SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 1-12046
LEVITZ FURNITURE INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 23-2351830
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7887 NORTH FEDERAL HIGHWAY, BOCA RATON, FL 33487-1613
(Address of Principal Executive Offices) (Zip Code)
(561) 994-6006
(Registrant's telephone number, including area code)
--------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK PAR VALUE $.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(D) OF THE ACT:
NONE
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 Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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]
On May 29, 1998, there were 30,138,896 shares of the registrant's Common Stock
outstanding of which 26,565,234 shares were Voting Common Stock and 3,573,662
shares were Non-Voting Common Stock, with 181,732 shares held by the registrant
in its treasury. As of that date the aggregate value of the registrant's voting
stock held by non-affiliates, as calculated at $0.547 per share, was
$15,445,956. The decrease of 121,275 shares from last year's report reflects the
return to the treasury of 121,275 shares pursuant to restricted stock award
agreements.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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PART I
ITEM 1. BUSINESS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS: (1) BANKRUPTCY OR DISTRICT
COURT ACTIONS OR PROCEEDINGS RELATED TO THE BANKRUPTCY OF LFI AND ITS
SUBSIDIARIES; (2) COMPETITIVE PRESSURE IN LFI'S INDUSTRY; (3) GENERAL ECONOMIC
CONDITIONS; (4) CHANGES IN THE FINANCIAL MARKETS AFFECTING LFI'S FINANCIAL
STRUCTURE AND LFI'S COST OF CAPITAL AND BORROWED MONEY; (5) INVENTORY RISKS DUE
TO CHANGES IN MARKET DEMAND OR LFI'S BUSINESS STRATEGIES; (6) CHANGES IN
EFFECTIVE TAX RATES; AND (7) THE UNCERTAINTIES INHERENT IN LFI'S OPERATIONS. LFI
HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE
THE FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K.
CHAPTER 11 FILING
On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI" or the "Company"), and 11 of its subsidiaries
(collectively, the "Debtors"), including, Levitz Furniture Corporation, a
Florida corporation and wholly-owned subsidiary of LFI ("Levitz"), filed
voluntary petitions for relief under Chapter 11, Title 11 of the United States
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware. The bankruptcy cases of LFI and
Levitz and their affiliates are being jointly administered, for procedural
purposes only, before the United States District Court for the District of
Delaware (the "Court") under Case No. 97-1842(JJF). Pursuant to Sections 1107
and 1108 of the Bankruptcy Code, LFI, as debtor and debtor-in-possession, has
continued to manage and operate its assets and businesses pending the
confirmation of a reorganization plan or plans and subject to the supervision
and orders of the Court. Because LFI is operating as debtor-in-possession under
Chapter 11 of the Bankruptcy Code, the existing directors and officers of LFI
continue to manage the operations of LFI subject to the supervision and orders
of the Court.
The Debtors expect to reorganize under Chapter 11 and to propose a
reorganization plan or plans. The Court has extended the Debtors' exclusive
right to file a reorganization plan or plans through August 31, 1998. The
Debtors may request a further extension of the exclusivity period. There can be
no assurance that the Court will grant such further extension. After expiration
of the exclusivity period, creditors of the Debtors have the right to propose
alternative reorganization plans. Although management expects to file a
reorganization plan or plans that provide for emergence from bankruptcy in 1998
or 1999, there can be no assurance that a reorganization plan or plans will be
proposed by the Debtors or confirmed by the Court, or that such plan or plans
will be consummated. Any reorganization plan is likely to result in a minimal,
if any, distribution to existing stockholders as a result of the issuance of
equity to creditors or new investors.
At this time, it is not possible to predict the outcome of the Debtors' Chapter
11 cases or their effect on the Debtors' business. Reference is made to Item 7 -
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Report of Independent Public Accountants included on page 27
which indicates the substantial doubt about LFI's ability to continue as a going
concern.
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THE COMPANY
LFI was incorporated in Delaware in 1984 under the name LFC Holding Corporation
for the purpose of acquiring Levitz Furniture Corporation. LFI changed its name
to Levitz Furniture Incorporated in 1993. LFI's only material asset is the
common stock of Levitz Furniture Corporation and it conducts no business other
than holding the common stock of Levitz Furniture Corporation. The principal
executive offices of LFI are located at 7887 North Federal Highway, Boca Raton,
FL 33487-1613, and its telephone number is (561) 994-6006.
Levitz Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"), was organized in 1965 as a Florida
corporation, is the successor to a business originally commenced in 1910 and was
acquired by LFI in 1985. Levitz is one of the largest specialty retailers of
furniture in the United States with, as of May 31, 1998, a chain of 58
warehouse-showrooms and 47 satellite stores located in major metropolitan areas
in 22 states. Levitz pioneered the warehouse-showroom concept by opening the
first warehouse-showroom in 1963 in Allentown, Pennsylvania. Levitz stores
generated revenues of $836.8 million in the year ended March 31, 1998 ("Fiscal
1998"). Management believes the Levitz name to be one of the most recognized in
furniture retailing.
Levitz stores offer a wide selection primarily of brand-name furniture and
accessories including living room, bedroom, dining room, kitchen and occasional
furniture and bedding. Some of the well known, nationally advertised brands
offered by Levitz stores include Ashley, Bassett, Benchcraft, Berkline,
Broyhill, Douglas, Klaussner, Lane, Lea Industries, Rowe, Sealy, Simmons,
Stanley, Stratford, and Universal. Levitz does not manufacture any of the
merchandise sold in its stores but instead devotes all of its resources to the
retail sale of furniture.
Levitz has experienced declining sales, profitability and cash flows over the
past several fiscal years. Reference is made to Item 7 - "Management's
Discussion and Analysis of Results of Operations and Financial Condition".
BUSINESS STRATEGY
Levitz's retailing concept targets value-conscious consumers by offering:
- broad selections of furniture and accessories;
- nationally advertised brands;
- competitive prices; and
- immediate availability of merchandise.
Levitz offers one of America's largest selection of quality brand name furniture
at guaranteed low prices. The Company's large showrooms facilitate display of a
broad selection of furniture and accessories. In each of its warehouse-showroom
facilities, Levitz can maintain substantial inventory, carrying in-stock the
depth of merchandise necessary for customers to carry away purchases
immediately. In addition to the warehouse-showrooms, Levitz also operates
"satellite" stores which utilize the warehouse and delivery functions of nearby
warehouse-showrooms. The satellite showrooms enable Levitz to more
cost-effectively penetrate existing markets by leveraging costs of supervisory
personnel, advertising programs and warehouse operations. The sales volumes
inherent in the warehouse-showroom/satellite concept make Levitz a key channel
of distribution for its principal vendors. Management has developed strong
partnerships with these principal vendors from whom it purchases large
quantities of quality merchandise, often at substantial savings. This buying
power enables Levitz to price its merchandise very competitively.
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MERCHANDISING
Levitz's merchandising strategy is generally to display more merchandise in a
larger selling space than its competition, with 175 to 260 settings typically
displayed on its showroom floors. The merchandise sales mix among product line
groupings for Fiscal 1998 was upholstery/seating 44.1%, bedroom 20.6%,
occasional 11.2%, dining room (formal and casual) 12.0%, bedding 10.1%, and
other 2.2%. Percentage breakdowns have been relatively consistent for the past
several years. Levitz intends to open satellite stores that contain less selling
space than previously operated while generally maintaining this merchandising
strategy.
Levitz's stores feature moderately priced merchandise targeting value-conscious
consumers. Management believes its customer base includes "the middle 80%" of
consumers who buy furniture. A typical purchaser is a married female homeowner
under 45 years of age with family income of up to $75,000 per year. Based on
statistical information, management believes the 18 to 44 age bracket of
consumers is expected to remain relatively constant for the next decade, while
the 45 to 64 age bracket is expected to expand due to the aging of the
population.
To attract consumers who prefer more customized merchandise and are less
concerned with immediate delivery, Levitz has a "Choices" program. The "Choices"
program enables the customer to select from hundreds more of pre-selected
fabrics than are typically available in stock. Due to the strength of its vendor
relationships, Levitz is able to promise delivery of these custom order
furniture items generally within four weeks of purchase. During Fiscal 1998, the
"Choices" program represented approximately 10.2% of upholstery sales.
ADVERTISING AND PROMOTION
Levitz retains independent national advertising firms for creative and
production services in connection with its print, radio and television
advertisements. For Fiscal 1998, Levitz's advertising expenditures amounted to
$108.1 million or 12.9% of net sales, as compared to $102.1 million or 10.6% of
net sales, for Fiscal 1997. Levitz's name is widely recognized by furniture
consumers.
CUSTOMER SERVICE
Levitz is committed to providing high-quality customer service in all phases of
its business, including immediate merchandise availability, instant store credit
and prompt delivery. Through its warehouse-showrooms, Levitz provides immediate
availability on the majority of its items. If delivery is desired, Levitz will
generally deliver the item within seven days of the purchase for a modest
delivery charge. Levitz provides its customers with instant credit at the time
of purchase utilizing point-of-sale terminals on the showroom floors. In the
case of any damaged or defective merchandise Levitz will repair or replace the
item or, if impracticable to repair or replace, will offer a refund to the
customer. Management believes its commitment to customer service has contributed
to the substantial percentage of repeat purchases by Levitz's customers.
STORE OPERATIONS
WAREHOUSE-SHOWROOMS
Each of Levitz's warehouse-showrooms incorporate a warehouse and a showroom
within a single building. High-bay warehouse racks, filled floor-to-ceiling with
ready-to-deliver furniture, emphasize Levitz's dominant selection and in-stock
position on thousands of furniture items and accessories. The warehouse is
designed to allow maximum use of available space through the use of modern
materials handling systems.
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The warehouse-showrooms range from 62,000 square feet to 250,000 square feet,
featuring selling space of 30,000 to 110,000 square feet. Merchandise is
typically displayed in model room settings of which approximately 260 are
located in each facility containing 50,000 or more square feet of selling space.
Smaller facilities feature approximately 175 model room settings. Levitz's
customers typically have the option to receive their merchandise at the
warehouse-showroom immediately upon purchase or to have their merchandise
delivered to their homes for a modest delivery charge. Levitz's
warehouse-showrooms are typically located within easy access of expressway
interchanges or major highways and have adjacent parking facilities. See
"Properties" for information regarding the locations of Levitz's
warehouse-showrooms.
SATELLITE STORES
Levitz's forty-seven satellite stores are free-standing showrooms utilizing the
warehouse and delivery functions of nearby warehouse-showrooms. As a result,
satellite stores require a smaller capital investment than a full
warehouse-showroom and leverage the relatively fixed operating costs of the
larger facilities including warehouse and delivery, supervision and advertising.
Satellite stores enable Levitz to more cost-effectively penetrate existing
markets. While the average warehouse-showroom is approximately two to three
times the size of an average satellite store, selling space is approximately
equal. Satellite stores range from approximately 25,000 to 60,000 square feet.
See "Properties" for information regarding the locations of Levitz's satellite
stores. Levitz intends to open new satellite stores having approximately 30,000
square feet of space.
Levitz's retail facilities are generally open Monday through Saturday from 10:00
a.m. to 9:00 p.m., and on Sundays from 12:00 noon to 6:00 p.m.
CUSTOMER CREDIT POLICIES
Levitz sells its merchandise either for cash, under customer installment
purchase plans or bank credit cards and a private label credit program. During
Fiscal 1998 and 1997, approximately 40% and 36%, respectively, of sales at
Levitz's facilities were for cash (including bank credit cards), and
approximately 60% and 64%, respectively, of sales were under customer credit
plans. Levitz accepted bank credit cards in all stores starting January 1998.
For the period January 1998 through May 1998, sales at Levitz for cash were
approximately 25%, sales by bank credit cards were approximately 25% and sales
under customer credit plan were approximately 50%.
On September 5, 1997 Levitz and General Electric Capital Corporation ("GECC")
entered into a Second Amended and Restated Account Purchase and Credit Card
Program Agreement (the "GECC Agreement"), whereby GECC is required to purchase
Levitz's customer credit obligations, subject to certain restrictions, without
recourse up to a maximum investment of $900.0 million. The GECC Agreement
expires on October 31, 1999 and may require Levitz to repurchase the outstanding
customer credit obligations at the expiration date. There is significant doubt
as to Levitz's ability to repurchase the outstanding customer credit obligations
due to the Chapter 11 filing and current financial condition.
Levitz is exposed to market risks under the terms of the GECC Agreement. Levitz
may pay a fee or may receive income, based on the relationship among the
interest earned on the portfolio, the amount of the promotional discount fees,
the amount of the servicing fee, the prime rate, and to a limited extent, credit
losses. For Fiscal 1998 and 1997, Levitz recorded income under the GECC
Agreement of $7.9 million and $12.8 million, respectively. These amounts are
included in selling, general and administrative expenses and unusual operating
expenses. Levitz expects the income under the GECC Agreement to be minimal in
Fiscal 1999.
Levitz is also engaged in discussions with another party to finance and service
its customer credit obligations. The outcome of these discussions and
5
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negotiations are not predictable, consequently the impact on the financial
statements are not known.
VENDOR PARTNERSHIPS/INVENTORY
The success of the warehouse-showroom/satellite concept with consumers has made
Levitz a key channel of distribution for its principal vendors. Levitz purchases
substantial inventories as a result of its significant sales volume and strategy
of immediate merchandise availability. As a result, Levitz can purchase
merchandise more competitively in truckload lots because manufacturers can plan
longer production runs and produce goods more efficiently.
Levitz's volume purchasing also results in faster receipt of furniture orders
from manufacturers. Smaller retailers are typically unable to order a full
production run, and as a result, do not receive orders until full run quotas are
satisfied by additional orders. While some other retailers maintain large
inventories, Levitz's warehouse-showroom/satellite strategy contrasts with
prevalent industry practice whereby retailers carry minimal inventory for
immediate availability, and instead purchase merchandise upon receipt of
specific orders. The efficiency of this strategy from the standpoint of
selection, availability and price creates exceptional value for the customer.
Management has established strong partnerships with its principal vendors to
review new merchandise and plan promotions and marketing strategies, as well as
manage inventory levels. Substantially all manufacturers have cooperative
advertising budgets with Levitz. Electronic data interchange ("EDI") is an
important aspect of these partnerships. One hundred sixteen manufacturers
currently participate in Levitz's EDI system which enables manufacturers to plan
and produce goods more efficiently while making it possible for Levitz to
maintain an in-stock position with less inventory. During May 1998, 98.1% of all
furniture purchases were made through the EDI system, as compared to 97.6% for
the same month of the prior year. The Company intends to continue working with
vendors to introduce additional EDI features such as advance ship notices and
invoices which are expected to enhance relations and improve efficiencies for
the Company.
Levitz currently purchases merchandise from over 213 independent manufacturers.
For Fiscal 1998, Levitz's top 10 vendors accounted for 44.5% of purchases.
Levitz has no long-term contractual commitments with any of its manufacturers,
and with the exception of the disruption caused by its 1997 Chapter 11 filing,
has had no difficulty in the past in obtaining merchandise for sale.
MANAGEMENT INFORMATION SYSTEMS
Levitz maintains an IBM AS/400 computer in each warehouse-showroom to track all
inventory and sales activity.
When merchandise arrives at the warehouse, it has been or is immediately bar
coded, enabling scanning by hand-held readers. This information is directly
loaded into the AS/400 thereby eliminating clerical errors, increasing available
inventory for sale and minimizing inventory shrinkage. Shrinkage has been
minimal in recent years. The sales floors in all stores are equipped with
on-line point-of-sale terminals enabling sales persons to access inventory
status, reserve inventory, schedule delivery and begin the credit approval
process for customers. All data is transmitted to corporate headquarters each
night. Management at corporate headquarters and at the store level monitor
inventory composition, age and condition. Sales and promotion activities feature
Levitz's aggressive product prices and are targeted regionally and locally to
inventories on hand. Aged merchandise is promptly marked down for rapid sale.
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COMPETITION
The home furnishings industry is a highly competitive and fragmented market with
sales for furniture, bedding and decorative accessories by furniture stores in
the United States estimated at $35.0 billion in 1997. According to a leading
industry publication, the nation's 100 largest furniture retailers accounted for
approximately 41.0% of all furniture sales by furniture stores in the United
States in 1997. According to the same publication, in 1997 Levitz represented
2.4% of total domestic furniture sales, and was the second largest specialty
retailer of furniture in the United States.
Levitz's competition varies significantly according to geographic areas.
Levitz's principal competitors consist of local independent specialty furniture
retailers. Levitz also competes with national and regional specialty furniture
retailers, general merchandisers and, in certain limited categories, wholesale
clubs. In the future Levitz may have increasing competition from other major
retail operations, some of which may have greater financial and other resources
than Levitz and may derive revenues from sales of products other than household
furnishings.
EMPLOYEES
As of March 31, 1998, Levitz had 4,489 employees, of whom 1,485 were engaged in
sales, 7 in advertising, 375 in merchandising and display, 1,113 in warehouse
and maintenance functions and 1,509 in office and administrative work. As of
March 31, 1998, 3,403 of Levitz's employees were full-time and 1,086 were
part-time. Sales personnel are paid primarily on a commission basis. Levitz's
store managers and key marketing, distribution and operations personnel may
receive, in addition to their base salaries, bonus compensation based upon
achieving planned sales and operating performance for the location or locations
for which the employee has responsibility. Certain of Levitz's national staff
personnel, including officers, may receive bonuses based upon favorable
operating results during the fiscal year.
Levitz maintains one facility in which its sales employees are covered by a
collective bargaining agreement with a local of the United Food and Commercial
Workers Union ("UFCW"). This collective bargaining agreement expired in December
1997. The parties are engaged in negotiations concerning that agreement.
In 1995 the Company withdrew recognition of a UFCW local as bargaining agent for
the employees at one Company facility. That decision was upheld by the NLRB
Regional Director and the local has appealed the matter to the NLRB. In June
1998 two petitions were filed by a Teamsters Union local seeking recognition as
the bargaining agent for the employees at two of the Company's facilities.
In the past, a number of petitions were received from various unions, including
affiliates of the UFCW and the Teamsters Union, for organization of some or all
of the employees in certain other of Levitz's facilities. Except as noted above,
none of these petitions or other union activities has resulted in a current
collective bargaining agreement. Levitz has not experienced a material work
stoppage due to union activity in the past 10 years.
Levitz expects that union efforts to organize the employees at its facilities
will continue, but cannot predict what effect these activities may have on
Levitz's business operations, employee relations or income from operations.
Although nationwide organizational campaigns may be instituted by one or more
unions, all union activities to date have been confined to the local or regional
level.
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RESTRUCTURING ACTIVITIES
Since the filing of the Chapter 11 voluntary petitions on September 5, 1997,
management of the Company and its advisors in the bankruptcy proceedings have
conducted an extensive analysis of business operations with the objective of
making the changes necessary to improve operating performance. The following
paragraphs summarize key components of actions taken:
MARKET BY MARKET PERFORMANCE ANALYSIS
Management has performed a study of each of the market areas in which its stores
operate. This study compared the operating performance of the Company's stores
against key competitors in each market. In markets where the Company's store
operations were not providing an adequate return on invested assets, management
considered the steps that could be taken to improve profitability. In some
cases, it was determined that the prospects were not good for achieving an
adequate return on invested assets. Accordingly, the decision was made to close
selected stores or, in some cases, to close all stores in a specific market. The
Company has either already closed or announced the intention to close a total of
thirty-nine stores since its Chapter 11 filing. Correspondingly, management
believes the Company's profitability can be improved by opening as many as
fifteen stores in seven existing markets in which the Company's competitive
position is already strong. Management expects to open these new stores by the
end of 1999, subject to Court approval, and dependent on general business
conditions and the Company's ability to finance such openings.
SELLING, MERCHANDISING AND ADVERTISING INITIATIVES
A number of initiatives are being pursued which are expected to improve
operating performance. In addition to introducing a number of new items to the
merchandise assortment in the spring of 1998, management has taken steps to
improve merchandise planning and replenishment programs. Advertising programs
are being revised to introduce new events and to change the mix of media on a
market by market basis. Store sales associates are being trained on
"customer-driven" selling techniques. In addition, internal "best practices"
benchmarking is being used to improve performance in sales and customer service
and to reduce non-selling operating expenses.
EXPENSE REDUCTION INITIATIVES
In January 1998, Levitz sold its corporate headquarters building, with Court
approval, and moved its offices to a leased building housing its Boca Raton,
Florida retail store.
The Company is implementing a "warehouse rationalization program" which is aimed
at limiting the number of warehouses servicing each market. This initiative will
reduce warehousing costs, other support costs through consolidation and reduce
the overall inventory investment to service stores in a given market area. The
program is also intended to provide additional income by leasing excess
warehouse capacity or entering into new lease agreements. The nature of the
sublease rental may vary depending on the suitability of the space for other
parties. Management expects the reduction in operating expense and the savings
from reduced inventory investment to justify the warehouse closing even when a
sublease tenant is not immediately available. This program has been implemented
in seven locations and is currently underway at two other locations. At the nine
locations where the warehouse has or will be eliminated, the Company has entered
into new lease agreements at two locations eliminating the warehouse space and
has subleased the former warehouse to a tenant in two other locations.
Management believes opportunities exist to take this action in other locations
thereby improving profitability while reducing required inventory investment.
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ITEM 2. PROPERTIES
On May 31, 1998, Levitz operated 105 retail facilities, including 58
warehouse-showrooms and 47 satellite stores located in major metropolitan areas
in 22 states, with a concentration in California. The following table sets forth
the number of retail facilities owned or leased by Levitz on May 31, 1998:
OWNED(A) LEASED(B)
-------- ---------
Warehouse-showrooms.................... 16 42
Satellite stores....................... 7 40
- ----------
(a) Two warehouse-showrooms and one satellite store are located on land
occupied by Levitz under long-term ground leases. Each of the owned
properties is encumbered by either a first or second mortgage, most of
which mortgages secure borrowings by Levitz under its DIP Facility.
(b) The terms of the leases range from 7 months to 56 years, including
renewal options. Rentals are either fixed or fixed minimums coupled
with contingent rentals based on the Consumer Price Index or a
percentage of net sales.
On May 31, 1998, these facilities contained a total of approximately 11,200,000
square feet, including approximately 4,900,000 square feet of selling space.
Levitz also owns a 35,000 square foot facility in Pottstown, Pennsylvania which
is used for accounting offices.
