b) sent by private courier
guaranteeing next-day delivery, delivery charges prepaid, or (c) sent by United
States registered or certified mail, postage prepaid, return receipt requested,
or (d) delivered by facsimile, and, in any case, addressed to the respective
parties at the following addresses, or at such other address or addresses
designated in writing by the appropriate party:
(a) If to Seller to:
Banner Properties
770 Frontage Road
Suite 123
Northfield, Illinois 60093
Attention: Jordan Sternberg
Facsimile: 847-501-5456
Telephone: 847-501-5450
-8-
<PAGE> 9
with a copy to:
Fuchs & Roselli, Ltd.
Six Hubbard Street
Suite 800
Chicago, Illinois 60610-4695
Attention: John Roselli
Facsimile: 312-245-9124
Telephone: 312-245-0030
(b) If to Purchaser to:
Furniture Comfort Corporation
c/o Futorian Furnishings
95 Revere Drive, Suite J
Northbrook, Illinois 60062
Attention: Lawrence M. Adelman
Facsimile: 847-509-7401
Telephone: 847-509-7400
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2500
Chicago, Illinois 60601
Attention: Pearl A. Zager
Facsimile: 312-609-5005
Telephone: 312-609-7548
Any notice permitted or required to be given shall be deemed to have been given
and any item permitted or required to be furnished shall be deemed to have been
furnished when personally delivered (which includes delivery by a private
courier guaranteeing next-day delivery) or three (3) business days after
delivery to a United States Post Office, properly addressed and with postage
prepaid, for delivery by United States registered or certified mail, or upon
transmittal if sent by facsimile provided the sender has received written or
oral confirmation that the notice or other item sent by facsimile has been
received. For purposes hereof, the term "business day" shall mean any calendar
day other than Saturday, Sunday or any other day on which banks in Chicago,
Illinois are authorized to close.
15. Purchaser and Seller represent that neither has dealt with any
broker or finder in connection with the transaction contemplated by this
Agreement, other than Colliers, Bennett & Kahnweiler, Inc., National Realty
Advisors, and Atlas Partners (collectively the "Broker"). At the Closing, Seller
shall pay a real estate commission to the Broker in an aggregate amount equal to
One Hundred Thirty-Two Thousand Five Hundred and No/100 ($132,500.00) Dollars.
At
-9-
<PAGE> 10
the Closing, Seller shall pay any and all other real estate commissions or other
payments in the nature of real estate brokerage commissions payable to the
Broker or any and all other brokers or other persons claiming such commissions
by, through or under Seller by reason of the sale and purchase of the Premises
or any other transaction contemplated by this Agreement.
16. If, prior to the Date of Closing, (a) any action, suit or
proceeding shall be instituted or contemplated for the purpose of condemning or
otherwise taking by eminent domain the Premises or any part thereof or limiting
the access to the Premises or any part thereof and the value of the Premises
affected thereby exceeds $50,000, or (b) all or any portion of the Premises is
damaged or destroyed by fire or casualty and the value of the Premises affected
thereby exceeds $50,000, then Purchaser may, at its option, by notice in writing
served upon Seller not more than 10 business days after Purchaser receives
notice of the occurrence of an event on either (a) or (b), elect to terminate
this Agreement, and thereupon, the Earnest Money, if any, shall be immediately
refunded to Purchaser, and this Agreement shall be cancelled and declared null
and void and of no force or effect. If Purchaser does not elect to terminate
this Agreement pursuant to this paragraph, Purchaser shall be entitled to
receive all awards or proceeds paid by reason of such condemnation or casualty,
and the parties shall thereafter continue to perform this Agreement pursuant to
the terms hereof. If the amount of any such awards or proceeds is not settled by
the Date of Closing, and if Purchaser does not elect to terminate this Agreement
pursuant to this paragraph, then at the Date of Closing Seller shall execute all
assignments of claim and other similar instruments in order that Purchaser
receive all of Seller's right, title and interest in and to such awards or
proceeds.
17. Time is of the essence of this Agreement. This Agreement shall
be binding upon and shall inure to the benefit of this parties hereto and their
respective heirs, personal representatives, successors and assigns.
18. This Agreement sets forth the entire understanding between the
parties, and the parties hereby represent that there are no oral covenants,
promises, agreements, conditions or understandings between them except as herein
stated. This Agreement may not be altered, amended, changed or modified, except
by a subsequent or contemporaneous agreement reduced to writing and signed by
all of the parties hereto.
19. This Agreement shall be governed and construed and enforced in
accordance with the laws of the State of Illinois.