The following sets forth, as of May 31, 1998, the retail premises operated by
Levitz:
<TABLE>
<CAPTION>
OWNED PREMISES LEASED PREMISES
- ----------------------------------------------------- -----------------------------------------------------
MONTH AND STORE MONTH AND STORE
LOCATION YEAR OPENED TYPE(1) LOCATION YEAR OPENED TYPE(1)
- ----------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tampa, FL(2)................... Oct. 1969 WS Allentown, PA................... Sept. 1963 WS
Los Angeles, CA................ Dec. 1970 WS Phoenix, AZ..................... Nov. 1963 ST
Denver, CO(2).................. Jan. 1971 WS Dallas, TX...................... May 1967 ST
Oxnard, CA..................... Jan. 1971 WS Santa Clara, CA................. Sept. 1968 WS
St. Louis, MO(2)............... Sept. 1971 WS Wilmington, DE.................. June 1969 WS
Portland, OR................... Nov. 1971 WS San Bernardino, CA.............. Aug. 1969 WS
St. Paul, MN................... Dec. 1971 WS Huntington Beach, CA............ Nov. 1969 WS
Southington, CT................ Aug. 1975 WS San Diego, CA(2)................ May 1970 WS
Independence, MO............... Feb. 1976 ST Sacramento, CA.................. Sept. 1970 WS
Paramus, NJ.................... Aug. 1977 WS Ft. Lauderdale, FL.............. Oct. 1970 WS
Garden City, NY(3)............. Aug. 1977 WS Seattle, WA..................... Nov. 1970 WS
S. Miami, FL................... Dec. 1977 ST San Leandro, CA................. Aug. 1971 WS
W. Palm Beach, FL.............. Nov. 1979 ST So. San Francisco, CA........... Aug. 1971 WS
Lynnwood, WA................... June 1980 WS Cherry Hill, NJ................. Sept. 1971 WS
La Puente, CA(3)............... Jan. 1981 ST Willowbrook, NJ................. Dec. 1971 WS
Woodbridge, NJ(3).............. Jan. 1981 WS Minneapolis, MN................. Dec. 1971 WS
Modesto, CA.................... Nov. 1981 WS San Antonio, TX................. Jan. 1972 WS
Mesquite, TX................... Dec. 1982 WS Suitland, MD.................... Jan. 1972 WS
Plantation, FL................. Aug. 1983 WS Rockville, MD................... Jan. 1972 WS
Colo. Springs, CO(2)........... Nov. 1983 ST Miami, FL....................... April 1972 WS
Arlington, TX.................. Jan. 1984 WS Fairfax, VA..................... May 1972 WS
San Marcos, CA(2).............. Feb. 1984 ST San Dimas, CA................... May 1972 WS
Portland, OR................... July 1986 ST Northridge, CA.................. June 1972 WS
Indianapolis, IN................ Aug. 1972 WS
Fresno, CA...................... Aug. 1972 WS
Redondo Beach, CA............... Aug. 1972 WS
King of Prussia, PA............. Aug. 1972 ST
Fort Worth, TX.................. Oct. 1972 WS
Kansas City, KS................. Nov. 1972 WS
El Paso, TX..................... Feb. 1973 WS
</TABLE>
- ----------
(1) The column refers to warehouse-showrooms ("WS") or satellite stores ("ST").
(2) In June 1998 Levitz announced its intent to close these stores.
(3) Stores located on land occupied by Levitz pursuant to long-term ground
lease.
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<TABLE>
<CAPTION>
LEASED PREMISES LEASED PREMISES
- ----------------------------------------------------- -----------------------------------------------------
MONTH AND STORE MONTH AND STORE
LOCATION YEAR OPENED TYPE(1) LOCATION YEAR OPENED TYPE(1)
- ----------------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mesa, AZ....................... Mar. 1973 WS Kansas City, MO................ Oct. 1986 ST
Farmingdale, NY................ April 1973 WS Reading, PA ................... Jan. 1987 ST
Langhorne, PA.................. May 1973 WS Bakersfield, CA ............... Mar. 1987 ST
New Orleans, LA................ Sept. 1973 WS Chula Vista, CA(2) ............. Mar. 1987 ST
Baltimore (Glen Burnie), MD.... July 1974 WS Pinole, CA...................... Dec. 1987 ST
Winter Park, FL(2)............. June 1977 WS Tacoma, WA...................... Jan. 1988 ST
Dedham, MA..................... Aug. 1977 WS Alhambra, CA(2)................. Aug. 1988 ST
Danvers, MA.................... Aug. 1977 WS Smithtown, NY................... Aug. 1989 ST
Westboro, MA................... Aug. 1977 WS Brooklyn Park, MN............... Nov. 1989 ST
Enfield, CT.................... Aug. 1977 WS Corona, CA...................... Nov. 1989 ST
Clearwater, FL(2).............. Sept. 1977 ST Nashua, NH...................... Nov. 1990 ST
Concord, CA.................... Dec. 1978 WS Fullerton, MD................... Jan. 1991 ST
Austin, TX..................... Oct. 1979 WS Las Vegas, NV................... Aug. 1991 WS
Denver, CO(2).................. Oct. 1979 ST New Port Richey, FL(2).......... Oct. 1992 ST
Anaheim, CA.................... Nov. 1981 ST Glendale, AZ.................... Nov. 1992 ST
Laguna Hills, CA............... April 1983 ST Victorville, CA................. Dec. 1992 ST
Baltimore, MD.................. Nov. 1983 ST Rohnert Park, CA................ Mar. 1994 ST
Pleasanton, CA................. Jan. 1984 ST N. Richland Hills, TX........... April 1994 ST
San Carlos, CA................. April 1984 ST Arroyo Grande, CA............... April 1994 ST
San Antonio, TX................ Nov. 1984 ST Cathedral City, CA.............. April 1994 ST
Stockton, CA................... June 1985 ST Tempe, AZ....................... June 1994 ST
Cerritos, CA................... June 1985 ST Indianapolis, IN................ Aug. 1994 ST
Boca Raton, FL................. Nov. 1985 ST Fremont, CA..................... Aug. 1994 ST
Phoenix, AZ.................... Nov. 1985 ST Middle Village, NY.............. Oct. 1994 WS
Milford, CT.................... April 1986 ST Plano, TX(2).................... Oct. 1994 WS
Orlando, FL(2)................. May 1986 ST Manchester, MO(2)............... Oct. 1995 ST
</TABLE>
- ----------
(1) The column refers to warehouse-showrooms ("WS") or satellite stores ("ST").
(2) In June 1998 Levitz announced its intent to close these stores.
(3) Stores located on land occupied by Levitz pursuant to long-term ground
lease.
In addition to the above properties, as of May 31, 1998 Levitz had available for
disposition three owned and three leased properties formerly operated as retail
stores.
On June 17, 1998, the Company announced its intention to close all warehouse and
showroom facilities in the Tampa, FL, Orlando, FL, San Diego, CA, Denver, CO,
and St. Louis, MO markets. This announcement affected five warehouse facilities
and a total of thirteen showrooms. In addition, the Company has recently
announced the decision to close the warehouse and showroom located in Plano, TX
and the showroom located at Alhambra, CA.
As part of its "warehouse rationalization program", the Company has completed
the closing of its Paramus, NJ and Northridge, CA warehouses and has initiated
the closing of warehouses in Minneapolis, MN and Austin, TX. The adjacent
showrooms at these locations will continue to operate as "satellites" of other
warehouse facilities serving these markets.
Following the above closings, the Company will have a total of 48 warehouses in
operation which will be serving a total of 48 warehouse-showrooms and 42
satellite showrooms.
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 FILING
On September 5, 1997, LFI and 11 of its subsidiaries, including Levitz, filed
voluntary petitions for relief under the Bankruptcy Code, Chapter 11, Title 11
of the United States Code, with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware 19801. The bankruptcy cases of LFI
and Levitz and their affiliates are being jointly administered, for procedural
purposes only, before the United States District Court for the District of
Delaware under Case No. 97-1842(JJF).
Under section 362 of the Bankruptcy Code, during a Chapter 11 case, creditors
and other parties in interest may not, without Court approval: (i) commence or
continue judicial, administrative or other proceedings against the Debtors
10
<PAGE>
that were or could have been commenced prior to commencement of the Chapter 11
case, or recover a claim that arose prior to commencement of the case; (ii)
enforce any pre-petition judgments against the Debtors; (iii) take any action to
obtain possession of or exercise control over property of the Debtors or their
estates; (iv) create, perfect or enforce any lien against the property of the
Debtors; (v) collect, assess or recover claims against the Debtors that arose
before the commencement of the case; or (vi) set off any debt owing to the
Debtors that arose prior to the commencement of the case against a claim of such
creditor or party in interest against the Debtors that arose before the
commencement of the case.
Although the Debtors are authorized to operate their businesses and manage their
properties as debtors-in-possession, they may not engage in transactions outside
of the ordinary course of business without complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Court approval.
As debtors-in-possession, the Debtors have the right, subject to Court approval
and certain other limitations, to assume or reject executory, pre-petition
contracts and unexpired leases. In this context, "assumption" requires the
Debtors to perform their obligations and cure all existing defaults under the
assumed contract or lease and "rejection" means that the Debtors are relieved
from their obligations to perform further under the rejected contract or lease,
but are subject to a claim for damages for the breach thereof subject to certain
limitations contained in the Bankruptcy Code. Any damages resulting from
rejection are treated as general unsecured claims in the reorganization cases.
Under the Bankruptcy Code, a creditor's claim is treated as secured only to the
extent of the value of such creditor's collateral, and the balance of such
creditor's claim is treated as unsecured. Generally, unsecured and undersecured
debt does not accrue interest after the Petition Date.
Pre-petition claims that were contingent or unliquidated at the commencement of
the Chapter 11 cases are generally allowable against the Debtors in amounts to
be fixed by the Court or otherwise agreed upon. These claims, including, without
limitation, those which arise in connection with the rejection of executory
contracts and leases, are expected to be substantial. The Debtors have
established reserves approximating what the Debtors believe will be its
liability under these claims. The Court fixed August 10, 1998 as the last date
by which most creditors of the Debtors could file proofs of claim for claims
that arose prior to the Petition Date.
PLAN OF REORGANIZATION PROCEDURES
For 120 days after the date of the filing of a voluntary Chapter 11 petition, a
debtor has the exclusive right to propose and file a reorganization plan with
the Court and an additional 60 days within which to solicit acceptances to any
plan so filed (the "Exclusive Period"). The Court may increase or decrease the
Exclusive Period for cause shown, and as long as the Exclusive Period continues,
no other party may file a reorganization plan.
Given the magnitude of the operations of the Debtors and the number of
interested parties asserting claims that must be resolved in the Chapter 11
cases, the plan formulation process is complex. The Debtors currently retain the
exclusive right to propose and solicit acceptances of a plan or plans of
reorganization until August 31, 1998 and October 30, 1998, respectively.
If a Chapter 11 debtor fails to file its plan during the Exclusive Period or
after such plan has been filed fails to obtain acceptance of such plan from
impaired classes of creditors and equity security holders during the exclusive
solicitation period, any party in interest, including a creditor, an equity
security holder or a committee of creditors, may file a reorganization plan for
such Chapter 11 debtor.
11
<PAGE>
Inherent in a successful plan of reorganization is a capital structure which
permits the Debtors to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Debtors. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of the Chapter 11 case on the business of the Debtors or on the
interests of creditors. Any reorganization plan is likely to result in a
minimal, if any, distribution to existing stockholders as a result of the
issuance of equity to creditors or new investors.
Generally, after a plan has been filed with the Court, it will be sent, with a
disclosure statement approved by the Court following a hearing, to members of
all classes of impaired creditors and equity security holders for acceptance or
rejection. Following acceptance or rejection of any such plan by impaired
classes of creditors and equity security holders, the Court, after notice and a
hearing, would consider whether to confirm the plan. Among other things, to
confirm a plan the Court is required to find that (i) each impaired class of
creditors and equity security holders will, pursuant to the plan, receive at
least as much as the class would have received in a liquidation of the debtor
and (ii) confirmation of the plan is not likely to be followed by the
liquidation or need for further financial reorganization of the debtor or any
successor to the debtor, unless the plan proposes such liquidation or
reorganization.
To confirm a plan, the Court generally is also required to find that each
impaired class of creditors and equity security holders has accepted the plan by
the requisite vote. If any impaired class of creditors or equity security
holders does not accept a plan but all of the other requirements of the
Bankruptcy Code are met, the proponent of the plan may invoke the so-called
"cram down" provisions of the Bankruptcy Code. Under these provisions, the Court
may confirm a plan notwithstanding the non-acceptance of the plan by an impaired
class of creditors or equity security holders if certain requirements of the
Bankruptcy Code are met, including that (i) at least one impaired class of
claims has accepted the plan, (ii) the plan "does not discriminate unfairly" and
(iii) the plan "is fair and equitable with respect to each class of claims or
interests that is impaired under, and has not accepted, the plan." As used by
the Bankruptcy Code, the phrases "discriminate unfairly" and "fair and
equitable" have narrow and specific meanings unique to bankruptcy law.
OTHER LEGAL PROCEEDINGS
In the ordinary course of business, Levitz is party to various legal actions
which it believes are routine in nature and incidental to the operation of its
business. In the opinion of management, the outcome of the proceedings to which
Levitz is currently party will not have a material adverse effect upon its
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
After September 24, 1997 there was no public trading market for LFI's Common
Stock. Prior to September 24, 1997, LFI's Common Stock was traded on the New
York Stock Exchange ("NYSE"). Effective at the opening of the trading session on
December 3, 1997, the NYSE formally removed from listing and registration the
Common Stock of LFI pursuant to an Order, dated December 2, 1997, of the
Securities and Exchange Commission granting the application for removal by the
NYSE. As of June 12, 1998, there were 726 holders of record of Voting Common
Stock and 7 holders of record of Non-Voting Common Stock.
LFI has not paid dividends on any class of its Common Stock since 1987 and does
not intend to pay dividends in the foreseeable future. As a holding company,
LFI's ability to pay dividends is dependent on the receipt of dividends or other
payments from Levitz. The payment of dividends by Levitz to LFI is prohibited by
the Postpetition Credit Agreement, dated as of September 5, 1997 (the "DIP
Facility"). In addition, the payment of dividends by Levitz to LFI is subject to
certain restrictions under the DIP Facility, the indentures relating to debt
securities issued by LFI and Levitz and Florida law. See Item 7 - "Management's
Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources" and Note 4 to the Notes to
Consolidated Financial Statements. Florida law generally requires that, after
giving effect to a dividend, Levitz must be able to pay its debts as they become
due in the usual course of business and the fair value of Levitz's total assets
must be greater than the sum of its total liabilities plus certain preferential
rights. Any determination to pay cash dividends in the future will be at the
discretion of LFI's Board of Directors and will be dependent upon LFI's results
of operations, financial condition, contractual restrictions and other factors
deemed relevant at that time by the Board of Directors.
Any reorganization plan is likely to result in a minimal, if any, distribution
to existing stockholders as a result of the issuance of equity to creditors or
new investors.
The range of high and low sales prices for LFI's Common Stock as reported in the
New York Stock Exchange Composite Index for each quarterly period within the two
most recent fiscal years through September 24, 1997, (the last day of reported
trading on the NYSE), is as follows:
QUARTER ENDED HIGH LOW
------------- ---- ----
June 30, 1996 5-1/8 3-3/4
September 30, 1996 5-1/8 3-3/4
December 31, 1996 4-1/8 2-1/4
March 31, 1997 3-1/2 2-5/8
June 30, 1997 3 1-7/16
September 24, 1997 1-11/16 7/32
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from, and should be read
in conjunction with, the Consolidated Financial Statements of LFI and the Notes
thereto included elsewhere in this document. The only material asset of LFI is
the common stock of Levitz, and it conducts no business other than holding the
common stock of Levitz. See Item 7 - "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Item 8 - "Financial
Statements and Supplementary Data".
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1998 1997 1996 1995(17) 1994(19)
----------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $836,802 $966,855 $986,622 $1,047,226 $983,597
Gross profit 369,211 433,300 451,669 491,366 463,443
Selling, general and administrative
expenses 361,132 381,995 397,041 (13) 408,746 363,588
Unusual operating expenses 16,151 (1) - - - -
Charge for store closings - 8,295 (9) - - -
Restructuring expense - - 9,000 (14) - -
Depreciation and amortization 24,093 26,993 29,272 28,484 26,877
Operating income (loss) (87,677)(2) 16,017 16,356 54,136 72,978
Interest expense, net 39,592 (3) 55,522 53,035 47,797 48,553
Reorganization items 55,512 (4) - - - -
Income (loss) before extraordinary
items, cumulative effect of change in
accounting principle and preferred
dividends (127,269) (39,505) (23,753) 3,952 17,397
Extraordinary items, net of tax benefit (5,805)(5) (2,002)(10) - (1,566)(18) (29,505)(20)
Cumulative effect of change in accounting
principle, net of tax expense - - - - 2,744 (21)
Preferred dividends - - - - 4,983
Net income (loss) available to common
stockholders (93,387) (27,586) (23,753) 2,386 (14,347)(22)
Net income (loss) per common share (3.12) (0.93) (0.80) 0.08 (0.56)(22)
Weighted average number of shares
outstanding 29,924 29,655 29,621 29,621 25,683
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------------------------------------------
1998 1997 1996 1995(17) 1994(19)
----------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property and equipment, net 235,970 (6) 333,703 360,453 394,911 342,514
Total assets 1,006,804 934,368 (11) 606,887 651,174 575,920
Noncurrent portion of capital lease
obligations - (7) 74,466 82,922 87,767 89,938
Noncurrent portion of long-term debt 5,702 (7) 282,084 (12) 293,433 (15) 348,908 286,591
Liabilities subject to compromise 369,692 (8) - - - -
Stockholders' deficit (186,061) (94,072) (67,652)(16) (44,277) (46,663)
</TABLE>
(1) During Fiscal 1998, LFI incurred unusual operating expense which
included the write-off of $2.8 million in goodwill. The write-off of
$5.9 million of the future service revenue receivable under the GECC
Agreement during which period Levitz was not able to account for a
portion of the transactions as a sale, accrual of severance cost of
$1.3 million upon the resignation of an officer and $6.1 million charge
reflecting an adjustment to record inventory at its estimated net
realizable value due to the substantial change in merchandising
assortment. The changes increased net loss by $11.1 million or $0.37
per share.
(2) Operating income declined significantly from prior periods due to the
unusual operating expenses and reorganization items described above and
to the continued decline in total sales and comparable store sales from
the prior fiscal years.
(3) As a result of the Chapter 11 filing, no principal or interest payments
will be made on most prepetition debt without Court approval or until a
plan of reorganization providing for repayment terms has been confirmed
by the Court and becomes effective. Interest on prepetition unsecured
obligations has not been accrued after the Petition Date except that
interest expense and principal payments will continue to be recorded on
capital lease obligations unless the leases are rejected by the
Debtors. If a capital lease is rejected the obligation will be limited
to the
14
<PAGE>
lease rejection claim. Contractual interest expense of $13.3 million
was not recorded on certain prepetition debt for the period from
September 5, 1997 through March 31, 1998.
(4) Reorganization items represent costs incurred by the Company during the
Chapter 11 proceedings. The reorganization items primarily include a
charge of $23.4 million associated with the closing of eighteen
under-performing stores, $7.7 million related to the sale of
substantially all the assets of the John M. Smyth Company (JMS), a
wholly-owned subsidiary of Levitz, $15.0 million for the accelerated
write-off of goodwill associated with JMS and $6.9 million of
professional fees which include accounting, legal and consulting
services provided to LFI and the Creditor's Committee during the
Chapter 11 proceedings. The reorganization items increased net loss by
$38.2 million or $1.28 per share.
(5) On the Petition Date, Levitz incurred a before-tax extraordinary loss
of $8.4 million due to the write-off of the pre-petition senior secured
facilities deferred financing fees. The after-tax loss was $5.8 million
or $0.19 per share.
(6) Property and equipment, net of accumulated depreciation decreased $97.7
million during Fiscal 1998 primarily due to the write-down to net
realizable value of closed stores, property and equipment, net of $20.0
million, the sale of assets with book value of $51.5 million,
reclassification of property to property held for disposal of $17.0
million, amortization and depreciation of $23.0 million less capital
expenditures of $14.1 million.
(7) All capital lease obligations and all non-current long-term debt
obligations with the exception of mortgages have been reclassified as
liabilities subject to compromise.
(8) Liabilities subject to compromise represent all unsecured liabilities
of the Debtor as of the Petition Date. See Note 5, Notes to
Consolidated Financial Statements for the types of liabilities included
as subject to compromise.
(9) On October 31, 1996, five satellite stores were closed resulting in a
pre-tax charge for store closings of $8.3 million. The charge includes
the reduction of the carrying value of the store assets to their
estimated fair value net of selling expenses as well as reserves for
future rental payments under operating lease agreements. Included in
the store closing charge is a $2.4 million charge from the adoption of
SFAS No. 121 effective April 1, 1996 for one of the closed stores. The
charge increased net loss by $5.4 million or $0.18 per share.
(10) As a result of the July 1996 refinancing, in June 1996, LFI incurred a
before-tax extraordinary loss of $3.1 million on the write-off of
deferred financing fees related to the termination of Levitz's previous
bank credit agreement. The after-tax loss was $2.0 million or $0.07 per
share.
(11) Effective January 1, 1997 Levitz was required to account for the
purchase of Levitz's customer credit obligations by General Electric
Capital Corporation (GECC) under an Account Purchase and Credit Card
Agreement (the "GECC Agreement") in accordance with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting
Standards No. 125 (SFAS No. 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".
Levitz was required by SFAS No. 125 to account for these transactions
as a secured borrowing with a pledge of collateral rather than as a
sale for financial reporting purposes. Consequently, Levitz recorded
$327.0 million as a Receivable Under Account Purchase Agreement and as
an Obligation Under Account Purchase Agreement in its March 31, 1997
financial statements.
15
<PAGE>
(12) On July 1, 1996, Levitz entered into new senior secured credit
facilities providing for up to $190.0 million of availability. The
proceeds of the senior secured facilities were used to refinance
indebtedness incurred under the Credit Agreement, to provide liquidity
for working capital needs and for other general corporate purposes.
(13) In March 1996, Levitz amended its non-contributory, defined benefit
pension plan to provide that no benefits would accrue under the plan
after March 31, 1996. The amendment resulted in a curtailment gain of
$8.3 million. No plan assets were withdrawn from the pension plan as a
result of this gain. The curtailment gain decreased net loss $5.4
million or $0.18 per share.
(14) LFI recorded in Fiscal 1996 restructuring charges totaling $9.0
million. The restructuring plans included the elimination of six
regional/division offices and certain support positions. A total of 142
employees including five senior executives were terminated. The charges
include $7.8 million of severance pay and related employee benefit
costs and $1.2 million of idle facility and other costs. The
restructuring plans increased net loss by $5.8 million or $0.20 per
share.
(15) In March 1996, LFI and Levitz consummated an exchange offer in which
Levitz issued $91.6 million principal amount of 13.375% Senior Notes
due October 15, 1998 and LFI issued warrants to purchase 283,972 shares
of LFI Common Stock in exchange for $91.6 million principal amount of
12.375% Senior Notes due April 15, 1997 (the Exchange Offer). The
Exchange Offer redeemed 93.8% of the 12.375% Senior Notes leaving an
aggregate principal amount of $6.0 million outstanding. Capital in
excess of par has been increased and the principal amount of the
13.375% Senior Notes have been decreased by the fair value of the
warrants of $0.7 million. The issuance costs of $1.3 million had been
charged to interest expense.
(16) During Fiscal 1996, LFI contracted to issue 700,000 shares of
restricted stock to certain key employees. These shares were issued in
Fiscal 1997. The total market value at the effective date of grant was
recorded as deferred compensation, a separate component of
stockholders' deficit. The deferred compensation is being charged to
selling, general and administrative expenses over the three year
vesting period.
(17) On June 28, 1994, Levitz acquired all of the outstanding stock of JMS,
a specialty furniture retailer operating six stores in the Chicago,
Illinois area. The acquisition was accounted for as a purchase. The
fair value of assets acquired, including goodwill, was $77.3 million,
with liabilities assumed of $27.4 million.
(18) During the fiscal year ended March 31, 1995, Levitz incurred a
before-tax extraordinary loss of $2.5 million due to the write-off of
deferred financing fees. The after-tax loss was $1.6 million or $0.05
per share.
(19) On July 2, 1993, LFI, in an initial public offering, sold 13,700,000
shares of common stock for $191.8 million (the Offering) and exchanged
250,061 shares of its preferred stock (at a redemption price of
$101.50) for 1,920,628 shares of common stock at the offering price of
$14.00 a share less the underwriting discount (the Exchange). At the
same time Levitz issued $100.0 million principal amount of 9.625%
Senior Subordinated Notes due July 15, 2003 and amended its Bank Credit
Agreement. On July 13, 1993, LFI purchased 94.2% of the Deferred
Debentures with an accreted book value of $63.4 million for $93.0
million and on August 11, 1993 LFI redeemed all of the remaining (after
the Exchange) 908,976 outstanding shares of preferred stock at a
redemption price of $101.50 plus accrued dividends and Levitz purchased
all of the outstanding $93.0 million of 12.875% Subordinated Notes (the
Recapitalization).
16
<PAGE>
(20) As a result of the Recapitalization, LFI incurred a before-tax
extraordinary loss of $37.7 million on the early retirement of debt;
which includes premiums and expenses paid and the write-off of deferred
financing fees. The after-tax loss was $27.8 million or $1.08 per
share.
During the fiscal year ended March 31, 1994, Levitz incurred a
before-tax extraordinary loss of $2.7 million on the early retirement
of $17.4 million principal amount of the 12.375% Senior Notes, which
includes premiums paid and the write-off of deferred financing fees.
The after-tax loss was $1.7 million or $0.07 per share.
(21) During the fiscal year ended March 31, 1994, Levitz changed its method
of computing LIFO (Last-In-First-Out) inventory by using an internally
generated index rather than the Bureau of Labor Statistics Department
Store Inventory Price Index.
(22) During the fiscal year ended March 31, 1994, a settlement with the
Internal Revenue Service (IRS) resulted in a $3.0 million reversal of
previously accrued contingent tax liability which reduced the net loss
available to common stockholders and reduced loss per share $0.12.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this document.
GENERAL
On September 5, 1997, the Debtors filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code and are presently operating
their business as debtors-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware. For further
discussion of Chapter 11 proceedings, see "Item 1. Business-Chapter 11 Filing",
"Item 3. Legal Proceedings" and Note 1 to Notes to Consolidated Financial
Statements.
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Chapter 11 filing, related circumstances and the losses from
operations, raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations (see "Liquidity and Capital
Resources" and Note 1 to "Notes to Consolidated Financial Statements"). As a
result of the filing and related circumstances, however, such realization of
assets and liquidation of liabilities is subject to significant uncertainty.
While under the protection of Chapter 11, the Debtors may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the accompanying consolidated financial statements. Further,
a plan of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements. The consolidated financial
statements do not include any adjustments relating to the recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization.
Comparable store sales for Fiscal 1998 declined 6.4% from Fiscal 1997. While
comparable sales declined in April 1998 by 9.5% from the April 1997 period,
comparable store sales in May and June 1998 increased by 1.5% and 0.5%,
respectively, over the same periods of the prior year.
Operating income has decreased from $16.4 million in Fiscal 1996 to $16.0
million in Fiscal 1997 and operations have resulted in a loss of $87.7 million
in Fiscal 1998. Net cash provided by operating activities has decreased from
$15.5 million in Fiscal 1996 to $1.3 million in Fiscal 1997 and a use of $17.0
million in Fiscal 1998.
18
<PAGE>
The following table sets forth LFI's results of operations expressed as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
PERCENT OF NET SALES
----------------------------------------
YEARS ENDED MARCH 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 55.9 55.2 54.2
------------ ------------ ------------
Gross profit 44.1 44.8 45.8
Selling, general and administrative expenses 43.2 39.5 40.2
Unusual operating expenses 1.9 - -
Charge for store closings - 0.8 -
Restructuring expense - - 0.9
Depreciation and amortization 2.9 2.8 3.0
Interest expense, net 4.7 5.7 5.4
Reorganization items 6.6 - -
------------ ------------ ------------
Loss before income taxes (15.2) (4.0) (3.7)
Income tax benefit 4.7 1.4 1.3
------------ ------------ ------------
Loss before extraordinary items (10.5) (2.6) (2.4)
Extraordinary items (0.7) (0.2) -
------------ ------------ ------------
Net loss (11.2) (2.8) (2.4)
============ ============ ============
Comparable store sales decrease (1) (6.4%) (1.3%) (9.6%)
============ ============ ============
</TABLE>
- ----------
(1) Comparable store sales are calculated by excluding the net sales of a
store for any full month of one period if the store was not open during
the same full month of the prior period.
COMPARISON OF OPERATIONS FOR FISCAL 1998 TO FISCAL 1997
Net sales for Fiscal 1998 decreased to $836.8 million or 13.5% from $966.9
million for Fiscal 1997. Comparable store sales for Fiscal 1998 declined 6.4%
from Fiscal 1997. Levitz has attempted to address the decrease in comparable
store sales declines by (i) changing its merchandise lineup, (ii) making a
concerted effort to liquidate older, discontinued merchandise, (iii) shifting
its focus in advertising expenditures by media outlet to those deemed most
effective, and (iv) closing certain underperforming stores to enable it to focus
efforts and resources on key markets. In addition to the comparable store sales
decline experienced during Fiscal 1998, the Company closed 24 under-performing
stores.
Gross profit for Fiscal 1998 was $369.2 million, or 44.1% of net sales, as
compared to $433.3 million, or 44.8% of net sales, for fiscal 1997. The decrease
in gross profit percentage of net sales is attributable to the increase in items
sold at lower margins that were deleted from the merchandise assortment.
Selling, general and administrative (SG&A) expenses decreased by $20.9 million
or 5.5% to $361.1 million in Fiscal 1998 from $382.0 million in Fiscal 1997. The
dollar decrease in SG&A expenses is primarily attributable to the reduction in
costs attributable to the disposal of 24 stores during 1998.
During Fiscal 1998, LFI incurred unusual operating expenses of $1.3 million
under the provisions of an employment agreement due to the termination of an
officer. Additionally, LFI recorded a $5.9 million write-off of the future
service revenue receivable under the GECC Agreement when Levitz was required to
account for the transfer of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financial
reporting purposes. During the fourth quarter of Fiscal 1998, the Company
19
<PAGE>
reviewed certain discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices. Included
in unusual operating expenses is a $6.1 million charge reflecting the Company's
adjustment to record this inventory at its estimated net realizable value. The
Company also wrote off goodwill in the amount of $2.8 million.
Depreciation and amortization expenses decreased to $24.1 million in Fiscal 1998
from $27.0 million in Fiscal 1997. The decrease is primarily attributable to the
retirement of depreciable assets related to closed stores and the writeoff of
all goodwill.
During Fiscal 1998, Levitz recorded reorganization related expenses of $55.5
million which included $33.6 million for 24 store closings, $15.0 million for
the acceleration of goodwill amortization and $6.9 million for professional
services provided to LFI and the Creditors' Committee which, subject to Court
approval, are required to be paid by LFI while it is in Chapter 11. In Fiscal
1997, Levitz closed five satellite stores which resulted in a pre-tax charge for
store closings of $8.3 million. The charge includes the reduction of the
carrying value of the store assets to their estimated fair value net of selling
expenses as well as reserves for future rental payments under operating lease
agreements.
Interest expense for Fiscal 1998 decreased to $39.6 million or 4.7% of net sales
from $55.5 million or 5.7% of net sales for Fiscal 1997. As a result of the
Chapter 11 filing, no principal or interest payments will be made on most
prepetition debt without Court approval or until a plan of reorganization
providing for the repayment terms has been confirmed by the Court and becomes
effective. Interest on prepetition unsecured obligations has not been accrued
after the Petition Date except that interest expense and principal payments will
continue to be recorded on capital lease obligations unless the leases are
rejected by the Debtors. If a capital lease is rejected the obligation will be
limited to the lease rejection claim. Contractual interest expense of $13.3
million was not recorded on certain prepetition debt for the period from
September 5, 1997 through March 31, 1998.
During Fiscal 1998 and 1997, LFI incurred after-tax extraordinary losses of $5.8
million and $2.0 million respectively due to the write-off of deferred financing
fees related to the previous bank credit agreements.
As a result of the aforementioned factors, net loss was $93.4 million or 11.2%
of net sales for Fiscal 1998 as compared to $27.6 million or 2.8% of net sales
for Fiscal 1997.
COMPARISON OF OPERATIONS FOR FISCAL 1997 TO FISCAL 1996
Net sales for Fiscal 1997 decreased to $966.9 million or 2.0% from $986.6
million for Fiscal 1996. Although comparable store sales for the last two
quarters of Fiscal 1997 increased 3.0% from the comparable period in Fiscal
1996, comparable store sales for the entire Fiscal 1997 declined 1.3% from
Fiscal 1996. Levitz attempted to address the decrease in comparable store sales
declines by among other things: (i) hiring a new President-Store Operations;
(ii) renovating 19 showrooms in Fiscal 1997 with plans to renovate approximately
6 showrooms in Fiscal 1998; (iii) hiring a new advertising agency for electronic
media; and (iv) hiring a new President-Merchandising/Marketing in July 1997.
Gross profit for Fiscal 1997 was $433.3 million, or 44.8% of net sales, as
compared to $451.7 million, or 45.8% of net sales, for Fiscal 1996. The decrease
in gross profit as a percentage of net sales is attributable to a change in
merchandise pricing policy. The change in pricing policy was targeted to "value
conscious" consumers and competitive pressures.
20
<PAGE>
Selling, general and administrative (SG&A) expenses decreased by $15.0 million
or 3.8% to $382.0 million in Fiscal 1997 from $397.0 million in Fiscal 1996. The
dollar decrease in SG&A expenses is attributable to the reduction in
compensation expense and related payroll taxes and employee benefits of $21.3
million in Fiscal 1997 as compared to Fiscal 1996 which included a curtailment
gain of $8.3 million when Levitz amended its defined benefit pension plan which
curtailed future benefit accruals.
Depreciation and amortization expenses decreased to $27.0 million in Fiscal 1997
from $29.3 million in Fiscal 1996. The decrease is primarily attributable to the
expiration of capital leases on equipment which reduced amortization expense by
$1.0 million and reduced depreciation expense by $1.3 million.
In Fiscal 1997, Levitz closed five satellite stores which resulted in a pre-tax
charge for store closings of $8.3 million. The charge includes the reduction of
the carrying value of the store assets to their estimated fair value net of
selling expenses as well as reserves for future rental payments under operating
lease agreements. Included in the store closing charge for one of the closed
stores is a $2.4 million charge from the adoption of SFAS No. 121 effective
April 1, 1996.
In Fiscal 1996, Management implemented two restructuring plans to consolidate
regional offices and to eliminate certain support positions. The plans resulted
in a restructuring charge of $9.0 million. The charges include $7.8 million of
severance pay and related employee benefits and $1.2 million of lease
commitments on closed regional office facilities.
Interest expense for Fiscal 1997 increased to $55.5 million or 5.7% of net sales
from $53.0 million or 5.4% of net sales for Fiscal 1996. Interest expense
increased due to the Exchange Offer, and to increased borrowings under the
Senior Secured Facilities as compared to the previous Credit Agreement.
During Fiscal 1997, LFI incurred an after-tax extraordinary loss of $2.0 million
due to the write-off of deferred financing fees related to the previous bank
credit agreement.
As a result of the aforementioned factors, net loss was $27.6 million or 2.8% of
net sales for Fiscal 1997 as compared to $23.8 million or 2.4% of net sales for
Fiscal 1996.
SEASONALITY AND INFLATION
Management does not believe that seasonal variation has a significant impact on
its business. LFI has generally been able to pass along any price increases
relating to inflation. Accordingly, the effect of inflation, if any, on LFI's
results of operations has been minor.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
LFI's only material asset is the common stock of Levitz and, therefore, its
ability to pay cash dividends, interest and principal, is dependent upon
dividends and other payments from Levitz. LFI's ability to obtain cash from
Levitz is restricted by the Bankruptcy Court, the DIP Facility (as defined
below), the indentures relating to Levitz's outstanding indebtedness and Florida
law. LFI's only outstanding obligations are $8.4 million of Senior Deferred
Coupon Debentures due June 15, 2002 which are currently classified as subject to
compromise.
Levitz's primary sources of liquidity are cash flows from operations (including
the proceeds from the transfer of customer credit obligations to GECC), trade
credit and borrowings under the DIP Facility. During Fiscal 1998, cash flow used
in operating activities before changes in working capital
21
<PAGE>
was $38.2 million. During the second quarter ended September 30, 1997 cash flow
used in operating activities before changes in working capital was $21.6 million
or 56.4% of the total cash flow used for the year. As a result of the slow-down
in shipments from the vendors, sales declined $29.9 million for the same period
of the prior year creating a significant decline in gross profit dollars.
Cash flows provided by changes in working capital was $21.2 million for Fiscal
1998. Working capital was favorably impacted by the stay of payments for current
liabilities of approximately $70.9 million resulting from the Chapter 11 filing
on September 5, 1998. Changes in working capital were unfavorably impacted by
reduction in current liabilities due to the closing of 24 stores and by the loss
of favorable payment terms with vendors subsequent to the Chapter 11 filing.
Net cash used in financing activities amounted to $19.5 million in Fiscal 1998,
and includes net repayments under the credit facilities of $1.4 million,
principal payments on long-term debt and capital lease obligations of $11.7
million, a decrease in the cash overdraft position of $3.1 million and payment
of deferred financing fees for the DIP Facility of $3.2 million. Net cash
provided by financing activities amounted to $2.2 million in Fiscal 1997 and
includes increased borrowings under the credit facilities of $22.7 million less
principal payments under long-term obligations of $11.1 million and payment of
deferred financing fees for the credit facilities of $10.9 million.
Cash provided by investing activities for Fiscal 1998 includes $46.8 million of
proceeds from asset sales of the JMS stores, the Company's Boca Raton
headquarters, and other closed facilities. All of these proceeds were applied as
repayments to the DIP Facilities as required by the agreement.
Levitz's capital expenditures (other than for capitalized leases) totaled
approximately $14.1 million, $11.0 million and $12.6 million during Fiscal 1998,
1997 and 1996, respectively. Capital expenditures during Fiscal 1998 were for
existing store improvements and equipment. Management estimates that
approximately $6.0 million to $10.0 million is required annually to adequately
maintain and/or improve its existing warehouse-showrooms and satellite stores.
Levitz expects to open three new stores and close fifteen stores during Fiscal
1999.
Long-Term Debt
LFI and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a Postpetition Credit Agreement dated as of September 5, 1997 (the
"DIP Facility") with BT Commercial Corporation (BTCC) as agent. The DIP Facility
has been approved by the Bankruptcy Court and includes a total commitment of
$260.0 million which is comprised of revolving notes of $223.6 million and a
term note of $36.4 million. Letter of Credit obligations under the revolver
portion of the DIP Facility are limited to $25.0 million. The DIP Facility is
intended to provide LFI with the cash and liquidity to conduct its operations
and pay for merchandise shipments at normal levels during the course of the
Chapter 11 proceedings.
Loans made under the DIP Facility revolving notes bear interest, at Levitz's
option, at a rate equal to either Bankers Trust Company's prime lending rate
plus 1.50% or BTCC's LIBOR rate plus 3.75%. The term note bears interest at 16%.
Levitz is required to pay an unused line fee of 0.50%, and a letter of credit
fee of 2.0%. Levitz paid financing fees of $3.2 million on the closing date.
These financing fees have been deferred and are being amortized over the life of
the DIP Facility.
The maximum borrowings, excluding the term commitments, under the DIP Facility
are limited to 85% of eligible accounts receivable, 75% of eligible inventory
(as defined in the DIP Facility) and a fixed asset sublimit which is permanently
reduced as the proceeds from the sale of fixed assets and leasehold interests
are received. Qualification of accounts receivable and
22
<PAGE>
inventory items as "eligible" is subject to unilateral change at the discretion
of the lenders. Excess availability under the DIP Facility at May 31, 1998 was
$24.1 million.
The DIP Facility is secured by substantially all of the assets of Levitz and its
subsidiaries and a perfected pledge of stock of all Levitz's subsidiaries. The
DIP Facility contains restrictive covenants including, among other things, the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization as defined (EBITDA), limitations on the incurrence of additional
indebtedness, liens, contingent obligations, sale of assets, capital
expenditures and a prohibition on paying dividends. In Fiscal 1998, the DIP
Facility was amended to include, among other things, a decrease in the minimum
EBITDA requirements through March 1998 and an increase in the capital
expenditure limit through March 1998. In July 1998, the DIP Facility was further
amended to decrease the EBITDA requirement through March 1999. The Company
expects to submit a reorganization plan prior to the expiration of the DIP
Facility. A component of that plan will be a financing agreement to succeed the
DIP Facility. LFI and Levitz are currently in compliance with the DIP Facility
covenants as amended.
The lenders under the DIP Facility have a super-priority administrative expense
claim against the estates of the Debtors. The DIP Facility expires on March 5,
1999.
The Company is currently in default of the senior notes, senior deferred coupon
debentures, and senior subordinated notes, all of which are unsecured and have
been classified as liabilities subject to compromise.
As of March 31, 1998, LFI (excluding obligations under account purchase
agreement of $554.3 million and liabilities subject to compromise of $203.7
million) had an aggregate of $155.4 million of total debt outstanding, of which
$149.7 million of principal payments are due during Fiscal 1999.
On September 5, 1997 Levitz and General Electric Capital Corporation (GECC)
entered into a Second Amended and Restated Account Purchase and Credit Card
Program Agreement (the "GECC Agreement"), whereby GECC is required to purchase
Levitz's customer credit obligations, subject to certain restrictions, without
recourse up to a maximum investment of $900.0 million. At March 31, 1998 GECC
had purchased $669.1 million of customer credit obligations. The GECC Agreement
expires October 31, 1999 and may require Levitz to repurchase the outstanding
customer credit obligations at a price equal to their outstanding balance less a
defined discount. In the event GECC would exercise its right to require Levitz
to repurchase the outstanding customer credit obligations at termination of the
GECC Agreement, Levitz would realize a loss because the required repurchase
price would likely exceed the then fair market value of the repurchased customer
credit obligations. The amount of such loss would be dependent upon the
circumstances at termination date of the GECC Agreement which would affect the
fair market value of the then outstanding customer credit obligations. There is
significant doubt as to Levitz's ability to repurchase the outstanding customer
credit obligations due to the Chapter 11 filing and current financial condition.
The GECC Agreement also requires Levitz to pay a fee of $3.5 million upon
termination. The Court approved the GECC Agreement and granted a perfected
security interest and lien to GECC for any purchased customer credit obligation
and gave administrative expense status to any obligation of Levitz arising from
the GECC Agreement.
Effective January 1, 1997, Levitz was required to account for the transactions
under the GECC Agreement in accordance with Financial Accounting Standards Board
(FASB), Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". Under SFAS No. 125 Levitz was required to account for the
transactions under the GECC Agreement as a secured borrowing with a pledge of
collateral rather than as a sale, and therefore Levitz recorded $327.0 million
and $554.3 million as a Receivable Under Account
23
<PAGE>
Purchase Agreement and an offsetting Obligation Under Account Purchase Agreement
in its March 31, 1997 and 1998 financial statements, respectively.
Levitz is engaged in discussions with another party to finance and service its
customer credit obligations. The outcome of those discussions and negotiations
are not predictable, consequently the impact on the financial statements is not
known.
Levitz is exposed to market risk under the terms of the GECC Agreement. Levitz
may pay a fee or may receive income, based upon the relationship among the
interest earned on the portfolio, the amount of the servicing fee, the prime
rate, promotional advertising fees and to a limited extent, credit losses.
Levitz recorded income of $7.9 million, $12.8 million and $12.6 million,
respectively for the years ended March 31, 1998, 1997 and 1996. These amounts
are included in selling, general and administrative expenses and unusual
operating expenses. A one-percent change in the prime rate (when prime is
greater than 7%) would increase or decrease the income from GECC by
approximately $6.0 to $7.0 million per year. Levitz expects the income under
the GECC Agreement to be minimal for Fiscal 1999.
GOING CONCERN
The Company believes that cash on hand, amounts available under the DIP
Facility, as amended, and funds from operations will enable the Company to meet
its current liquidity and capital expenditures requirements. Until a plan of
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.
Inherent in a successful plan of reorganization is a capital structure which
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors and stockholders. Any reorganization plan is likely to result in a
minimal, if any, distribution to existing stockholders as a result of the
issuance of equity to creditors or new investors.
YEAR 2000
LFI recognizes the need to ensure its operations will not be adversely impacted
by Year 2000 technology failures. Software failures due to processing errors
potentially arising from calculations using the year 2000 date are a known risk.
LFI is in the process of assessing the risk to the availability and integrity of
financial systems and the reliability of operational systems. The Company is
also communicating with vendors, financial institutions and others with which it
does business to coordinate year 2000 conversion. The cost of achieving Year
2000 compliance, excluding in-house salaries, wages and benefits, has been
estimated at approximately $0.3 million for software maintenance and development
and $0.3 million for other operational systems. The Company has committed in
Fiscal 1998 or planned in Fiscal 1999 $2.4 million in capital expenditures for
the enhancement of operational and financial software and hardware systems as
needed for current changes in business strategy which will eliminate the need
for achieving Year 2000 compliance on some existing software.
INCOME TAXES
LFI has recorded a deferred tax asset (benefit) for its cumulative net operating
loss (NOL) for the fiscal year ended March 31, 1998. The cumulative NOL benefit
at March 31, 1998 is supported by deferred tax credits which are projected to
turn during the carryforward periods. LFI is limited to the amount of future
NOL's it can benefit and may have to start providing offsetting allowances.
Additionally, if LFI has any NOL carryforwards when it
24
<PAGE>
emerges from bankruptcy, there could be limitations placed on the realization of
these NOL's.
1998 1997 1996
---- ---- ----
Effective Tax Rate 31.2% 35.2% 35.2%
The effective tax benefit decreased from 35.2% in Fiscal 1997 to 31.2% in Fiscal
1998 due to permanent differences arising from the write-off of goodwill and for
non-deductible expenses.
NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129, "Disclosure of
Information about Capital Structure". This statement establishes standards for
disclosing information about an entity's capital structure. The standard will be
effective for Fiscal 1999. This standard dows not change the currently reported
disclosures.
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," in
June of 1997. These standards establish new disclosures for comprehensive income
and segments and will be effective for Fiscal 1999.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Postretirement Benefits". This standard is effective for
periods beginning after December 15, 1997. The implementation requires
restatement of disclosures and will not have a material effect on LFI's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This standard establishes accounting and
reporting for derivative instruments and hedging activities and will be
effective for Fiscal 2000. This standard will not have an affect on the
financial statements assuming current business strategies.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.............................. 27
Consolidated Balance Sheets........................................... 29
Consolidated Statements of Operations................................. 30
Consolidated Statements of Stockholders' Deficit...................... 31
Consolidated Statements of Cash Flows................................. 32
Notes to Consolidated Financial Statements............................ 33
Consolidated Financial Statement Schedule (Item 14(a))................ 73
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Levitz Furniture Incorporated:
We have audited the accompanying consolidated balance sheets of Levitz Furniture
Incorporated (a Delaware corporation) and subsidiaries, debtor-in-possession
(the "Company") as of March 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended March 31, 1998. These financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Levitz Furniture Incorporated
and subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 1, on September 5, 1997 the Company filed a voluntary
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be allowed
and priority thereof; (c) as to stockholder accounts, the effect of any changes
that may be made in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in the business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Chapter 11 filing was the result
of violation of certain debt covenants, recurring losses, deterioration of
vendor support, and cash flow deficiencies. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Although the
Company is currently operating as a debtor-in-possession under the jurisdiction
of the bankruptcy court, the continuation of the business as a going concern is
contingent upon, among other things, the ability to formulate a plan of
reorganization which will gain approval of the creditors and shareholders and
confirmation by the bankruptcy court, success of future operations, the ability
to obtain financing and the ability to recover the carrying amount of assets
and/or the amount and classification of liabilities. Management's plans in
regard to these matters are also described in Note 1. The accompanying financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (CONTINUED)
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic consolidated financial statements. This schedule has
been subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole,
considering the matter discussed in the preceding paragraph.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 13, 1998
28
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
MARCH 31,
-----------------------------
1998 1997
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,339 $ 9,267
Receivables 24,118 37,358
Inventories 142,618 169,488
Deposits and prepaid expenses 3,442 3,514
Income taxes receivable - 2,299
Deferred income taxes 3,521 933
-------------- ------------
Total current assets 179,038 222,859
-------------- ------------
PROPERTY AND EQUIPMENT:
Land 25,501 47,731
Buildings and building improvements 91,736 142,949
Leasehold improvements 71,936 74,469
Store, warehouse and transportation
equipment 78,805 83,043
-------------- ------------
267,978 348,192
Less-Accumulated depreciation and
amortization 124,729 133,566
-------------- ------------
143,249 214,626
Property under capital leases, net of
accumulated amortization of $85,623
in 1998 and $98,993 in 1997 92,721 119,077
-------------- ------------
235,970 333,703
-------------- ------------
OTHER ASSETS:
Receivable under account purchase agreement (See Note 11) 554,322 327,000
Intangible leasehold interests 14,151 15,613
Deferred financing fees 2,061 12,069
Goodwill - 18,177
Property held for disposal 17,766 -
Other 3,496 4,947
-------------- ------------
591,796 377,806
-------------- ------------
$ 1,006,804 $ 934,368
============== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
Cash overdrafts $ 16,395 $ 19,524
Current portion of long-term debt 1,333 11,193
Current portion of obligations under capital leases - 3,398
Accounts payable, trade 30,511 73,044
Accrued expenses and other liabilities 55,847 88,897
Income taxes payable 231 -
Senior Secured Facilities - 75,220
DIP Facility 148,381 -
-------------- ------------
Total current liabilities 252,698 271,276
-------------- ------------
LONG-TERM DEBT, net of current portion 5,702 282,084
-------------- ------------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion - 74,466
-------------- ------------
OBLIGATION UNDER ACCOUNT PURCHASE AGREEMENT (See Note 11) 554,322 327,000
-------------- ------------
OTHER NONCURRENT LIABILITIES 684 24,424
-------------- ------------
DEFERRED INCOME TAXES 9,767 49,190
-------------- ------------
LIABILITIES SUBJECT TO COMPROMISE 369,692 -
-------------- ------------
COMMITMENTS AND CONTINGENCIES (See Note 16)
STOCKHOLDERS' DEFICIT:
Common stock, $0.01 par; authorized 63,700,000
shares; 30,320,628 shares issued and 30,138,896
outstanding in 1998 and 30,320,628 shares issued
and 30,260,171 outstanding in 1997 303 303
Preferred stock, $1 par; authorized 2,500,000
shares; issued and outstanding -0- shares in
1998 and 1997 - -
Capital in excess of par 213,560 213,560
Retained earnings (deficit) (399,338) (305,951)
Deferred compensation (298) (1,169)
Minimum pension liability - (637)
Treasury stock, at cost, 181,732 shares in 1998 and
60,457 shares in 1997 (288) (178)
-------------- ------------
Total stockholders' deficit (186,061) (94,072)
-------------- ------------
$ 1,006,804 $ 934,368
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
YEARS ENDED MARCH 31,
----------------------------------------------------
1998 1997 1996
--------------- ---------------- ----------------
<S> <C> <C> <C>
NET SALES $ 836,802 $ 966,855 $ 986,622
--------------- ---------------- ----------------
COSTS AND EXPENSES:
Cost of sales 467,591 533,555 534,953
Selling, general and administrative expenses 361,132 381,995 397,041
Unusual operating expenses 16,151 - -
Charge for store closings - 8,295 -
Restructuring expense - - 9,000
Depreciation and amortization 24,093 26,993 29,272
Interest expense, net 39,592 55,522 53,035
--------------- ---------------- ----------------
908,559 1,006,360 1,023,301
--------------- ---------------- ----------------
LOSS BEFORE REORGANIZATION ITEMS AND
INCOME TAXES (71,757) (39,505) (36,679)
REORGANIZATION ITEMS:
Loss on store closings and other 33,649 - -
Acceleration of goodwill amortization 14,975 - -
Professional fees 6,888 - -
--------------- ---------------- ----------------
Total 55,512 - -
--------------- ---------------- ----------------
LOSS BEFORE INCOME TAXES (127,269) (39,505) (36,679)
INCOME TAX (BENEFIT) (39,687) (13,921) (12,926)
--------------- ---------------- ----------------
LOSS BEFORE EXTRAORDINARY ITEMS (87,582) (25,584) (23,753)
EXTRAORDINARY ITEMS, NET OF TAX
BENEFIT OF $2,630 IN 1998 AND $1,090 IN 1997 (5,805) (2,002) -
--------------- ---------------- ----------------
NET LOSS $ (93,387) $ (27,586) $ (23,753)
=============== ================ ================
LOSS PER COMMON SHARE:
Loss before extraordinary items ($2.93) ($0.86) ($0.80)
Extraordinary items (0.19) (0.07) -
--------------- ---------------- ----------------
NET LOSS ($3.12) ($0.93) ($0.80)
=============== ================ ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 29,923,578 29,654,913 29,620,628
=============== ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in thousands, except share data)
COMMON STOCK CAPITAL RETAINED MINIMUM
--------------------- IN EXCESS EARNINGS DEFERRED PENSION TREASURY
SHARES AMOUNT OF PAR (DEFICIT) COMPENSATION LIABILITY STOCK
------ ------ --------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 29,620,628 $ 296 $ 210,039 $ (254,612) $ - $ - $ -
Net loss - - - (23,753) - - -
Restricted stock issued 700,000 7 2,174 - (2,181) - -
Amortization of deferred
compensation - - - - 285 - -
Warrants issued - - 747 - - - -
Minimum pension liability - - - - - (654) -
------------- -------- ------------- -------------- ----------- ------------ ------------
BALANCE, MARCH 31, 1996 30,320,628 303 212,960 (278,365) (1,896) (654) -
Net loss - - - (27,586) - - -
Amortization of deferred
compensation - - - - 727 - -
Warrants issued - - 600 - - - -
Minimum pension liability - - - - - 17 -
Treasury stock, 60,457 shares - - - - - - (178)
------------- -------- ------------- -------------- ----------- ------------ ------------
BALANCE, MARCH 31, 1997 30,320,628 303 213,560 (305,951) (1,169) (637) (178)
Net loss - - - (93,387) - - -
Amortization of deferred
compensation - - - - 871 - -
Minimum pension liability - - - - - 637 -
Treasury stock, 121,275 shares - - - - - - (110)
------------- -------- ------------- -------------- ----------- ------------ ------------
BALANCE, MARCH 31, 1998 30,320,628 $ 303 $ 213,560 $ (399,338) $ (298) $ - $ (288)
============= ======== ============= ============== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEARS ENDED MARCH 31,
----------------------------------------------
1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (93,387) $ (27,586) $ (23,753)
------------- -------------- -------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 14,421 15,703 16,559
Amortization 9,672 11,290 12,713
Amortization of original issue discount on
deferred debentures 331 1,450 1,190
Amortization of deferred financing fees 2,326 2,641 2,020
Amortization of deferred compensation 871 727 182
Pension expense (income) 901 1,874 (1,779)
Loss (gain) on disposal of property and equipment (39) (637) 116
Other 6,146 384 -
Deferred tax benefit (42,372) (12,242) (8,483)
Extraordinary loss related to early redemption
of debt, before tax benefit 8,435 3,092 -
Inventory write-down 6,124 - -
Goodwill write-off 2,810 - -
Reorganization items, non-cash 45,532 - -
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables 6,265 (3,327) (307)
Inventories 19,376 (28,570) 14,090
Deposits and prepaid expenses (49) 306 3,382
Income taxes receivable 2,299 4,229 (3,656)
Other, net 315 49 129
Increase (decrease) in:
Accounts payable, trade (2,320) 17,111 (1,680)
Accrued expenses and other liabilities (4,593) 13,646 6,774
Income taxes payable 198 - -
Other noncurrent liabilities (305) 1,203 (2,014)
------------- -------------- -------------
Total adjustments 76,344 28,929 39,236
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (17,043) 1,343 15,483
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,130) (11,008) (12,557)
Proceeds from sale of property and equipment
and other assets 46,775 3,959 353
Proceeds from sale-leaseback transaction - - 22,209
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 32,645 (7,049) 10,005
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 990,740 1,068,493 325,300
Repayments under credit facilities (992,189) (1,045,789) (335,834)
Principal payments on long-term debt (8,503) (3,831) (3,925)
Principal payments under capital lease obligations (3,174) (7,222) (5,184)
Increase (decrease) in cash overdrafts (3,129) 1,612 609
Payment of deferred financing fees (3,165) (10,867) -
Acquisition of treasury stock (110) (178) -
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (19,530) 2,218 (19,034)
------------- -------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,928) (3,488) 6,454
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,267 12,755 6,301
------------- -------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,339 $ 9,267 $ 12,755
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION:
On September 5, 1997 (the "Petition Date"), Levitz Furniture
Incorporated, a Delaware corporation ("LFI"), and 11 of its
subsidiaries (collectively, the "Debtors"), including, Levitz Furniture
Corporation, a Florida corporation and wholly-owned subsidiary of LFI
("Levitz"), filed voluntary petitions for relief under Chapter 11,
Title 11 of the United States Code (the "Bankruptcy Code") with the
United States Bankruptcy Court for the District of Delaware,
Wilmington, Delaware. The bankruptcy cases of LFI and Levitz and their
affiliates are being jointly administered, for procedural purposes
only, before the United States District Court for the District of
Delaware (the "Court") under Case No. 97-1842(JJF). Pursuant to
Sections 1107 and 1108 of the Bankruptcy Code, LFI, as debtor and
debtor-in-possession, has continued to manage and operate its assets
and businesses pending the confirmation of a reorganization plan or
plans and subject to the supervision and orders of the Court. Because
LFI is operating as debtor-in-possession under Chapter 11 of the
Bankruptcy Code, the existing directors and officers of LFI continue to
manage the operations of LFI subject to the supervision and orders of
the Court.
Certain subsidiaries were not included in the Chapter 11 filings. These
subsidiaries are inactive and the results of their operations and
financial position are not material to the consolidated financial
statements.
The Debtors expect to reorganize their affairs under the protection of
Chapter 11 and to propose a Chapter 11 plan of reorganization for
themselves. Although management expects to file a plan of
reorganization during 1998 or 1999 which would contemplate emergence in
1999, there can be no assurance at this time that a plan of
reorganization proposed by the Debtors will be approved or confirmed by
the Court, or that such plan will be consummated. The Court has granted
the Debtors' request to extend its exclusive right to file a plan of
reorganization through August 31, 1998. The Debtors may request a
further extension of the exclusivity period. There can be no assurances
that the Court will grant such further extension. After the expiration
of the exclusivity period, creditors will have the right to propose
alternative plans of reorganization. Any reorganization plan is likely
to result in a minimal, if any, distribution to existing stockholders
as a result of the issuance of equity to creditors or new investors.
The consummation of a plan of reorganization is the principal objective
of the Company's Chapter 11 case. A plan of reorganization sets forth
the means for satisfying claims and interests in the Company and its
debtor subsidiaries, including the liabilities subject to compromise.
The consummation of a plan of reorganization for the Company and its
debtor subsidiaries will require the requisite vote of impaired
creditors and stockholders under the Bankruptcy Code and confirmation
of the plan by the Court.
33
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
The consolidated financial statements have been presented in accordance
with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" (SOP 90-7) and have been prepared in
accordance with generally accepted accounting principles applicable to
a going concern, which principles, except as otherwise disclosed,
assume that assets will be realized and liabilities will be discharged
in the ordinary course of business. As a result of the Chapter 11 cases
and circumstances relating to this event, including LFI's debt
structure, its recurring losses, and current economic conditions, such
realization of assets and liquidation of liabilities are subject to
significant uncertainty. While under the protection of Chapter 11, the
Company may sell or otherwise dispose of assets, and liquidate or
settle liabilities, for amounts other than those reflected in the
financial statements. Additionally, the amounts reported on the
consolidated balance sheet could materially change because of changes
in business strategies and the effects of any proposed plan of
reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the terms of the DIP
Facility and the ability to generate sufficient cash from operations
and financing arrangements to meet obligations.
In the Chapter 11 cases, substantially all unsecured liabilities as of
the Petition Date are subject to compromise or other treatment under a
plan of reorganization which must be confirmed by the Bankruptcy Court
after submission to any required vote by affected parties. For
financial reporting purposes, those liabilities and obligations whose
treatment and satisfaction is dependent on the outcome of the Chapter
11 cases have been segregated and classified as liabilities subject to
compromise under reorganization proceedings in the consolidated balance
sheets. Generally, all actions to enforce or otherwise effect repayment
of pre-Chapter 11 liabilities as well as all pending litigation against
the Debtors are stayed while the Debtors continue their business
operations as debtors-in-possession. Unaudited schedules have been
filed by the Debtors with the Court setting forth the assets and
liabilities of the Debtors as of the Petition Date as reflected in the
Debtor's accounting records. LFI has notified all known claimants
subject to the August 10, 1998 bar date of their need to file a proof
of claim with the Court. A bar date is the date by which claims against
LFI must be filed if the claimants wish to receive any distribution in
the Chapter 11 cases. Differences between amounts shown by the Debtors
and eventual claims filed by creditors will be investigated and will be
either amicably resolved or adjudicated before the Court. The ultimate
amount of and settlement terms for such liabilities are subject to an
approved plan of reorganization and accordingly are not presently
determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other prepetition executory contracts, subject to
Court approval. Claims for damages resulting from the rejection of real
estate leases and other executory contracts will be subject to separate
bar dates. The Debtors have not reviewed all real estate leases for
assumption or rejection. As of March 31, 1998, the Debtors had rejected
leases for 9 store locations and reached agreement with the landlord on
one store location to terminate without liability. The Court has
34
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
extended the time for which the Debtors may assume or reject unexpired
leases of nonresidential real property to October 30, 1998. The
liabilities subject to compromise include a reserve for an estimated
amount that may be claimed by lessors for the stores that have been
closed through March 31, 1998. The Debtors will continue to analyze
their real estate leases and executory contracts and may assume or
reject additional leases and contracts. Such rejections could result in
additional liabilities subject to compromise.
2. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Levitz Furniture Incorporated (LFI), a Delaware Corporation, was
incorporated in December 1984 for the purpose of acquiring Levitz
Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"). Levitz is a specialty retailer
of furniture with a chain of 58 warehouse-showrooms and 47 satellite
stores located in major metropolitan areas in 22 states. See Note 19 -
Subsequent Events (Unaudited).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of LFI and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.
REVENUE RECOGNITION POLICY
Levitz recognizes revenue at the time a sales order is written and the
following conditions are met: the merchandise is in stock and is
available for sale; for a credit sale, the credit is unconditionally
approved; and for items requested to be delivered by a customer, a firm
delivery date is set, and a minimum down payment is received.
CASH, CASH EQUIVALENTS AND CASH OVERDRAFTS
All highly liquid debt instruments purchased with original maturities
of three months or less are considered to be cash equivalents. Cash
overdrafts include checks outstanding which do not have the right of
offset with cash and cash equivalents. The carrying value approximates
fair value because of the short maturity of those instruments.
INVENTORIES
Inventories of furniture and accessories are stated at the lower of
cost or market. See Note 7. Cost is determined using the last-in,
first-out (LIFO) method. Inventories valued on the LIFO cost method
were approximately $11.9 million and $11.2 million lower than first-in,
first-out (FIFO) costs at March 31, 1998 and 1997, respectively.
During 1998, LIFO inventory quantities were reduced resulting in a
partial liquidation of the LIFO bases, the effects of which were not
material.
35
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
PROPERTY AND EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment purchased by LFI are stated at cost. Capital
leases are recorded at the lower of the present value of the future
minimum lease obligations or fair market value of the property.
Depreciation is provided substantially by the straight-line method over
the estimated useful lives of the related assets. The estimated useful
lives range from 10 to 40 years for buildings, building improvements
and leasehold improvements, and 2 to 20 years for store, warehouse and
transportation equipment. Fully depreciated assets are written off
against accumulated depreciation. Capital leases are depreciated over
their initial terms which generally range from 15 to 40 years.
PROPERTY HELD FOR DISPOSAL
Property held for disposal representing primarily closed retail and
warehouse facilities at the lower of net book value or net realizable
value, of $17.8 million, is included in other assets at March 31, 1998.
Losses of $3.4 million, which are included in reorganization costs,
were recognized during Fiscal 1998 in connection with the write-down of
property and equipment associated with these stores to their net
realizable values.
INTANGIBLE LEASEHOLD INTERESTS
Intangible leasehold interests represent the value associated with
renewal terms of capital leases and original and renewal terms of
operating leases acquired by LFI at rents below market value. The
recoverability of the remaining carrying value of intangible leasehold
interests is dependent upon the Company's ability to generate
sufficient future cash flows from operations at each leased site, or in
the case of a sale or disposition of a lease or leases, the
continuation of similar favorable market rents. Accordingly,
recoverability of this asset could be significantly affected by future
economic, market and competitive factors and is subject to the inherent
uncertainty associated with estimates. Intangible leasehold interests
are amortized by the straight-line method over the original and renewal
terms of the related leases.
LONG-LIVED ASSETS
In Fiscal 1997, 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 No. 121"). This
statement requires recognition of impairment losses for long-lived
assets whenever events or changes in circumstances result in the
carrying amount of the assets exceeding the sum of the expected future
undiscounted cash flows associated with such assets. The measurement of
the impairment losses to be recognized is based on the difference
between the fair values and the carrying amounts of the assets. SFAS
No. 121 also requires any long-lived assets held for sale be reported
at the lower of carrying amount or the fair value less selling cost.
The adoption of this statement resulted in a $2.4 million charge during
Fiscal 1997.
36
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
GOODWILL
Goodwill has been written-off during 1998 due to the sale of
substantially all the assets of John M. Smyth Company (JMS) on January
9, 1998 and the current financial condition of LFI. JMS was a
wholly-owned subsidiary of Levitz. Prior to the write-off, goodwill was
being amortized on a straight-line basis over forty years.
ACCUMULATED AMORTIZATION
Accumulated amortization related to intangible leasehold interests was
$12.3 million as of March 31, 1998. Accumulated amortization related to
intangible leasehold interests and goodwill was $16.0 million as of
March 31, 1997.
INCOME TAXES
LFI accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
recognized in LFI's financial statements or tax returns. In estimating
future tax consequences, LFI generally considers all expected future
events other than enactment of changes in the tax laws or rates.
DEFERRED FINANCING FEES
Deferred financing fees at March 31, 1998 represent costs associated
with obtaining the DIP financing and are being amortized over the terms
of the related debt. Accumulated amortization of the DIP financing fees
was $1.1 million at March 31, 1998. Net deferred financing costs as of
the Petition Date of $8.4 million and $2.5 million for the senior
secured facilities and for the various unsecured debt obligations were
written off during 1998 as an extraordinary item and as reorganization
items, respectively.
ADVERTISING EXPENSES
LFI expenses all advertising costs the first time the advertising takes
place including direct-response advertising. Advertising expense for
fiscal years ended March 31, 1998, 1997 and 1996 was $108.1 million,
$102.1 million and $100.5 million, respectively.
USE OF ESTIMATES
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. See Note 1 regarding proceedings under Chapter
11.
SELF INSURANCE
LFI is generally self-insured for losses and liabilities related to
worker's compensation, health and welfare claims and comprehensive
general, product and vehicle liability. Losses are accrued based upon
LFI's estimates of the aggregate liability for claims incurred using
37
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
certain actuarial assumptions followed in the insurance industry and
based on LFI's experience.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 129,
"Disclosure of Information about Capital Structure". This statement
establishes standards for disclosing information about an entity's
capital structure. The standard will be effective for Fiscal 1999. This
standard dows not change the currently reported disclosures.