20. No covenant, term or condition of this Agreement shall be
deemed to have been waived by either party, unless such waiver is in writing
signed by the party charged with such waiver, unless the passage of time is
deemed to be a waiver. If any term, covenant or condition of this Agreement or
the application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
-10-
<PAGE> 11
21. The offer to purchase the Premises made by Purchaser by the
delivery of an executed copy of this Agreement to the Seller shall automatically
terminate and expire at 5:00 p.m. C.S.T. on September ______, 1997, unless said
offer is sooner accepted by Seller's execution of this Agreement, or a
counterpart hereof, and by the return to Purchaser of a fully-executed copy of
this Agreement on or before the date and time aforementioned.
22. This Agreement is executed by American National Bank and Trust
Company of Chicago, not personally, but solely as Trustee under Trust Agreement
dated July 17, 1978 and known as Trust No. 43449 in the exercise of the power
and authority conferred upon and vested in it as such Trustee. All the terms,
provisions, stipulations, covenants and conditions to be performed by American
National Bank and Trust Company of Chicago are undertaken by it solely as
Trustee, as aforesaid, and not individually, and all statements herein made are
made on information and belief and are to be construed accordingly, and no
personal liability shall be asserted or be enforceable against American National
Bank and Trust Company of Chicago by reason of any of the terms, provisions,
stipulations, covenants and/or statements contained in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Chicago, Illinois as of the dates set forth below.
Date of Offer: September 15, 1997 Date of Acceptance: Sept. 17, 1997
-- --------------
PURCHASER: SELLER:
Furniture Comfort Corporation, American National Bank & Trust Company
a Delaware Corporation of Chicago, as Trustee under Trust
Agreement dated July 17, 1978 and known
as Trust No. 43449
By: /s/ LAWRENCE M. ADELMAN By: [SIG]
------------------------------ ------------------------------
Lawrence M. Adelman, Its: VP
Chairman and --------------------
Chief Executive Officer
The undersigned, sole beneficiary of Seller, hereby executes this
Agreement for the purpose of being bound by paragraph 7 of this Agreement.
Dated: 9/16/97 , 1997
-------------------
[BENEFICIARY]
By: [SIG]
-------------------------------
Its: a managing partner
-------------------------------
-11-
<PAGE> 12
EXHIBIT A
LEGAL DESCRIPTION
THAT PART OF THE SOUTH 351.04 FEET (AS MEASURED PERPENDICULARLY TO THE
SOUTH LINE THEREOF) OF THE SOUTH HALF OF THE SOUTH WEST QUARTER OF
SECTION 17, TOWNSHIP 43 NORTH, RANGE 12, EAST OF THE 3RD P.M., LYING
EASTERLY OF THE EASTERLY LINE OF WAUKEGAN ROAD AS DESCRIBED IN DEED
RECORDED APRIL 8, 1964, AS DOCUMENT 1221390 AND LYING WESTERLY OF A
LINE DRAWN FROM A POINT 750.00 FEET (AS MEASURED ALONG THE SOUTH LINE
OF SAID SOUTH WEST QUARTER) EAST OF THE AFORESAID EASTERLY LINE OF
WAUKEGAN ROAD TO THE SOUTH EAST CORNER OF PROPERTY DESCRIBED IN
DOCUMENT 1221388, RECORDED APRIL 8, 1964, IN LAKE COUNTY, ILLINOIS.
-12-
<PAGE> 13
EXHIBIT B
PERMITTED TITLE EXCEPTIONS
1. General real estate taxes not yet due and payable for 1997 and
subsequent years.
2. The South East quarter of the South West quarter and part North East of
Road of the South West quarter of the South West quarter of Section 17,
Township 43 North, Range 12, East of the 3rd P.M., are subject to
annual benefits for the maintenance and repair of West Skokie Drainage
District under law Docket No. 5303, County Court, Lake County, Illinois
(provided that no installments are outstanding or delinquent).
3. Ditch and storm pipe lying diagonally across the land from about 26
feet West of the East corner of the land to about 220 feet Northerly of
the East corner of the land as disclosed by Survey No. 2678; dated
April 11, 1978, by National Services, Inc., and by Survey No. 104214,
dated November 9, 1979, by National Survey Services, Inc.
4. Declaration of covenants, restrictions and conditions contained in the
Instrument made by American National Bank and Trust Company of Chicago,
as Trustee under Trust No. 42044, dated July 17, 1978 and recorded
August 7, 1978, as Document 1936540.