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," in June of 1997. These standards establish new
disclosures for comprehensive income and segments and will be effective
for Fiscal 1999.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits". This standard is
effective for periods beginning after December 15, 1997. The
implementation requires restatement of disclosures and will not have a
material effect on LFI's consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This standard establishes
accounting and reporting for derivative instruments and hedging
activities and will be effective for Fiscal 2000. This standard will
not have an affect on the financial statements assuming current
business strategies.
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which
provides for a fair value based method of accounting for grants of
equity instruments to employees or suppliers in return for goods or
services. As permitted under SFAS No. 123, the Company has elected to
continue to account for compensation costs under the provisions
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company has included pro forma
disclosures of net loss and loss per share in Note 14 as if the fair
value based method had been applied in measuring compensation cost.
EARNINGS PER SHARE
During the fourth quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), which requires
companies to report both basic and dilutive earnings per share.
Shares outstanding from the issuance of options, warrants and
restricted stock was 7,293,737, 7,811,987 and 2,522,516 for the years
ended 1998, 1997 and 1996, respectively. Even though a portion of these
shares may have a dilutive affect on earnings per share, all had an
antidilutive impact on the Company's loss from continuing operations,
and therefore, have no impact on the Company's earnings per share
calculation.
38
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
RECLASSIFICATIONS
Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to the current year's presentation.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS:
Supplemental disclosures of cash flow information (dollars in
thousands):
1998 1997 1996
------- ------- -------
Cash paid/(received) during
the year for:
Interest $37,853 $49,678 $49,291
Income tax refunds, net (2,417) (6,985) (1,293)
Non-cash activities:
Warrants issued - 600 747
4. SHORT-TERM AND LONG-TERM DEBT:
Outstanding balances under debt arrangements are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
MARCH 31, MATURITY
-------------------------------- YEAR ENDING
RATE 1998 1997 MARCH 31
---- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
DIP Facilities Variable $148,381 $ - 1999
Senior Secured Facilities Variable - 149,710 2002
Senior notes 13.375% 91,267 91,141 1999
Senior deferred coupon
debentures 15.00% 8,439 8,108 2003
Senior subordinated notes 9.625% 100,000 100,000 2004
Subordinated notes 12.375% - 6,016 1998
Mortgages 8.375%-13% 7,035 9,522 1998 to 2004
Lease financing Variable 4,000 4,000 1999
--------------- ---------------
359,122 368,497
Less -
Current portion of long-
term debt 1,333 11,193
Credit facilities classified
as current 148,381 75,220
Unsecured debt reclassified
as subject to compromise 203,706 -
--------------- ---------------
$ 5,702 $282,084
=============== ===============
</TABLE>
LFI and substantially all of its subsidiaries, as
debtors-in-possession, are parties to a Postpetition Credit Agreement
dated as of September 5, 1997 (the "DIP Facility") with BT Commercial
Corporation (BTCC) as agent. The DIP Facility has been approved by the
Court and includes a total commitment of $260.0 million which is
comprised of revolving notes of $223.6 million and a term note of $36.4
million. Letter of Credit obligations under the revolver portion of the
DIP Facility are limited to $25.0 million. The DIP Facility is intended
to provide LFI with the cash and liquidity to conduct its operations
and pay for merchandise
39
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
shipments at normal levels during the course of the Chapter 11
proceedings.
Loans made under the DIP Facility revolving notes bear interest, at
Levitz's option, at a rate equal to either Bankers Trust Company's
prime lending rate plus 1.50% or BTCC's LIBOR rate plus 3.75%. The term
note bears interest at 16%. Levitz is required to pay an unused line
fee of 0.50%, and a letter of credit fee of 2.0%. Levitz paid financing
fees of $3.2 million on the closing date. These financing fees have
been deferred and are being amortized over the life of the DIP
Facility.
The maximum borrowings, excluding the term commitments, under the DIP
Facility are limited to 85% of eligible accounts receivable, 75% of
eligible inventory (as defined in the DIP Facility) and a fixed asset
sublimit which is permanently reduced as the proceeds from the sale of
fixed assets and leasehold interests are received. Qualification of
accounts receivable and inventory items as "eligible" is subject to
unilateral change at the discretion of the lenders. Excess availability
under the DIP Facility at March 31, 1998 and May 31, 1998 was $45.9
million and $24.1 million, respectively.
The DIP Facility is secured by substantially all of the assets of
Levitz and its subsidiaries and a perfected pledge of stock of all
Levitz's subsidiaries. The DIP Facility contains restrictive covenants
including, among other things, the maintenance of minimum earnings
before interest, taxes, depreciation and amortization as defined
(EBITDA), limitations on the incurrence of additional indebtedness,
liens, contingent obligations, sales of assets, capital expenditures
and a prohibition on paying dividends. In Fiscal 1998, the DIP Facility
was amended to include, among other things, a decrease in the minimum
EBITDA requirements through March 1998 and an increase in the capital
expenditure limit through March 1998. In July 1998, the DIP Facility
was further amended to decrease the EBITDA requirements through March
1999. LFI and Levitz are currently in compliance with the DIP Facility
covenants as amended.
The lenders under the DIP Facility have a super-priority administrative
expense claim against the estate of the Debtors. The DIP Facility
expires on March 5, 1999.
The Company is currently in default of the senior notes, senior
deferred coupon debentures, and senior subordinated notes, all of which
are unsecured and have been classified as liabilities subject to
compromise.
As of March 31, 1998, LFI (excluding obligations under account purchase
agreement of $554.3 million and liabilities subject to compromise of
$203.7 million) had an aggregate of $155.4 million of total debt
outstanding, of which $149.7 million of principal payments are due
during Fiscal 1999.
5. LIABILITIES SUBJECT TO COMPROMISE:
The principal categories of obligations classified as liabilities
subject to compromise under reorganization proceedings are identified
below. The amounts below in total may vary significantly from the
stated amount of proofs of claim that will be filed with the Court and
may be subject to future adjustment depending on Court action, further
developments with respect to potential disputed claims, determination
as to the value of any collateral securing claims, or other events.
40
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
Additional claims may arise from the rejection of additional real
estate leases and executory contracts by the Debtors.
<TABLE>
<CAPTION>
MARCH 31,
1998
(DOLLARS IN
LIABILITIES SUBJECT TO COMPROMISE THOUSANDS)
--------------------------------- ------------
<S> <C>
Accounts payable, trade $ 39,270
Accrued expenses 15,670
13.375% Senior Notes due 10/15/98 96,031 (1)
9.625% Senior Subordinated Notes due 7/15/03 101,337 (1)
Senior Deferred Coupon Debentures due 6/15/02 8,716 (1)
Financing on store building 4,000
Obligations under capital leases 64,030 (2)
Reserve for lease rejection claims 11,012
Deferred rent on operating leases 3,744
Deferred gain on sale leasebacks 3,108
Supplemental executive retirement programs 13,156
Employment agreement severance costs 2,869
General liability claims 736
Reserve for previous store closings 2,852
Real estate taxes 2,565
Personal property taxes 596
-----------------
$ 369,692
=================
</TABLE>
----------
(1) Includes accrued interest at September 4, 1997.
(2) The above capital lease obligations include the obligations on
closed stores where the fair market value of leasehold
interests exceeds the capital lease asset value. A gain would
be recognized upon assumption and assignment of the lease.
As a result of the Chapter 11 filing, no principal or interest payments
will be made on most prepetition debt without Court approval or until a
plan of reorganization providing for the repayment terms has been
confirmed by the Court and becomes effective. Interest on prepetition
unsecured obligations has not been accrued after the Petition Date
except that interest expense and principal payments will continue to be
recorded on capital lease obligations unless the leases are rejected by
the Debtors. If a capital lease is rejected the obligation will be
limited to the lease rejection claim. Contractual interest expense of
$13.3 million was not recorded on certain prepetition debt for the
period from September 5, 1997 through March 31, 1998.
6. REORGANIZATION ITEMS:
During Fiscal 1998 the Company initiated a series of actions under its
reorganization proceedings to improve its performance, which included
store closures and dispositions, and incurred professional fees in
connection with the Bankruptcy proceedings. These reorganization items
aggregated $1.28 per share, net of tax benefit, for the period ended
March 31, 1998.
41
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
During October, 1997, the Court approved a motion for Levitz to close
eighteen stores in under-performing markets. The closings are expected
to reduce future operating losses. The Company recorded a pre-tax
charge of $23.8 million associated with the closing of these stores,
which included non-cash items for the writedown of property, capital
lease assets, furniture and fixtures to their net realizable values of
$18.9 million, the loss on sale of inventory through liquidation in the
amount $1.5 million and the write off of other assets in the amount of
$0.8 million. Cash items include severance pay of $1.6 million and
continuing expenses of $1.0 million. Additional non-cash
reorganizational items written off at the same time included
acceleration of goodwill amortization of $4.7 million and deferred
financing fees of $2.5 million.
On January 9, 1998, Levitz sold substantially all of the assets of the
John M. Smyth Company ("JMS"), a wholly-owned subsidiary of Levitz,
which then operated five store locations in the Chicago, Illinois
vicinity. The gross proceeds from the sale which includes reimbursed
amounts were approximately $35.6 million. The proceeds were used to pay
mortgages, accounts payable, accrued liabilities and reduce borrowings
under the DIP Facilities. In December 1997, Levitz incurred a charge of
$18.0 million on the sale and closing of the JMS facilities. The charge
included non-cash items for loss on sale of property and equipment of
$5.0 million, acceleration of goodwill amortization of $10.3 million,
lease rejection claims of $1.6 million and write-off of other assets of
$0.2 million. The charge included cash items of $0.3 million for
severance pay and $0.6 million for continuing expenses.
Net sales and operating loss (exclusive of certain central office
expense allocations and prior to interest expense, income taxes and
reorganization items) from the 24 stores closed or disposed of during
1998 and the 5 stores closed during fiscal 1997 (see Note 8) were (in
000's):
1998 1997
--------------- -----------------
Net sales $77,678 $145,187
Operating loss (3,061) (3,393)
Professional fees include accounting, legal and consulting services
provided to LFI and the Creditors' Committee which, subject to Court
approval, are required to be paid by LFI while it is in Chapter 11.
Fees accrued for these services totaled $6.9 million in Fiscal 1998.
7. UNUSUAL OPERATING EXPENSES:
During Fiscal 1998, upon the resignation of an officer, LFI accrued
severance costs (i.e., future payroll and employee benefit) of $1.3
million under the provisions of an employment agreement. Additionally,
LFI recorded a $5.9 million write-off of the future service revenue
receivable under the GECC Agreement when Levitz was required to account
for the transfer of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for
financial reporting purposes. The charges increased net loss by $5.0
million or $0.17 per share.
42
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
During the fourth quarter of Fiscal 1998, the Company reviewed certain
discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate
the liquidation of these items, the Company reduced their selling
prices. Included in unusual operating expenses is a $6.1 million charge
reflecting the Company's adjustment to record this inventory at its
estimated net realizable value. The Company also wrote off goodwill in
the amount of $2.8 million. The charges increased net loss by $6.1
million or $0.20 per share.
8. STORE CLOSING AND RESTRUCTURING EXPENSE:
In the fiscal year ended March 31, 1997, management developed a plan to
close five satellite stores. The stores were closed on October 31,
1996. The plan resulted in a pre-tax charge for store closings of $8.3
million. The charge includes the reduction of the carrying value of the
store assets to their estimated realizable value net of selling
expenses as well as reserves for future rental payments under operating
lease agreements. Included in the store closing charge is a $2.4
million charge from the adoption of SFAS No. 121 effective April 1,
1996 for one of the closed stores. The charge increased net loss by
$5.4 million or $0.18 per share. As of March 31, 1998 approximately
$3.9 million of these store closing reserves remained and is included
in accrued expenses and other liabilities and liabilities subject to
compromise.
In the fiscal year ended March 31, 1996, management implemented two
restructuring plans to consolidate regional offices and to eliminate
certain support positions. The plans resulted in a restructuring charge
of $9.0 million. The charges include $7.8 million of severance pay and
related employee benefits and $1.2 million of lease commitments on
closed regional office facilities. The two restructuring charges
increased the net loss by $5.8 million or $0.20 per share. As of March
31, 1998 approximately $2.9 million of the restructuring charges
remained and are included in liabilities subject to compromise.
9. EXTRAORDINARY ITEMS:
On September 5, 1997, LFI incurred a before-tax extraordinary loss of
$8.4 million on the write-off of deferred financing fees related to the
termination of the previous credit facilities. The after-tax loss was
$5.8 million or $0.19 per share. In the period ended December 31, 1996,
LFI incurred a before-tax extraordinary loss of $3.1 million on the
write-off of deferred financing fees related to the termination of the
previous bank credit agreement, the after-tax loss was $2.0 million or
$0.07 per share.
10. LEASING ARRANGEMENTS:
Levitz leases its warehouse-showrooms generally under non-cancelable
leases for original terms ranging from 10 to 40 years. Most leases
contain renewal options and some include options to purchase the
properties.
43
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
The following is an analysis of property under capital leases by major
classes (dollars in thousands):
1998 1997
--------------- ---------------
Land, buildings and improvements $177,192 $216,918
Equipment 1,152 1,152
--------------- ---------------
178,344 218,070
Less- Accumulated amortization 85,623 98,993
--------------- ---------------
$92,721 $119,077
=============== ===============
Amortization expense relating to property under capital leases for the
years ended March 31, 1998, 1997 and 1996 was $8.3 million, $9.5
million and $10.6 million, respectively.
Minimum annual rentals on open stores at March 31, 1998 (net of
sublease income to be received) for the five years subsequent to March
31, 1998 and in the aggregate are as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
-------------- ---------------
<S> <C> <C>
1999 $9,874 $18,743
2000 9,604 15,993
2001 9,438 13,099
2002 9,095 12,454
2003 7,942 11,716
Thereafter 126,115 106,097
-------------- ---------------
Total minimum lease payments 172,068 $178,102
===============
Less - Amount representing interest 113,251
--------------
Present value of net minimum
payments under capital leases 58,817
Less - Current portion 2,739
--------------
$56,078
==============
</TABLE>
The obligations under capital leases have been included in liabilities
subject to compromise at March 31, 1998.
Rent expense includes minimum rentals on operating leases, contingent
payments based on either the Consumer Price Index or a percentage of
sales for both capital and operating leases and amortization of
intangible leasehold interests.
Rent expense consists of the following (dollars in thousands):
1998 1997 1996
------------- -------------- --------------
Rent expense $23,835 $24,567 $24,681
Sublease income (519) (888) (799)
------------- -------------- --------------
Rent expense, net $23,316 $23,679 $23,882
============= ============== ==============
44
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
In May 1995, under a sale-leaseback agreement, Levitz sold three
warehouse-showrooms and one satellite store for approximately $22.2
million and leased them back under a twenty year operating lease
agreement. The transaction resulted in a deferred gain of $3.6 million
which is being amortized over the twenty-year lease period.
Some rental agreements contain escalation provisions that may require
higher future rent payments. Rent expense incurred under rental
agreements which contain escalation clauses is recognized on a
straight-line basis over the life of the lease.
11. TRANSFER AND SERVICING OF FINANCIAL ASSETS:
On September 5, 1997 Levitz and General Electric Capital Corporation
(GECC) entered into a Second Amended and Restated Account Purchase and
Credit Card Program Agreement (the "GECC Agreement"), whereby GECC is
required to purchase Levitz's customer credit obligations, subject to
certain restrictions, without recourse up to a maximum investment of
$900.0 million. At March 31, 1998 GECC had purchased $669.1 million of
customer credit obligations. The GECC Agreement expires October 31,
1999 and may require Levitz to repurchase the outstanding customer
credit obligations at a price equal to their outstanding balance less a
defined discount. In the event GECC would exercise its right to require
Levitz to repurchase the outstanding customer credit obligations at
termination of the GECC Agreement, Levitz would realize a loss because
the required repurchase price would likely exceed the then fair market
value of the repurchased customer credit obligations. The amount of
such loss would be dependent upon the circumstances at termination date
of the GECC Agreement which would affect the fair market value of the
then outstanding customer credit obligations. There is significant
doubt as to Levitz's ability to repurchase the outstanding customer
credit obligations due to the Chapter 11 filing and current financial
condition. The GECC Agreement also requires Levitz to pay a fee of $3.5
million upon termination. The Court approved the GECC Agreement and
granted a perfected security interest and lien to GECC for any
purchased customer credit obligation and gave administrative expense
status to any obligation of Levitz arising from the GECC Agreement.
Effective January 1, 1997, Levitz was required to account for the
transactions under the GECC Agreement in accordance with Financial
Accounting Standards Board (FASB), Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". Under SFAS No.
125 Levitz was required to account for the transactions under the GECC
Agreement as a secured borrowing with a pledge of collateral rather
than as a sale, and therefore Levitz recorded $327.0 million and $554.3
million as a Receivable Under Account Purchase Agreement and an
offsetting Obligation Under Account Purchase Agreement in its March 31,
1997 and 1998 financial statements, respectively.
Levitz is engaged in discussions with another party to finance and
service its customer credit obligations. The outcome of those
discussions and negotiations are not predictable, consequently the
impact on the financial statements is not known.
Levitz is exposed to market risk under the terms of the GECC Agreement.
Levitz may pay a fee or may receive income, based upon the relationship
among the interest earned on the portfolio, the amount of the servicing
fee, the prime rate, promotional advertising fees and to a limited
45
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
extent, credit losses. Levitz recorded income of $7.9 million, $12.8
million and $12.6 million, respectively for the years ended March 31,
1998, 1997 and 1996. These amounts are included in selling, general and
administrative expenses and unusual operating expenses. A one-percent
change in the prime rate (when prime is greater than 7%) would increase
or decrease the income from GECC by approximately $6.0 to $7.0 million
per year.
12. INCOME TAXES:
LFI has recorded a deferred tax asset (benefit) for its cumulative net
operating loss ("NOL") for the year ended March 31, 1998. The
cumulative NOL benefit at March 31, 1998 is supported by deferred tax
credits which are projected to turn during the carryforward periods. As
of March 31, 1998, LFI has Federal NOL carryforwards of $62.3 million
which will expire beginning in 2012 and alternative minimum tax ("AMT")
credits of $2 million to offset future federal income tax liabilities.
LFI maintains no valuation reserves relating to the realizeability of
the NOL carryforwards at March 31, 1998. LFI is limited to the amount
of future NOL's it can benefit and will have to start providing
offsetting allowances during Fiscal 1999. Additionally, if LFI has any
NOL carryforwards when it emerges from bankruptcy, there could be
limitations placed on the realization of these NOL's. Management
believes that the NOL carryforwards could be realized by selling assets
held for disposal, if necessary, to avoid allowing the carryforwards to
expire without being used. Management has obtained third party
valuations to establish the probable proceeds from such sales.
The benefit for income taxes was allocated as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------------- ---------------
<S> <C> <C> <C>
Loss before extraordinary items ($39,687) ($13,921) ($12,926)
Extraordinary items (2,630) (1,090) -
----------- ---------------- ---------------
($42,317) ($15,011) ($12,926)
=========== ================ ===============
</TABLE>
46
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
The components of the benefit for income taxes applicable to loss
before extraordinary items is (dollars in thousands):
1998 1997 1996
---- ---- ----
Current:
Federal $ - ($1,275) ($4,613)
State 57 13 -
--------------- --------------- ---------------
57 (1,262) (4,613)
--------------- --------------- ---------------
Deferred:
Federal (35,249) (11,137) (6,573)
State (4,495) (1,522) (1,740)
--------------- --------------- ---------------
(39,744) (12,659) (8,313)
--------------- --------------- ---------------
($39,687) ($13,921) ($12,926)
=============== =============== ===============
A reconciliation of the statutory benefit for income taxes on loss
before extraordinary items to the actual tax benefit is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------ ------------
<S> <C> <C> <C>
Computed income tax benefit
at Federal statutory rate ($44,544) ($13,393) ($12,471)
State and local income tax benefit,
net of federal income tax (2,885) (996) (1,148)
Permanent differences 6,797 182 181
Other 945 286 512
--------------- ------------ ------------
($39,687) ($13,921) ($12,926)
=============== ============ ============
</TABLE>
47
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
Components of the deferred income tax assets and liabilities are
(dollars in thousands):
MARCH 31,
----------------------------------
1998 1997
--------------- ---------------
Deferred tax assets:
Expense deducted for book and
not for tax $8,660 $7,193
Obligations under capital lease 20,797 23,888
Other liabilities 20,906 20,799
Federal NOL benefit 20,765 2,881
AMT credit carryover 2,039 2,058
--------------- ---------------
73,167 56,819
--------------- ---------------
Deferred tax liabilities:
Inventory 11,419 13,904
Property and equipment 4,059 30,358
Property under capital lease
and intangible leasehold
interests 47,687 47,546
Stepped-up values on plant
and equipment due to
purchase accounting 15,282 11,918
Other 966 1,350
--------------- ---------------
79,413 105,076
--------------- ---------------
Net deferred tax liability $6,246 $48,257
=============== ===============
13. EMPLOYEE BENEFIT PLANS:
Levitz has a non-contributory, defined benefit plan (the Pension Plan).
Pension benefits are based on length of service and final average
compensation and are integrated with Social Security. The maximum
pension benefit per individual is limited to $130,000 per year. Plan
assets consist primarily of marketable equity and debt securities and
cash equivalents. Levitz's funding policy is to make the minimum annual
contributions required by applicable regulations.
In March 1996, Levitz amended the Pension Plan to exclude future
benefit accruals for credited service and annual earnings after March
31, 1996 and also excluded any associate from becoming a participant in
the plan after January 1, 1996 (Pension Curtailment). This amendment
resulted in a net curtailment gain of $8.3 million, which was recorded
as a reduction of selling, general and administrative expenses in the
fiscal year ended March 31, 1996.
Certain officers and certain key employees of Levitz are participants
in an unfunded non-contributory supplemental executive retirement plan
(SERP) and a life insurance plan. The SERP provides supplemental
retirement, disability and/or death benefits. Retirement and disability
benefits are equal to 4.0% of the highest consecutive five-year average
of salary plus bonus paid for each year of service, limited to a
maximum of 60% of compensation or $0.3 million on an indexed basis.
Death
48
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
benefits are equal to 3% per year of service to a maximum of 45% of
such compensation. Benefits are subject to a dollar-for-dollar
reduction for benefits paid under the Pension Plan, Social Security and
certain other specified pension plan payments. The liability for the
SERP and insurance plan is included in liabilities subject to
compromise.
The actuarial information included below for the fiscal years ended
March 31, 1998, 1997 and 1996, was derived from the actuarial reports
for the Pension Plan and SERP for the plan years ended December 31,
1997, 1996 and 1995. As adjusted for the Pension Curtailment and
restructuring, pension expense for the years ended March 31, 1998, 1997
and 1996, was comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------
PENSION PENSION PENSION
PLAN SERP PLAN SERP PLAN SERP
----------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost of benefits
earned during the period $ - $ 272 $ - $ 83 $ 2,941 $ 181
Interest cost on projected
benefit obligation 4,258 559 4,296 1,108 4,957 994
Actual return on plan assets (17,879) - (3,870) - (9,914) -
Net amortization and deferral 13,553 113 (240) 395 5,091 610
One-time charge for
terminations - 55 - 45 - 1,706
Curtailment expense (gain) - - - - (8,805) 460
----------- --------- ---------- --------- ---------- ---------
Net pension expense (gain) ($68) $999 $186 $1,631 ($5,730) $3,951
=========== ========= ========== ========= ========== =========
Assumptions:
Weighted average discount
rate 7.00% 7.00% 7.75% 7.75% 8.35% 8.35%
Rates of increase in
compensation levels - 3.80% - 2.00% 2.00% 2.00%
Expected long-term rate
of return on assets 9.00% - 9.00% - 9.00% -
</TABLE>
49
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
The following is a reconciliation of the funded status of the plans
with the March 31 balance sheets (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
PENSION PENSION
PLAN SERP PLAN SERP
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligation-
Vested $(59,280) $(13,902) $(52,382) $(13,617)
Nonvested (1,891) (710) (2,019) (443)
--------------- --------------- --------------- ---------------
Accumulated benefit
obligation $(61,171) $(14,612) $(54,401) $(14,060)
=============== =============== =============== ===============
Actuarial present value
of projected
benefit obligations $(61,171) $(15,080) $(55,879) $(14,908)
Plan assets at fair
market value 68,382 - 55,912 -
--------------- --------------- --------------- ---------------
Plan assets less
projected benefit
obligation 7,211 (15,080) 33 (14,908)
Unrecognized net (gain) loss (4,406) 1,752 2,704 1,879
Unrecognized prior service
cost - 268 - 313
Unrecognized net transition
obligation - 370 - 408
Minimum liability - - - (1,752)
Other - (23) - 102
--------------- --------------- --------------- ---------------
Prepaid (accrued) pension
costs recognized on the
balance sheet $ 2,805 $(12,713) $ 2,737 $(13,958)
=============== =============== =============== ===============
</TABLE>
An additional minimum liability is required when the projected benefit
obligation exceeds plan assets and the deficiency is greater than the
actuarial computed pension liability. The minimum additional liability
was accrued with the recording of an offsetting intangible asset. The
intangible asset recognized cannot exceed the amount of unrecognized
prior service cost and unrecognized net transition obligation. The
excess, net of tax benefits, is reported as a separate reduction of
stockholders' equity (deficit) at March 31, 1998 and 1997 as follows
(dollars in thousands):
1998 1997
------------- --------------
Intangible asset $ - $ 720
Reduction in stockholders'
equity (deficit) - 637
Tax benefits - 395
------------- --------------
Additional minimum liability $ - $1,752
============= ==============
50
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
ASSOCIATES SAVINGS PLAN
Levitz has savings plans which were adopted under Section 401(k) of the
Internal Revenue Code. Under the provisions of the Associates Savings
Plans, substantially all employees who meet the age and service
requirements of the plan are entitled to defer a certain percentage of
their compensation. Levitz contributed to the fund 20% of the first 6%
beginning January 1, 1998, 1997 and 1996 subject to certain
limitations. Such matching contributions of $0.8 million, $0.9 million
and $1.1 million were made by Levitz for the years ended March 31,
1998, 1997 and 1996, respectively.
14. CAPITAL STOCK, STOCK OPTION PLANS, RIGHTS AND STOCK WARRANTS:
COMMON STOCK
As of March 31, 1998 LFI had 30,320,628 shares of Common Stock issued
and 30,138,896 shares outstanding. 26,565,234 shares were voting stock
and 3,573,662 shares of which were non-voting stock. Any reorganization
plan is likely to result in a minimal, if any, distribution to existing
stockholders as a result of the issuance of equity to creditors or new
investors.
RESTRICTED STOCK
LFI contracted to issue 700,000 shares of restricted stock to certain
key employees during the fiscal year ended March 31, 1996. These shares
of restricted stock were issued in the fiscal year ended March 31,
1997. The total market value at the effective date of grant was
recorded as deferred compensation, a separate component of
stockholders' deficit. The deferred compensation is being charged to
selling, general and administrative expenses over the three-year
vesting period.
STOCK OPTIONS
In May 1993, LFI adopted an Executive Long-Term Incentive Plan (Plan),
which provides for incentive awards to include the issuance of stock
options. The Plan provides that the stock option price shall not be
less than the fair market value of the shares on the date of grant and
that no portion of the options may be exercised beyond ten years from
that date. Options are exercisable in various increments starting one
year from date of grant.
LFI accounts for these plans under APB Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation expense is
recognized because the exercise price of stock options granted equals
the market price of the underlying stock on the date of grant.
51
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
Had compensation costs for these plans been determined consistent with
FASB Statement No. 123, LFI's net loss and net loss per common share
would have been adjusted to the following pro forma amounts (dollars in
thousands, except per share data):
1998 1997
-------- --------
Net loss As reported ($93,387) ($27,586)
Pro forma (94,291) (29,332)
Net loss per common share As reported ($3.12) ($0.93)
Pro forma (3.15) (0.98)
Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to April 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be
expected in future years.
The fair value of each option granted is estimated at the date of grant
using the Black-Scholes option pricing model. The following
weighted-average assumptions were used for grants in the fiscal years
ended March 31:
1998 1997
----------- -----------
Risk free interest rates 6.30% 6.61%
Expected life (in years) 6 6
Expected volatility 64.77% 71.22%
Expected dividends None None
EMPLOYEE STOCK OPTIONS
Employee Stock Option Plans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------------ ----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning 2,037,875 $ 3.91 1,500,000 $ 5.25 516,000 $ 10.11
of year
Granted 250,000 1.25 941,500 4.04 1,240,000 3.97
Exercised - - - - - -
Cancelled (498,250) 2.80 (403,625) 9.72 (256,000) 8.82
------------ ------------ ------------
Outstanding at end of year 1,789,625 3.50 2,037,875 3.91 1,500,000 5.25
============ ============ ============
Exercisable at end of year 810,750 3.06 482,625 3.57 12,500 13.40
Available for grant at end
of year 1,091,406 843,156 -
</TABLE>
52
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
The following table summarizes information concerning outstanding and
exercisable employee options at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.25 250,000 9.3 $ 1.25 - -
3.06-4.81 1,196,997 7.5 3.30 727,375 2.08
5.00-6.25 324,002 7.7 5.62 80,000 6.25
9.63-10.00 18,626 6.3 9.80 3,375 10.00
---------------- --------------
1,789,625 810,750
================ ==============
</TABLE>
On November 25, 1996, LFI repriced 284,000 shares of stock options
previously granted with option prices ranging from $9.06 to $12.31 to
the market value of the stock on November 25, 1996 of $3.63. All other
conditions of the stock options remained the same. The repricing is
included as a cancellation and new grant of options during 1997 in the
above table.
On August 20, 1996 at the Annual Stockholders Meeting, the stockholders
approved an amendment to the Plan to increase the number of shares of
Common Stock authorized for issuance thereunder to 2,881,031 shares and
to limit the maximum number of shares granted to any participant to
500,000 shares in each fiscal year.
DIRECTORS STOCK OPTIONS
In addition, LFI has adopted a Non-qualified Non-Employee Directors
Stock Option Plan. The Plan provides that the stock option price shall
not be less than the fair market value of the shares on the date of
grant and that no portion of the options may be exercised beyond ten
years from the date of grant. Options are exercisable in various
increments starting one year from date of grant.
Directors' Option Plans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 70,140 $6.00 38,544 $7.43 12,000 $10.19
Granted - - 35,596 4.69 26,544 6.19
Exercised - - - -
Cancelled - - (4,000) 8.19 -
---------- --------- ----------
Outstanding at end of year 70,140 6.00 70,140 6.00 38,544 7.43
========== ========= ==========
Exercisable at end of year 60,135 50,145 18,546
Available for grant at end
of year 54,860 54,860 86,456
</TABLE>
53
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
The following table summarizes information concerning outstanding and
exercisable director's options at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$4.69-$6.19 60,140 9.0 $5.30 50,135 $5.32
$10.19 10,000 8.3 10.19 10,000 10.19
---------------- --------------
70,140 60,135
================ ==============
</TABLE>
RIGHTS
in May 1993, the Board of Directors adopted a Rights Agreement which
declared a dividend distribution of one Right for each outstanding
share of LFI's Common Stock effective with the close of the Offering.
Each Right entitles the registered holder to purchase from LFI one
one-hundredth of a share of Series A Junior Participating Preferred
Stock at a purchase price of $50 per share. The Rights are exercisable
at specified number of days following (i) a public announcement that a
person or group of persons has acquired or obtained the right to
acquire beneficial ownership of 15% or more of LFI's outstanding Common
Stock or (ii) the commencement of a tender offer or exchange offer that
would result in persons acquiring 15% or more of LFI's outstanding
Common Stock. LFI has reserved 1,000,000 shares, $1 par value, of
Series A Junior Participating Preferred Stock for issuance upon
exercise of the Rights. The Rights may be redeemed by LFI, subject to
the approval of the Board of Directors, for $0.01 per Right in
accordance with the provisions of the Rights Agreement. If the Rights
are not redeemed, the holder of the Rights may purchase stock of LFI
(or in certain circumstances, stock of an acquiring person) for
approximately half its value. The Rights will expire on July 2, 2003,
unless redeemed earlier by LFI.
STOCK WARRANTS
In March 1996, LFI issued warrants to purchase 283,972 shares of LFI
Common Stock at an exercise price equal to $3.89 per share as part of
an exchange offer in which Levitz issued $91.6 million aggregate
principal amount of 13.375% Senior Notes due October 15, 1998 for $91.6
million principal amount of 12.375% Senior Notes due April 15, 1997.
The warrants were revalued at $0.7 million which was being amortized as
interest expense over the life of the 13.375% Senior Notes until the
Petition Date. The warrants expire on March 25, 2001.
In July 1996, LFI issued warrants to purchase up to 5,000,000 shares of
LFI Common Stock, subject to downward adjustments if certain targeted
stock prices of LFI were not achieved and other anti-dilution
provisions. The exercise price as of June 19, 1998 was $0.01 per share.
The warrants were issued as part of a refinancing in July 1996. The
warrants were valued at $0.6 million and are being amortized as
interest expense over the remaining life of the DIP Facility which
replaced the previous financing. The warrants expire on July 1, 2001.
54
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
15. ACCRUED EXPENSES AND OTHER LIABILITIES (DOLLARS IN THOUSANDS):
1998 1997
------------- --------------
Payroll $12,510 $15,278
Payroll and sales taxes 4,547 5,253
Real estate taxes 2,809 4,853
Interest 1,687 10,235
Promotional discount fee 3,127 23,121
Workers Compensation 7,663 6,857
Other 23,504 23,300
------------- --------------
$55,847 $88,897
============= ==============
16. COMMITMENTS AND CONTINGENCIES:
As a result of the bankruptcy filing, the initiation of litigation
against the Debtors involving matters arising prior to the filing for
bankruptcy is stayed. Such stay may be lifted by the Court handling the
bankruptcy proceedings in appropriate circumstances.
Levitz has employment agreements with nine officers. Each of these
agreements is for an initial term of eighteen months and will be
automatically renewed for an additional twelve months unless either
party gives prior written notice of intent to terminate the agreement.
The agreements provide that if the officer is terminated by Levitz
other than for Cause (as defined in the agreements) or disability or by
the officer for Good Reason (as defined in the agreements), Levitz must
continue to pay such officer's base salary for eighteen months and, for
certain of the officers, would be required to credit such officer with
three years of additional service and age for purposes of Levitz's
SERP. In the event of such termination following a Change in Control
(as defined in the agreements), Levitz must pay such officer a lump sum
amount equal to one and one-half times his or her annual base salary.
Each agreement also contains certain non-competition provisions.
LFI is subject to a number of lawsuits, investigations and claims
arising out of the normal conduct of its business, including those
relating to government regulations, environment, general and product
liability and employee relations. Although there are a number of
actions pending against LFI as of March 31, 1998, in the opinion of
Management such actions as currently known would not have a material
effect on the financial position of LFI.
55
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of LFI's unaudited quarterly results of
operations for the years ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997(1) 1997 1998
------------- ---------------- --------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales $ 211,367 $ 207,258 $ 232,592 $ 185,585
Gross profit 95,600 90,486 103,001 80,124
Net loss before extraordinary items (10,301) (36,443)(2) (26,428) (2) (14,410)
Net loss (10,301) (41,905)(3) (26,771) (14,410)
Loss per common share:
Loss before extraordinary items $ (0.34) $ (1.22) $ (0.88) $ (0.48)
Extraordinary items - (0.18)(3) (0.01) -
------------- ---------------- --------------- -------------
Net loss per common share $ (0.34) $ (1.40) $ (0.89) $ (0.48)
============= ================ =============== =============
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1996 1997
------------- ---------------- --------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales $ 228,128 $ 237,146 $ 272,007 $ 229,574
Gross profit 101,615 106,819 120,976 103,890
Net loss before extraordinary items (11,036)(4) (7,214) (1,981) (5,353)
Net loss (13,038)(3) (7,214) (1,981) (5,353)
Loss per common share:
Loss before extraordinary items $ (0.37) $ (0.24) $ (0.07) $ (0.18)
Extraordinary items (0.07)(3) - - -
------------- ---------------- --------------- -------------
Net loss per common share $ (0.44) $ (0.24) $ (0.07) $ (0.18)
============= ================ =============== =============
</TABLE>
----------
(1) See Note 1 to consolidated financial statements.
(2) See Notes 5, 6 and 7 to consolidated financial statements.
(3) See Note 9 to consolidated financial statements.
(4) See Note 7 to consolidated financial statements.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of LFI's financial instruments at
March 31, 1998 and 1997, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------------ ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $5,339 $5,339 $9,267 $9,267
Receivable under account
purchase agreement 554,322 554,322 327,000 327,000
Long-term debt obligations
including current maturities 155,416 155,416 368,497 256,173
Obligation under account
purchase agreement 554,322 554,322 327,000 327,000
Letters of credit - 17,778 - 14,130
</TABLE>
The carrying amounts of cash and cash equivalents approximate fair
value because of the short maturity of these instruments. The fair
value of LFI's long-term debt, including current maturities, is
estimated based on the quoted market prices for the same or similar
issues. The contract
56
<PAGE>
LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
MARCH 31, 1998
amount of the letter of credit approximates its fair value. The fair
value of the Company's liabilities subject to compromise are not
presently determinable as a result of the Chapter 11 proceedings.
19. SUBSEQUENT EVENTS (UNAUDITED):
In June 1998, Management finalized a plan to close fifteen stores in
under-performing markets. The plan also includes the elimination of
certain support functions and the closing of warehouses in certain
locations. The store closings and the elimination of certain support
functions will be completed during the quarter ending September 30,
1998. The warehouse closings are expected to be completed by the end of
Fiscal 1999. The estimated pre-tax charge for this plan of
reorganization is estimated to range from $20.0 million to $25.0
million dependent on the final inventory valuations, length of
liquidation sale and lease termination expenses. The pre-tax charge
will include the writedown of plant and equipment to their net
realizable value, loss on sale of inventory to be liquidated, lease
rejection claims, net of capital lease obligations, severance pay and
other expenses.
57
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of June 19, 1998, the name, age, position at
LFI and Levitz and principal occupation or employment for the past five years,
of the directors and executive officers of LFI and Levitz. Each of such persons
is a citizen of the United States. None of the directors or executive officers
is related to each other.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT DURING THE PAST DIRECTOR OF
NAME AND AGE FIVE YEARS LFI SINCE
------------ -------------------------- -----------
<S> <C> <C>
Michael Bozic (57) Chairman of the Board and Chief Executive Officer 1995
of LFI and Levitz since 1995, formerly Chairman
and Chief Executive Officer of Hills Stores
Company. Mr. Bozic serves as a director on the
boards of Dean Witter InterCapital, Inc.,
Eaglemark Financial Services, Inc. (Harley
Davidson Credit), Weirton Steel Corporation and
Charming Shops, Inc.
Robert A. Homler (52) President Merchandise/ Marketing of LFI and
Levitz, formerly with Macy's East as Executive
Vice President of The Home Store from 1994 to
1997 and with Abraham & Strauss/Jordan Marsh as
General Merchandise Manager of The Home Store
from 1992 to 1994.
Edward L. Grund (53) President Store Operations of LFI and Levitz,
formerly Executive Vice President-General Manager
North American Division of Sunglass Hut
International from 1997 to 1998. He was also
Senior Vice President-Store Operations of
Sunglass Hut International from 1993 to 1997.
Michael McCreery (50) Senior Vice President and Chief Financial Officer
of LFI and Levitz, formerly Vice Chairman and
Chief Administrative Officer of C.R. Anthony
Company from 1995 to 1998 and Senior Executive
Vice President and Chief Financial Officer of
C.R. Anthony Company from 1990 to 1994.
Nicholas S. Masullo (50) Vice President, Human Resources of Levitz.
Richard J. Mazzoni, Jr. (50) Vice President, Management Information Services
and Logistics of Levitz.
Lawrence R. McDevitt (54) Vice President, Controller of Levitz.
58
<PAGE>
Sheila C. Reinken (37) Treasurer of LFI and Vice President and Treasurer
of Levitz since 1996. Director of Levitz since
1997. Formerly Assistant Treasurer of Levitz.
Edward P. Zimmer (49) Vice President, Secretary and General Counsel of
LFI and Levitz. Director of Levitz since 1996.
Richard M. Cashin (45) Director of LFI. Since 1995 President of 1993
Citicorp Venture Capital (investment capital
firm) and since 1983 Vice President of Court
Square Capital, Ltd. Also Director of LFI from
1985 to 1990. Mr. Cashin serves as a director of
Titan Wheel International, Inc.
Robert M. Harrell (74) Director of LFI. Commercial Real Estate broker 1994
since 1984. Former Executive Vice President of
Merchandising of Montgomery Ward & Company,
Incorporated.
Bruce C. Leadbetter (59) Director of LFI, formerly Chief Executive Officer 1985
of Dalfort Aviation. Managing Partner, the
Security Management Company. President and
Director of the Astraea Company (a management
consulting firm).
Kenneth D. Moelis (39) Director of LFI. Managing Director of Donaldson, 1986
Lufkin & Jenrette Securities Corporation
(investment bankers) since 1990.
Henry B. Reiling (60) Director of LFI. Professor, Harvard Graduate 1990
School of Business Administration.
</TABLE>
The Board of Directors of LFI is divided into three classes serving staggered
three-year terms. The terms of office of Messrs. Harrell and Leadbetter expired
in 1997; however, because the Company did not hold an Annual Meeting of
Stockholders in 1997, such directors continue in office until their successors
are elected. The terms of office of Messrs. Cashin and Moelis expire in 1998 and
of Messrs. Bozic and Reiling in 1999. Directors who are employees of LFI or
Levitz do not receive any compensation for serving on the Board of Directors of
either LFI or Levitz. Directors who are not employees of LFI or Levitz receive
$15,000 in compensation annually. Audit and Compensation Committee members
receive $1,000 for each committee meeting attended and each committee chairman
receives an additional $5,000 per year for serving as chairman.
Pursuant to the Company's Non-Employee Directors' Stock Option Plan, following
the Company's Annual Meeting of Stockholders, each director who is not an
employee of the Company receives an annual grant of an option to purchase 2,000
shares of the Company's Common Stock. Such directors may also elect to receive
options to purchase shares of the Company's Common Stock in lieu of their yearly
retainer fee. The exercise price of all options granted pursuant to this plan
will be set at the average of the high and low prices of the Common Stock on the
date of grant. The term of each option is ten years from date of grant. Annual
grant options are exercisable as to one-third of the shares subject to the
option on each of the first, second and third anniversary of the grant. Elective
grant options are exercisable six months after the grant.
59
<PAGE>
LFI has entered into indemnification agreements with each of its officers and
directors. The indemnification agreements provide that LFI shall indemnify the
officers and directors to the fullest extent permitted by law against any and
all expenses, judgments, fines, penalties and settlement amounts paid or
incurred in any threatened, pending or completed action, suit or proceeding
related to their service as a director, officer, employee, agent or fiduciary of
LFI with another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise when they are serving at the request of LFI. LFI's
Restated Certificate of Incorporation also provides for certain indemnification
rights.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information regarding the
annual and long-term compensation awarded or earned for each of the last three
fiscal years to those persons who were, for the fiscal year ended March 31,
1998, the Chief Executive Officer and the four other most highly compensated
executive officers. Mr. Homler was not employed by the Company prior to the 1998
fiscal year; accordingly, no information is set forth with respect to him for
the prior years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------------- -----------------------------
OTHER RESTRICTED SECURITIES
FISCAL ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION(1)
- --------------------------- ------------------- ---------- --------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Bozic 1998 $ 650,000 $ - $ - $ - - $ 42,933
Chairman of the Board 1997 637,500 150,000 - - - 31,990
and Chief Executive Officer 1996 262,500 150,000 - 1,562,500(2) 500,000 -
of LFI and Levitz
Robert A. Homler 1998 $ 242,316 $ 95,000(3) $ 36,518(4) $ - 250,000 $ 3,788
President Merchandise/ 1997 - - - - - -
Marketing of LFI and 1996 - - - - - -
Levitz
Edward P. Zimmer 1998 $ 190,392 $ - $ - $ - - $ 5,182
Vice President, Secretary 1997 161,874 - - - 55,000 57,831
and General Counsel of 1996 162,447 - - - 30,000 49,168
LFI and Levitz
Richard J. Mazzoni, Jr. 1998 $ 183,472 $ - $ - $ - - $ 5,865
Vice President, Management 1997 168,636 - - - 40,000 59,245
Information Systems and 1996 143,988 - - - 10,000 29,292
Logistics of Levitz
Nicholas S. Masullo 1998 $ 142,368 $ - $ - $ - - $ 9,422
Vice President, Human 1997 125,562 - - - - 42,762
Resources of Levitz 1996 126,980 - - - - 7,606
</TABLE>
- -------------
(1) Included in this column for the fiscal year ended March 31, 1998 are
matching contributions paid pursuant to Levitz's Associates' Savings Plan to
Messrs. Bozic, Zimmer, Mazzoni and Masullo in the amounts of $1,902, $1,983,
$1,925, and $1,887, respectively, and the dollar value attributable to life
insurance premiums paid on behalf of Messrs. Bozic, Homler, Zimmer, Mazzoni
and Masullo in the amounts of $41,031, $3,788, $3,199, $3,940 and $7,535,
respectively.
(2) Pursuant to the terms of his employment agreement with the Company, Mr.
Bozic received 500,000 shares of restricted stock as of November 1, 1995.
The dollar amount shown is the value of those shares based on the closing
price of the Company's Common Stock on the NYSE on November 1, 1995. The
value of such shares on September 24, 1997, the last date on which the
Common Stock traded on the NYSE, based on the closing market price on such
date was $172,000. The restrictions on these shares lapsed with respect to
40% of the shares on November 1, 1996, and with respect to 30% of the shares
on November 1, 1997 and will lapse with respect to 30% of the shares on
November 1, 1998. Mr. Bozic has the right to receive any dividends paid on
these shares. Upon a "change in control" (as defined in his employment
agreement), any remaining restrictions will automatically lapse.
60
<PAGE>
(3) Pursuant to the terms of his employment agreement with the Company, Mr.
Homler received a guaranteed bonus of $70,000 for the fiscal year ended
March 31, 1998 plus a $25,000 signing bonus.
(4) Represents perquisites and other personal benefits of which $33,500 is
attributable to relocation expenses.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information concerning options granted
during the Fiscal Year ended March 31, 1998 to the executive officers named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS GRANTED TO
SECURITIES EMPLOYEES IN THE EXERCISE OR
UNDERLYING FISCAL YEAR ENDED BASE PRICE EXPIRATION GRANT DATE
NAME OPTIONS(1) MARCH 31, 1997 PER SHARE DATE(2) PRESENT VALUE(3)
- ---- ------------ --------------------- ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Michael Bozic - - $ - - $ -
Robert A. Homler 250,000 100% 1.25 July 6, 2007 188,200
Edward P. Zimmer - - - - -
Richard J. Mazzoni - - - - -
Nicholas S. Masullo - - - - -
</TABLE>
- ------------
(1) These options become exercisable as to 40% of the shares underlying grant
after one year and as to 30% of such shares on each of the second and third
anniversaries of the date of the grant.
(2) All options granted have a ten-year term. Pursuant to the terms of the
employment agreements between the Company or Levitz and each of the persons
named above, these options may become immediately exercisable upon the
occurrence of a change in control of the Company.
(3) The grant date present value is determined using the Black-Scholes model.
The material assumptions and adjustments incorporated in the Black-Scholes
model in estimating the value of the options include the following: (a) an
option exercise price as shown above, the fair market value of the Common
Stock on the date of grant, (b) an interest rate of 6.4% that represents the
interest rate on a U.S. Treasury security with a maturity date corresponding
to that of the option term, (c) volatility of 78.8%, calculated using daily
stock prices for the one-year period prior to the grant date, (d) dividends
at the rate of $0.00 per share, representing the expected annualized
dividends to be paid with respect to a share of Common Stock, and (e)
reductions of approximately 10% to reflect the probability of forfeiture due
to termination prior to vesting, and approximately 19% to reflect the
probability of a shortened option term due to termination of employment
prior to the option expiration date.
The ultimate values of the options will depend on the future market price of the
Common Stock, which cannot be forecast with reasonable accuracy. The actual
value, if any, an optionee will realize upon exercise of an option will depend
on the excess of the market value of the Common Stock over the exercise price on
the date the option is exercised.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
None of the officers exercised any options in the fiscal year ended March 31,
1998.
61
<PAGE>
The following table provides information on the number of options held by the
executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT END OF FISCAL YEAR END OF FISCAL YEAR
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Michael Bozic 350,000 150,000 $ - $ -
Robert A. Homler - 250,000 - -
Edward P. Zimmer 42,500 42,500 - -
Richard J. Mazzoni 27,500 22,500 - -
Nicholas S. Masullo 42,500 27,500 - -
</TABLE>
LEVITZ RETIREMENT PLANS
Certain officers and key employees and former employees (a total of 29 persons)
are participants in the Levitz Furniture Corporation Employees Retirement Plan
(the "Retirement Plan") and the Levitz Furniture Corporation Supplemental
Executive Retirement Plan (the "Supplemental Plan"). After March 31, 1996 no
additional benefits accrue under the Retirement Plan. Retirement and disability
benefits pursuant to the Supplemental Plan are equal to 4% of the highest
five-year average of salary plus bonus for each year of service to a maximum of
15 years of service. The retirement benefit of a participant who terminates
service prior to age 65 is, except under certain circumstances, subject to
reduction. Benefits are subject to a dollar-for-dollar reduction for similar
benefits paid under the Retirement Plan, pension plans of other employers and
Social Security. Retirement and disability benefits under the Supplemental Plan
are limited to a 1998 maximum of $477,000 per year, to be increased annually by
the average increase in annual salary for Supplemental Plan participants. The
following table shows annual benefits payable (before offsets) under the
Supplemental Plan and the Retirement Plan to participants at age 65 in specified
years of service and remuneration classes:
PENSION PLAN TABLE
YEARS OF SERVICE(2)
----------------------------------------------------
REMUNERATION(1) 10 15 OR MORE AT AGE 65
- --------------- ------------- ---------------------------
$200,000 $80,000 $120,000
300,000 120,000 180,000
400,000 160,000 240,000
500,000 200,000 300,000
600,000 240,000 360,000
- --------------
(1) For the fiscal year ended March 31, 1998, remuneration equaled the amount
listed for each executive officer under "Annual Compensation" in the Summary
Compensation Table.
(2) As of March 31, 1998, Messrs. Bozic and Homler had less than three years of
service and the remaining listed executive officers had more than 15 years
of service under the Supplemental Plan.
EMPLOYMENT AGREEMENTS
Levitz has employment agreements with each of the named executive officers
listed in the Summary Compensation Table on page 60. Each of these agreements is
for an initial term of eighteen months and will be automatically renewed for an
additional twelve months unless either party gives prior written notice of
intent to terminate the agreement. The agreements provide that if the officer is
terminated by Levitz other than for Cause (as defined in the agreements) or
disability or by the officer for Good Reason (as defined in the
62
<PAGE>
agreements), Levitz must continue to pay such officer's base salary for eighteen
months and, for certain of the officers, would be required to credit such
officer with three years of additional service and age for purposes of Levitz's
Supplemental Plan. In the event of such termination following a Change in
Control (as defined in the agreements), Levitz must pay such officer a lump sum
amount equal to one and one-half times his or her annual base salary. Each
agreement also contains certain non-competition provisions.
Mr. Bozic's employment agreement provides for a yearly salary of $650,000.
Pursuant to his employment agreement, Mr. Bozic received a grant of 500,000
shares of restricted stock and the grant of an option to purchase 500,000 shares
of stock in the fiscal year ended March 31, 1996, as described above. Mr.
Homler's employment agreement provided for a yearly salary of $350,000 with a
guaranteed bonus for the fiscal year ended March 31, 1998 of $70,000 and a
signing bonus of $25,000. Pursuant to his employment agreement, Mr. Homler
received a grant of options to purchase 250,000 shares of Common Stock, as
described above.
In the event of termination at their current salary, the current executive
officers listed in the Summary Compensation Table would receive the following
total compensation pursuant to the above-described employment agreements: Mr.
Bozic, $975,000, Mr. Homler, $525,000, Mr. Zimmer, $285,588, Mr. Mazzoni,
$275,208 and Mr. Masullo, $213,552. These amounts assume 18-month payments of
current salaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
As of June 12, 1998, the Common Stock was held of record by 733 stockholders.
The following table sets forth certain information concerning the beneficial
ownership of Common Stock by each stockholder who is known by the Company to own
beneficially in excess of 5% of the outstanding Common Stock, by each director,
by the executive officers named in the Summary Compensation Table above, and by
all directors and executive officers as a group, as of the Record Date. Except
as otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares of Common Stock.
63
<PAGE>
NO. OF SHARES
OF COMMON
NAME OF BENEFICIAL OWNER STOCK(1) PERCENT(1)
------------------ ----------
Apollo Investment Fund III, 5,000,000 (2) 16.2
Apollo Overseas Partners, III, L.P.
and Apollo (U.K.) Partners, III, L.P.
Two Manhattanville Road
Purchase, New York 10577
Michael Bozic 762,268 (3) 2.5
7887 North Federal Highway
Boca Raton, Florida
Richard M. Cashin 185,337 (4) *
399 Park Avenue, 14th Floor
New York, New York
Court Square Capital, Ltd. ("CSC") 4,764,720 (5) 15.5
399 Park Avenue, 10th Floor
New York, New York
Robert M. Harrell 5,416 (6) *
9139 Ridge Pine Trail
Orlando, Florida
Robert A. Homler 100,000 (7) *
7887 North Federal Highway
Boca Raton, Florida
Bruce C. Leadbetter 146,177 (8) *
7701 Lemon Avenue
Dallas, Texas
Nicholas S. Masullo 50,000 (9) *
7887 North Federal Highway
Boca Raton, Florida
Richard J. Mazzoni 32,500 (10) *
7887 North Federal Highway
Boca Raton, Florida
Kenneth D. Moelis 11,065 (11) *
Donaldson, Lufkin & Jenrette
2121 Avenue of the Stars
Los Angeles, California
Henry B. Reiling 64,077 (12) *
Harvard Graduate School of
Business Administration
Morgan 385, Soldiers Field
Boston, Massachusetts
Edward P. Zimmer 121,474 (13) *
7887 North Federal Highway
Boca Raton, Florida
All Officers and Directors of the Company 1,405,104 (14) 4.6
as a group (11 persons)
All Officers and Directors of Levitz 1,116,217 (15) 3.6
as a group (9 persons)
- ----------
* Less than 1.0%
64
<PAGE>
(1) Includes Voting Common Stock and Non-Voting Common Stock. The Non-Voting
Common Stock is identical to the Voting Common Stock in all respects,
except that the Non-Voting Common Stock is non-voting and is convertible
into Voting Common Stock. On June 12, 1998, there were 26,565,234 shares of
Voting Common Stock and 3,573,662 shares of Non-Voting Common Stock
outstanding, which were held by 726 and 7 holders of record, respectively.
(2) Represents warrants to purchase 5,000,000 shares of Common Stock.
(3) Includes beneficial ownership of 350,000 shares which may be acquired
within 60 days pursuant to stock option grants.
(4) Includes beneficial ownership of 15,913 shares which may be acquired within
60 days pursuant to stock option grants.
(5) CSC is an indirect wholly-owned subsidiary of Citicorp. Of these shares
3,484,888 are Non-Voting Common Stock.
(6) Includes beneficial ownership of 4,666 shares which may be acquired within
60 days pursuant to stock option grants.
(7) Consists solely of beneficial ownership of shares which may be acquired
within 60 days pursuant to stock option grants.
(8) Includes beneficial ownership of 15,913 shares which may be acquired within
60 days pursuant to stock option grants.
(9) Consists solely of beneficial ownership of shares which may be acquired
within 60 days pursuant to stock option grants.
(10) Consists solely of beneficial ownership of shares which may be acquired
within 60 days pursuant to stock option grants.
(11) Consists solely of beneficial ownership of shares which may be acquired
within 60 days pursuant to stock option grants.
(12) Includes beneficial ownership of 15,913 shares which may be acquired within
60 days pursuant to stock option grants. Also includes 3,250 shares held in
trust for members of Mr. Reiling's family. Mr. Reiling disclaims beneficial
ownership of such shares held by members of his family.
(13) Includes beneficial ownership of 50,000 shares which may be acquired within
60 days pursuant to stock option grants.
(14) Includes beneficial ownership of 631,375 shares which may be acquired
within 60 days pursuant to stock option grants and other shares as to which
beneficial ownership is disclaimed.
(15) Includes beneficial ownership of 575,345 shares which may be acquired
within 60 days pursuant to stock option grants and other shares as to which
beneficial ownership is disclaimed.
65
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors who are employees of the Company or Levitz do not receive any
compensation for serving on the Board of Directors of either the Company or
Levitz. Directors who are not employees of the Company or Levitz receive $15,000
in compensation annually. Audit and Compensation Committee members receive
$1,000 for each committee meeting attended and each committee chairman receives
an additional $5,000 per year for serving as chairman.
Pursuant to the Company's Non-Employee Directors' Stock Option Plan, each
director who is not an employee of the Company, following the Company's Annual
Meeting of Stockholders, receives an annual grant of an option to purchase 2,000
shares of the Company's Common Stock. Such directors may also elect to receive
options to purchase shares of the Company's Common Stock in lieu of their yearly
retainer fee. The exercise price of all options granted pursuant to this plan
will be set at the average of the high and low prices of the Common Stock on the
New York Stock Exchange on the date of grant. The term of each option is ten
years from date of grant. Annual grant options are exercisable as to one-third
of the shares subject to the option on each of the first, second and third
anniversary of the grant. Elective grant options are exercisable six months
after the grant.
Mr. Cashin is Vice President of Court Square Capital, Ltd., which owns 15.5% of
the Company's Common Stock. Court Square Capital, Ltd. also owns the capital
stock of Furniture Comfort Corporation, which, in the ordinary course of
business, sold $51.1 million of merchandise to Levitz in Fiscal 1998.
66
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the Index to
Consolidated Financial Statements on page 26.
FINANCIAL STATEMENT SCHEDULES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
SCHEDULES PAGE
----
Schedule I - Condensed Financial Information of Registrant.................73
All other schedules have been omitted because the required information is shown
in the Consolidated Financial Statements or Notes thereto or they are not
applicable.
(B) REPORT ON FORM 8-K
On January 20, 1998 the registrant filed a Report on Form 8-K reporting
under Item 5. "Other Events" consummation of the previously announced sale
of substantially all of the assets of John M. Smyth Company, a wholly-owned
subsidiary of Levitz Furniture Corporation.
(C) EXHIBITS
See Page 69 for Index to Exhibits.
67
<PAGE>
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.
LEVITZ FURNITURE INCORPORATED
Date: July 13, 1998 By: /S/ MICHAEL BOZIC
----------------------
Michael Bozic
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL BOZIC Chairman of the Board July 13, 1998
- --------------------------------- and Chief Executive
Michael Bozic Officer
/s/ MICHAEL MCCREERY Senior Vice President July 13, 1998
- --------------------------------- and Chief Financial
Michael McCreery Officer
/s/ RICHARD M. CASHIN Director July 13, 1998
- ---------------------------------
Richard M. Cashin
Director July 13, 1998
- ---------------------------------
Robert M. Harrell
/s/ BRUCE C. LEADBETTER Director July 13, 1998
- ---------------------------------
Bruce C. Leadbetter
/s/ KENNETH D. MOELIS Director July 13, 1998
- ---------------------------------
Kenneth D. Moelis
/s/ HENRY B. REILING Director July 13, 1998
- ---------------------------------
Henry B. Reiling
68
<PAGE>
INDEX TO EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
3.01 Form of Restated Certificate of Incorporation of the Company. (1)
3.02 Form of By-Laws of the Company. (1)
3.03 Certificate of Incorporation of Levitz. (2)
3.04 By-Laws of Levitz. (2)
4.01 Form of Stockholder Rights Plan, including exhibits. (1)
10.02 Form of Indemnification Agreement. (1)
10.04 Amendment to Shareholders Agreement dated as of May 14, 1993. (1)
10.05 Senior Deferred Coupon Debenture Indenture dated as of December 1,
1992 between the Company and First Bank National Association, as
Trustee. (1)
10.06 Form of Senior Deferred Coupon Debenture (included as Exhibit A to
10.05 above). (1)
10.07 First Supplemental Indenture dated as of April 21, 1993, relating to
the Debenture Indenture. (1)
10.08 Second Supplemental Indenture, dated as of June 16, 1993, relating to
the Debenture Indenture. (1)
10.10 Shareholders Agreement, dated as of December 23, 1986 between the
Company and the Investors. (3)
10.11 Form of Agreement of Indemnification dated March 5, 1985 between
Levitz and certain directors of Levitz Furniture Corporation. (3)
10.14 Supplemental Executive Retirement Plan of Levitz dated April, 1995.
(4)
10.15 Levitz Bonus Plan. (4)
10.16 13-3/8% Senior Note Indenture, dated as of March 1, 1996, between
Levitz Furniture Corporation and American Bank National Association,
as Trustee. (4)
10.17 Form of 13-3/8% Senior Note (included as Exhibit A to 10.16 above).
(4)
10.18 First Supplemental Indenture, dated as of May 29, 1996, to the
13-3/8% Senior Note Indenture, dated as of March 1, 1996 between
Levitz Furniture Corporation and American Bank National Association,
as Trustee. (4)
10.19 Warrant Agreement, dated as of March 25, 1996, by and between the
Company and American Stock Transfer & Trust Company, as Agent.(7)
10.20 Form of Warrant, dated March 25, 1996 (included as Exhibit A to
Exhibit 10.19 above). (4)
10.22 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo Investment Fund III, L.P. (4)
10.23 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo Overseas Partners III, L.P. (4)
10.24 Warrant Certificate, dated as of July 1, 1996, by and between the
Company and Apollo (U.K.) Partners III, L.P. (4)
10.25 Registration Rights Agreement, dated as of July 1, 1996, by and among
the Company, Apollo Investment Fund III, L.P., Apollo Overseas
Partners III, L.P., Apollo (U.K.) Partners II, L.P. and Court Square
Capital Limited. (4)
10.26 $150,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, Levitz Furniture Company of the Midwest, Inc.,
Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., John M. Smyth Company, each of the
lenders from time to time parties thereto, Apollo Investment Fund
III, L.P., Apollo Overseas Partners III, L.P., Apollo U.K. Partners
III, L.P. and BT Commercial Corporation, as agent. (4)
69
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
10.27 $40,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, Levitz Furniture Company of the Midwest, Inc.,
Levitz Furniture Company of the Pacific, Inc., Levitz Furniture
Company of Washington, Inc., John M. Smyth Company, each of the
lenders from time to time parties thereto, Apollo Investment Fund
III, L.P., Apollo Overseas Partners III, L.P., Apollo U.K. Partners
III, L.P. and BT Commercial Corporation, as agent. (4)
10.28 Intercreditor and Collateral Agency Agreement, dated as of July 1,
1996, among Levitz Furniture Corporation, Levitz Furniture Company of
the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., John M. Smyth Company,
BT Commercial Corporation and the lenders named therein. (4)
10.29 Intercreditor Agreement, dated as of July 1, 1996, among Levitz
Furniture Corporation, General Electric Capital Corporation, BT
Commercial Corporation and the lenders named therein. (4)
10.30 Revolving Note, dated July 1, 1996, by and among BT Commercial
Corporation, Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (4)
10.31 Term Note, dated July 1, 1996, by and among Apollo (UK) Partners III,
L.P. and Levitz Furniture Corporation, Levitz Furniture Company of
the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (4)
10.32 Term Note, dated July 1, 1996, by and among Apollo Overseas Partners
III, L.P. and Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (4)
10.33 Term Note, dated July 1, 1996, by and among Apollo Investment Fund
III, L.P. and Levitz Furniture Corporation, Levitz Furniture Company
of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
Levitz Furniture Company of Washington, Inc., and John M. Smyth
Company. (4)
10.34 Note, dated July 1, 1996, by and among BT Commercial Corporation and
Levitz Furniture Corporation, Levitz Furniture Company of the
Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.35 Security Agreement, dated as of July 1, 1996, by Levitz Furniture
Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz
Furniture Company of the Pacific, Inc., Levitz Furniture Company of
Washington, Inc., and John M. Smyth Company in favor of BT Commercial
Corporation. (4)
10.36 Pledge Agreement, dated as of July 1, 1996, by and between Levitz
Furniture Corporation and BT Commercial Corporation. (4)
10.37 Amendment No. 1 dated as of December 6, 1996 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al.
and BT Commercial Corporation, as Agent. (5)
10.39 Amendment No. 2 dated as of December 16, 1996 to the Credit
Agreements dated as of July 1, 1996 among Levitz Furniture
Corporation, et al. and BT Commercial Corporation, as Agent. (6)
10.40 Amendment No. 3 dated as of June 13, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation, et al.
and BT Commercial Corporation, as Agent. (7)
70
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
10.41 Amendment No. 4 dated as of June 30, 1997 to the Credit Agreements
dated as of July 1, 1996 among Levitz Furniture Corporation et al.
and BT Commercial Corporation, as Agent. (7)
10.44 Amendment No. 5 dated as of July 25, 1997 to the Credit Agreements
among Levitz Furniture Corporation, et al. and BT Commercial
Corporation, as agent. (8)
10.45 $260,000,000 Postpetition Credit Agreement among Levitz Furniture
Incorporated, Levitz Furniture Corporation and certain other
subsidiaries and certain financial institutions, with Levitz
Furniture Corporation, as LFC Funds Administrator and, BT Commercial
Corporation, as Agent, dated as of September 5, 1997. (9)
10.46 Second Amended and Restated Account Purchase and Credit Card Program
Agreement by and among Levitz Furniture Corporation, certain other
subsidiaries and General Electric Capital Corporation, dated
September 5, 1997. (9)
10.47 Amendment No. 1 dated as of October 7, 1997 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (10)
10.48 Amendment No. 1 dated as of October 7, 1997 to the Second Amended and
Restated Account Purchase and Credit Card Agreement among Levitz
Furniture Corporation, et al. and General Electric Capital
Corporation. (10)
10.49 Amendment No. 2, dated as of December 30, 1997 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent. (11)
10.50 Amendment No. 3 dated as of February 23, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.51 Amendment No. 4 dated as of February 20, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.52 Amendment No. 5 dated as of May 14, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.53 Amendment No. 6 dated as of June 23, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.54 Form of Employment Agreement by and among Levitz Furniture
Corporation and Edward L. Grund dated as of June 1, 1998.
10.55 Form of Employment Agreement between Levitz and certain officers.
21.01 Wholly Owned Subsidiaries of Levitz Furniture Incorporated.
21.02 Wholly Owned Subsidiaries of Levitz Furniture Corporation.
27 Financial Data Schedule.
- ------------------
(1) Incorporated by reference from the Company's and Levitz's
Registration Statement Nos. 33-61534 and 33-61534-01 on Form S-1
filed April 23, 1993.
(2) Incorporated by reference from Levitz's Registration Statement No.
33-1325 on Form S-1 declared effective on August 13, 1986.
(3) Incorporated by reference from Levitz's Registration Statement No.
33-12639 on Form S-1 declared effective on May 12, 1987.
(4) Incorporated by reference from Levitz Furniture Incorporated's Form
10-K for the fiscal year ended March 31, 1996.
(5) Incorporated by reference to Form 8-K filed December 6, 1996.
(6) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended December 31,
1996.
(7) Incorporated by reference from Levitz Furniture Incorporated's Annual
Report on Form 10-K for the year ended March 31, 1997.
71
<PAGE>
(8) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended June 30, 1997.
(9) Incorporated by reference to Form 8-K filed September 12, 1997.
(10) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended September 30,
1997.
(11) Incorporated by reference from Levitz Furniture Incorporated's
quarterly report on Form 10-Q for the quarter ended December 31,
1997.
72
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(Dollars in thousands, except share data)
MARCH 31,
--------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Income taxes receivable $ - $2,299
Income taxes receiviable from
subsidiary 13,633 10,304
Deferred taxes 103 -
-------------- -------------
Total current assets 13,736 12,603
Deferred financing fees - 94
-------------- -------------
$13,736 $12,697
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Income taxes payable $ 231 $ -
-------------- -------------
Total current liabilities 231 -
-------------- -------------
Senior deferred coupon debentures - 8,108
-------------- -------------
Deferred taxes 942 1,089
-------------- -------------
Investment in deficit of subsidiary 189,907 97,572
-------------- -------------
Liabilities subject to compromise 8,717 -
-------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par; authorized 63,700,000
shares; 30,320,628 shares issued and 30,138,896
outstanding in 1998 and 30,320,628 shares
issued and 30,260,171 outstanding in 1997 303 303
Preferred stock $1 par; authorized 2,500,000
shares; issued outstanding -0- shares in
1998 and 1997 - -
Capital in excess of par 213,560 213,560
Retained earnings (deficit) (399,338) (305,951)
Deferred compensation (298) (1,169)
Minimum pension liability - (637)
Treasury stock, at cost, 181,732 shares in 1998
and 60,457 shares in 1997 (288) (178)
-------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (186,061) (94,072)
-------------- -------------
$13,736 $12,697
============== =============
</TABLE>
The accompanying note is an integral part of these financial statements.
73
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
YEARS ENDED MARCH 31,
-----------------------------------------------------
1998 1997 1996
---------------- ---------------- -----------------
<S> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE $47 $131 $805
INTEREST EXPENSE 618 1,469 1,206
---------------- ---------------- -----------------
LOSS BEFORE INCOME TAXES (665) (1,600) (2,011)
INCOME TAX (BENEFIT) (250) (467) (513)
---------------- ---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME (LOSS)
OF SUBSIDIARY AND EXTRAORDINARY ITEMS (415) (1,133) (1,498)
EQUITY IN NET LOSS OF SUBSIDIARY (87,167) (24,451) (22,255)
---------------- ---------------- -----------------
LOSS BEFORE EXTRAORDINARY ITEMS (87,582) (25,584) (23,753)
EXTRAORDINARY ITEMS, NET OF TAX BENEFIT
OF $2,630 IN 1998 AND $1,090 IN 1997 (5,805) (2,002) -
---------------- ---------------- -----------------
NET INCOME (LOSS) ($93,387) ($27,586) ($23,753)
================ ================ =================
LOSS PER COMMON SHARE:
LOSS BEFORE EXTRAORDINARY ITEMS ($2.93) ($0.86) ($0.80)
EXTRAORDINARY ITEMS (0.19) (0.07) -
---------------- ---------------- -----------------
NET LOSS PER COMMON SHARE ($3.12) ($0.93) ($0.80)
================ ================ =================
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 29,923,578 29,654,913 29,620,628
================ ================ =================
</TABLE>
The accompanying note is an integral part of these financial statements.
74
<PAGE>
<TABLE>
<CAPTION>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share data)
YEARS ENDED MARCH 31,
---------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($93,387) ($27,586) ($23,753)
Benefit for deferred taxes (198) (716) (326)
Amortization of original issue discount
on deferred debentures 331 1,450 1,190
Amortization of deferred financing fees 8 21 17
Equity in net loss of subsidiaries 87,167 24,451 22,255
Extraordinary loss related to early
redemption of debt 5,805 2,002 -
Decrease (increase) in income tax receivables 2,299 4,229 (6,434)
Decrease (increase) in receivable from
subsidiary (3,348) (4,400) 6,766
Other 1,433 727 285
-------------- ------------- -------------
Net cash provided by operating
activities 110 178 -
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of treasury stock (110) (178) -
-------------- ------------- -------------
Net cash used in financing activities (110) (178) -
-------------- ------------- -------------
Net increase in cash and cash equivalents - - -
CASH AND CASH EQUIVALENTS, beginning of year - - -
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ - $ - $ -
============== ============= =============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
Fair value of warrants contributed to subsidiary $ - $600 $747
============== ============= =============
</TABLE>
The accompanying note is an integral part of these financial statements.
75
<PAGE>
LEVITZ FURNITURE INCORPORATED
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. These statements should be read in conjunction with LFI's Consolidated
Financial Statements and Notes thereto as described in the index listed in
Item 8.
76
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.50 Amendment No. 3 dated as of February 23, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.51 Amendment No. 4 dated as of February 20, 1998 to the Postpetition
Credit Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.52 Amendment No. 5 dated as of May 14, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.53 Amendment No. 6 dated as of June 23, 1998 to the Postpetition Credit
Agreement among Levitz Furniture Incorporated, et al. and BT
Commercial Corporation, as agent.
10.54 Form of Employment Agreement by and among Levitz Furniture
Corporation and Edward L. Grund dated as of June 1, 1998.
10.55 Form of Employment Agreement between Levitz and certain officers.
21.01 Wholly Owned Subsidiaries of Levitz Furniture Incorporated.
21.02 Wholly Owned Subsidiaries of Levitz Furniture Corporation.
27 Financial Data Schedule.
77
EXHIBIT 10.50
THIRD AMENDMENT TO POSTPETITION CREDIT AGREEMENT
THIS THIRD AMENDMENT, dated as of February 23, 1998 to the POSTPETITION
CREDIT AGREEMENT dated as of September 5, 1997 (the "Credit Agreement"), is
among LEVITZ FURNITURE INCORPORATED, a Delaware corporation and a debtor and
debtor in possession ("LFI"), LEVITZ FURNITURE COMPANY, a Florida corporation
and a debtor in possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation and a debtor and debtor in possession ("LFR"), LEVITZ
SHOPPING SERVICE, INC., a Florida corporation and a debtor and debtor in
possession ("LSS"), LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation and a debtor and debtor in possession ("LFC Midwest"), LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession ("LFC Pacific"), LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC., a Washington corporation and a debtor and debtor in possession
("LFC Washington") LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation and a debtor and debtor in possession ("LFC Midwest
Realty"), LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a California
corporation and a debtor and a debtor in possession ("LFC Pacific Realty"),
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a Washington corporation
and debtor and a debtor in possession ("LFC Washington Realty"), JOHN M. SMYTH
COMPANY, an Illinois corporation and a debtor and debtor in possession ("JMS")
and JOHN M. SMYTH REALTY COMPANY an Illinois corporation and a debtor and debtor
in possession ("JMS Realty") (LFI, LFC, LFR, LSS, LFC Midwest, LFC Pacific, LFC
Washington, LFC Midwest Realty, LFC Pacific Realty, LFC Washington Realty, JMS
and JMS Realty sometimes hereinafter individually called a "Borrower" and
collectively called the "Borrowers"); each Revolving Lender and Term Lender
signatories hereto (collectively the "Lenders"), and BT COMMERCIAL CORPORATION,
a Delaware corporation (in its individual capacity, hereinafter called "BTCC"),
acting in its capacity as agent for the Lenders (in such capacity, together with
its successors in such capacity, hereinafter called the "Agent"). Capitalized
terms used in this Amendment and not otherwise defined have the meanings
assigned such terms in the Credit Agreement.
PRELIMINARY STATEMENTS:
A. The Borrowers and the Lenders are parties to the Credit Agreement.
B. The Borrowers have requested the Lenders and the Agent to amend the
Credit Agreement in certain respects.
C. The Lenders and the Agent have agreed to amend the Credit Agreement
as requested on the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 SECTION 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Permitted Prepetition Claim Payment" in its entirety and
replacing it as follows:
PERMITTED PREPETITION CLAIM PAYMENT means any payment, approved by an
order of the Bankruptcy Court (as adequate protection or otherwise) on account
of any Claim arising or deemed to have arisen prior to the Petition Date in
respect of (i) prepetition real estate taxes not to exceed $1,200,000; (ii)
adequate protection payments under 11 U.S.C. [SS] 361 on prepetition mortgages
not to exceed $2,000,000 on an annual basis based on a calendar year; (iii)
prepetition employee wages, salaries, sick pay, vacation pay (including
1
<PAGE>
"personal days"), holiday pay, and other accrued compensation; (iv) obligations
to reimburse prepetition employee business expenses (including travel, lodging,
moving, and relocation expenses); (v) obligations to make payments for which
employee payroll deductions were made; (vi) obligations to make prepetition
contributions and pay benefits under employee benefit plans; (vii) all costs and
expenses incident to the payments and contributions described in (I) through
(vi) (including payroll-related taxes and processing costs); (vii) obligations
to customers incurred in the ordinary course of business (including honoring
obligations arising from deposits, prepayments, gift certificates, warranties,
refunds, returns, exchanges and other credit balances); (ix) obligations under
the Borrowers' or any Subsidiary's self-insured workers' compensation program;
(x) amounts owed to department lessees and licensees in the ordinary course of
Borrowers' or any Subsidiary's business; (xi) amounts owed to certain
individuals or entities who, although not employees of Borrowers, (I) provide
ongoing vital services to Borrowers on a regular and recurring basis, (II) are
paid for the services they perform for Borrowers directly by Borrowers and not
by any agency (such as an employment agency), and (III) perform services that,
with respect to Borrowers, are performed by employees; (xii) amounts owed to
certain individuals or entities that (I) provide services to Borrowers'
customers on behalf of Borrowers, (II) have direct contact with Borrowers'
customers or take possession of customers' goods or property, (III) the
customers believe are employees of Borrowers, and (IV) are compensated by
Borrowers, who, in turn, receive customer payments for those services; (xiii)
the claims of all contractors that have given or could give rise to mechanics'
or materialmen's liens against property of Borrowers or any Subsidiary, (xiv)
employee withholding taxes, sales, use and excise and other similar trust fund
amounts.
1.2 SECTION 8.4 of the Credit Agreement is hereby amended by (a)
deleting the term "and" in the last line of clause (I); (b) inserting the term
"; and" in the last line of clause (j); and (c) adding a new clause (k) as
follows:
(K) Statutory Liens that may arise in connection with real estate taxes
owed by the Borrowers in an amount not to exceed $1,200,000.
2. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of the
following condition:
The Agent shall have received ten (10) copies of this Amendment, duly
executed by the LFC Funds Administrator, each of the Borrowers, and each of the
Lenders.
3. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Amendment:
(a) all representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Amendment, in each case
as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) no Default or Event or Default has occurred which has not
been waived (or, in the case of an Event of Default, cured) pursuant to
the terms of the Credit Agreement;
(c) this Amendment, and the Credit Agreement as amended
hereby, constitute legal, valid and binding obligations of the LFC
Funds
2
<PAGE>
Administrator and each of the Borrowers and are enforceable
against such Persons in accordance with their respective terms; and
(d) the execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the
consent or approval of any Person other than the Bankruptcy Court,
except such consents and approvals as shall have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the
other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution
and delivery of this Amendment shall in no way affect any of the
respective rights, powers or remedies of the Agent or any of the
Lenders with respect to any Event or Default nor constitute a waiver of
any provision of the Credit Agreement or any of the other Credit
Documents and (ii) all of the terms and conditions of the Credit
Agreement, the other Credit Documents and all other documents,
instruments, amendments and agreements executed and/or delivered by the
Borrowers and/or the LFC Funds Administrator pursuant thereto or in
connection therewith shall remain in full force and effect and are
hereby ratified and confirmed in all respects. The execution and
delivery of this Amendment by the Agent and each of the Lenders shall
in no way obligate the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term
or provision of the Credit Agreement or any of the other Credit
Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT
OF THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS AND DECISIONS OF THE STATE OF NEW YORK.
6. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
7. COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its capacity as LFC Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its individual capacity and in its capacity as LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Treasurer
---------------------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a Florida
corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ SHOPPING SERVICE, INC., a Florida corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
4
<PAGE>
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
5
<PAGE>
AGENT:
BT COMMERCIAL CORPORATION, in its capacity as Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware corporation in
its respective capacities as Revolving Lender and
Collateral Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
CARGILL FINANCIAL SERVICES CORPORATION, in its capacity
as Revolving Lender
By: /s/ PATRICK J. HALLORAN
---------------------------------------------
Name: Patrick J. Halloran
---------------------------------------------
Title: Vice President
---------------------------------------------
FINOVA CAPITAL CORPORATION, in its capacity as
Revolving Lender
By: /s/ BRIAN RUJAWITZ
---------------------------------------------
Name: Brian Rujawitz
---------------------------------------------
Title: Assistant Vice President
---------------------------------------------
HELLER FINANCIAL, INC., in its capacity as Revolving
Lender
By: /s/ SCOTT ZIERKE
---------------------------------------------
Name: Scott Zierke
---------------------------------------------
Title: Relationship Manager
---------------------------------------------
LASALLE NATIONAL BANK, in its capacity as Revolving
Lender
By: /s/ CHRISTOPHER G. CLIFFORD
---------------------------------------------
Name: Christopher G. Clifford
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL), in its
capacity as Revolving Lender
By: /s/ STEVEN LINDERMAN
---------------------------------------------
Name: Steven Linderman
---------------------------------------------
Title: Vice President
---------------------------------------------
6
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION, in its
capacity as Revolving Lender
By: /s/ ROBERT HEINZ
---------------------------------------------
Name: Robert Heinz
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
SILVER OAK CAPITAL L.L.C., in its capacity as Revolving
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION; in its
capacity as Revolving Lender
By: /s/ SCOTT JAMES LORIMER
---------------------------------------------
Name: Scott James Lorimer
---------------------------------------------
Title: V.P./Sr. Credit Officer
---------------------------------------------
TERM LENDER:
SILVER OAK CAPITAL L.L.C., in its capacity as Term
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
7
EXHIBIT 10.51
FOURTH AMENDMENT TO POSTPETITION CREDIT AGREEMENT
THIS FOURTH AMENDMENT, dated as of February 20, 1998 to the
POSTPETITION CREDIT AGREEMENT dated as of September 5, 1997 (the "Credit
Agreement"), is among LEVITZ FURNITURE INCORPORATED, a Delaware corporation and
a debtor and debtor in possession ("LFI"), LEVITZ FURNITURE COMPANY, a Florida
corporation and a debtor in possession ("LFC"), LEVITZ FURNITURE REALTY
CORPORATION, a Florida corporation and a debtor and debtor in possession
("LFR"), LEVITZ SHOPPING SERVICE, INC., a Florida corporation and a debtor and
debtor in possession ("LSS"), LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a
Colorado corporation and a debtor and debtor in possession ("LFC Midwest"),
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a
debtor and debtor in possession ("LFC Pacific"), LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC., a Washington corporation and a debtor and debtor in possession
("LFC Washington") LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation and a debtor and debtor in possession ("LFC Midwest
Realty"), LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a California
corporation and a debtor and a debtor in possession ("LFC Pacific Realty"),
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a Washington corporation
and debtor and a debtor in possession ("LFC Washington Realty"), JOHN M. SMYTH
COMPANY, an Illinois corporation and a debtor and debtor in possession ("JMS")
and JOHN M. SMYTH REALTY COMPANY an Illinois corporation and a debtor and debtor
in possession ("JMS Realty") (LFI, LFC, LFR, LSS, LFC Midwest, LFC Pacific, LFC
Washington, LFC Midwest Realty, LFC Pacific Realty, LFC Washington Realty, JMS
and JMS Realty sometimes hereinafter individually called a "Borrower" and
collectively called the "Borrowers"); each Revolving Lender and Term Lender
signatories hereto (collectively the "Lenders"), and BT COMMERCIAL CORPORATION,
a Delaware corporation (in its individual capacity, hereinafter called "BTCC"),
acting in its capacity as agent for the Lenders (in such capacity, together with
its successors in such capacity, hereinafter called the "Agent"). Capitalized
terms used in this Amendment and not otherwise defined have the meanings
assigned such terms in the Credit Agreement.
PRELIMINARY STATEMENTS:
A. The Borrowers and the Lenders are parties to the Credit Agreement.
B. The Borrowers have requested the Lenders and the Agent to amend the
Credit Agreement in certain respects.
C. The Lenders and the Agent have agreed to amend the Credit Agreement
as requested on the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 SECTION 8.1 of the Credit Agreement is hereby amended by
adding the following language:
At the end of each period beginning on April 1, 1998, and ending on the
last day of each month set forth below, EBITDA for such period shall be an
amount not less than the following:
PERIOD FROM APRIL 1998
TO END OF AMOUNT
--------- ------
June 1998 $ 3,344,000
September 1998 12,349,000
December 1998 24,049,000
March 1999 32,608,000
1
<PAGE>
1.2 SECTION 8.2 of the Credit Agreement is hereby amended by
adding the following language:
The Borrowers shall not make payments for Capital Expenditures in the
aggregate for all Borrowers in excess of $25,000,000 during the period from
April 1, 1998 to and including March 31, 1999.
2. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of the
following condition:
The Agent shall have received ten (10) copies of this
Amendment, duly executed by the LFC Funds Administrator, each of the Borrowers,
and each of the Lenders.
3. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Amendment:
(a) all representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Amendment, in each case
as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) no Default or Event or Default has occurred which has not
been waived (or, in the case of an Event of Default, cured) pursuant to
the terms of the Credit Agreement;
(c) this Amendment, and the Credit Agreement as amended
hereby, constitute legal, valid and binding obligations of the LFC
Funds Administrator and each of the Borrowers and are enforceable
against such Persons in accordance with their respective terms; and
(d) the execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the
consent or approval of any Person other than the Bankruptcy Court,
except such consents and approvals as shall have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the
other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution
and delivery of this Amendment shall in no way affect any of the
respective rights, powers or remedies of the Agent or any of the
Lenders with respect to any Event or Default nor constitute a waiver of
any provision of the Credit Agreement or any of the other Credit
Documents and (ii) all of the terms and conditions of the Credit
Agreement, the other Credit Documents and all other documents,
instruments, amendments and agreements executed and/or delivered by the
Borrowers and/or the LFC Funds Administrator pursuant thereto or in
connection therewith shall remain in full force and effect and are
hereby ratified and confirmed in all respects. The execution and
delivery of this Amendment by the Agent
2
<PAGE>
and each of the Lenders shall in no way obligate the Agent or any of
the Lenders at any time hereafter to consent to any other amendment or
modification of any term or provision of the Credit Agreement or any of
the other Credit Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its capacity as LFC Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its individual capacity and in its capacity as LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Treasurer
---------------------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a Florida
corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ SHOPPING SERVICE, INC., a Florida corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
4
<PAGE>
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
5
<PAGE>
AGENT:
BT COMMERCIAL CORPORATION, in its capacity as Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware corporation in
its respective capacities as Revolving Lender and
Collateral Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
CARGILL FINANCIAL SERVICES CORPORATION, in its capacity
as Revolving Lender
By: /s/ PATRICK J. HALLORAN
---------------------------------------------
Name: Patrick J. Halloran
---------------------------------------------
Title: Vice President
---------------------------------------------
FINOVA CAPITAL CORPORATION, in its capacity as
Revolving Lender
By: /s/ BRIAN RUJAWITZ
---------------------------------------------
Name: Brian Rujawitz
---------------------------------------------
Title: Assistant Vice President
---------------------------------------------
HELLER FINANCIAL, INC., in its capacity as Revolving
Lender
By: /s/ SCOTT ZIERKE
---------------------------------------------
Name: Scott Zierke
---------------------------------------------
Title: Relationship Manager
---------------------------------------------
LASALLE NATIONAL BANK, in its capacity as Revolving
Lender
By: /s/ CHRISTOPHER G. CLIFFORD
---------------------------------------------
Name: Christopher G. Clifford
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL), in its
capacity as Revolving Lender
By: /s/ STEVEN LINDERMAN
---------------------------------------------
Name: Steven Linderman
---------------------------------------------
Title: Vice President
---------------------------------------------
6
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION, in its
capacity as Revolving Lender
By: /s/ ROBERT HEINZ
---------------------------------------------
Name: Robert Heinz
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
SILVER OAK CAPITAL L.L.C., in its capacity as Revolving
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION; in its
capacity as Revolving Lender
By: /s/ SCOTT JAMES LORIMER
---------------------------------------------
Name: Scott James Lorimer
---------------------------------------------
Title: V.P./Sr. Credit Officer
---------------------------------------------
TERM LENDER:
SILVER OAK CAPITAL L.L.C., in its capacity as Term
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
7
EXHIBIT 10.52
FIFTH AMENDMENT TO POSTPETITION CREDIT AGREEMENT
THIS FIFTH AMENDMENT, dated as of May 14, 1998 to the POSTPETITION
CREDIT AGREEMENT dated as of September 5, 1997 (the "Credit Agreement"), is
among LEVITZ FURNITURE INCORPORATED, a Delaware corporation and a debtor and
debtor in possession ("LFI"), LEVITZ FURNITURE COMPANY, a Florida corporation
and a debtor in possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation and a debtor and debtor in possession ("LFR"), LEVITZ
SHOPPING SERVICE, INC., a Florida corporation and a debtor and debtor in
possession ("LSS"), LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation and a debtor and debtor in possession ("LFC Midwest"), LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession ("LFC Pacific"), LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC., a Washington corporation and a debtor and debtor in possession
("LFC Washington") LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation and a debtor and debtor in possession ("LFC Midwest
Realty"), LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a California
corporation and a debtor and a debtor in possession ("LFC Pacific Realty"),
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a Washington corporation
and debtor and a debtor in possession ("LFC Washington Realty"), JOHN M. SMYTH
COMPANY, an Illinois corporation and a debtor and debtor in possession ("JMS")
and JOHN M. SMYTH REALTY COMPANY an Illinois corporation and a debtor and debtor
in possession ("JMS Realty") (LFI, LFC, LFR, LSS, LFC Midwest, LFC Pacific, LFC
Washington, LFC Midwest Realty, LFC Pacific Realty, LFC Washington Realty, JMS
and JMS Realty sometimes hereinafter individually called a "Borrower" and
collectively called the "Borrowers"); each Revolving Lender and Term Lender
signatories hereto (collectively the "Lenders"), and BT COMMERCIAL CORPORATION,
a Delaware corporation (in its individual capacity, hereinafter called "BTCC"),
acting in its capacity as agent for the Lenders (in such capacity, together with
its successors in such capacity, hereinafter called the "Agent"). Capitalized
terms used in this Amendment and not otherwise defined have the meanings
assigned such terms in the Credit Agreement.
PRELIMINARY STATEMENTS:
A. The Borrowers and the Lenders are parties to the Credit Agreement.
B. The Borrowers have requested the Lenders and the Agent to amend the
Credit Agreement in certain respects.
C. The Lenders and the