5. Requirements and obligations contained in the Transferee Assumption
Agreement made by American National Bank and Trust Company, as Trustee
under Land Trust No. 42044; Bannockburn Green Retail Center; Allen S.
Pesman; American National Bank and Trust Company, as Trustee under Land
Trust No. 43449; the Baldwin Partners and the Village of Bannockburn
dated July 17, 1978 and recorded August 7, 1978, as Document 1936538.
(Affects that part of the South 351.04 feet (as measured
perpendicularly to the South line thereof) of the South half of the
South West quarter of Section 17, Township 43 North, Range 12, East of
the 3rd P.M., lying Easterly of the Easterly line of Waukegan Road as
described in Deed recorded April 8, 1964, as Document No. 1221390 and
lying Westerly of a line drawn from a point 750.00 feet (as measured
along the South line of said South West quarter) East of the aforesaid
Easterly line of Waukegan Road to the South East corner of property
described in Document 1221388 recorded April 8, 1964).
6. Commercial Park Sanitary Sewer made by the Village of Bannockburn and
American National Bank and Trust Company, dated July 17, 1978 and
recorded July 25, 1978, as Document 1933828.
7. A perpetual easement to construct, reconstruct, use, operate, maintain,
repair and control a sanitary sewer and other utilities subject to the
terms and conditions contained therein, in, along and upon the
following described property: That part of the South 351.04 feet (as
measured perpendicularly to the South line thereof) of the South half
of the South West quarter of Section 17, Township 43 North, Range 12,
East of the 3rd P.M., described as follows: Commencing at the point of
intersection of the South line of the South West quarter of said
Section 17 with the Easterly line of Waukegan Road as
-13-
<PAGE> 14
described in Deed recorded April 8, 1964, as Document 1221390; thence
North 89 degrees, 52 minutes, 32 seconds East 750.00 feet, along said
South line of the South West quarter, to the point of beginning of the
tract herein described; thence North 15 degrees, 56 minutes, 35 seconds
West 305.00 feet along a line whose Northerly terminus is the South
East corner of property described in Document 1221388, recorded April
8, 1964; thence North 35 degrees, 46 minutes, 51 seconds West 70.88
feet to the North line of the South 351.04 feet, aforesaid; thence
South 89 degrees, 52 minutes 32 seconds West 24.61 feet along said
North line; thence South 35 degrees, 46 minutes, 51 seconds East 81.73
feet; thence South 15 degrees, 56 minutes, 35 seconds East 295.84 feet
to the South line of the South West quarter of Section 17, aforesaid;
thence North 89 degrees, 52 minutes, 32 seconds East 20.79 feet to the
hereinabove described, point of beginning, as granted by Instrument
dated February 7, 1979 and recorded February 21, 1979, as Document
1979241.
8. Ordinance No. 97-29 "An Ordinance Granting a Special Use Permit for the
Pre-existing Non-Office Uses at the Baldwin-Cook Building (2401
Waukegan Road)" adopted by the Village of Bannockburn on July 28, 1997.
9. Easement in favor of Commonwealth Edison Company and its respective
successors and assigns, to install, operate and maintain all equipment
necessary for the purpose of serving the land and other property,
together with the right of access to said equipment, and the provisions
relating thereto contained in the grant recorded as Document No.
3086509, as shown on Schedule "A" attached thereto.
-14-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
OR OTHER
JURISDICTION
IN WHICH
NAME ORGANIZED
---- ---------
<S> <C>
CONSOLIDATED FURNITURE CORPORATION NEW YORK
FUTORIAN FURNISHINGS, INC. DELAWARE
SSC CORPORATION DELAWARE
</TABLE>
EACH OF THE ABOVE SUBSIDIARIES IS 100% OWNED BY THE REGISTRANT OR A
SUBSIDIARY (AS INDICATED BY INDENTATION) AND ARE INCLUDED IN THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE REGISTRANT.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 605
<SECURITIES> 0
<RECEIVABLES> 30,735
<ALLOWANCES> 4,216
<INVENTORY> 13,950
<CURRENT-ASSETS> 42,985
<PP&E> 31,518
<DEPRECIATION> (300)
<TOTAL-ASSETS> 57,420
<CURRENT-LIABILITIES> 301,777
<BONDS> 248,781
0
100
<COMMON> 55,948
<OTHER-SE> (640,003)
<TOTAL-LIABILITY-AND-EQUITY> 57,420
<SALES> 148,113
<TOTAL-REVENUES> 148,113
<CGS> 142,024
<TOTAL-COSTS> 168,729
<OTHER-EXPENSES> (39)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65,547
<INCOME-PRETAX> (86,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,124)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
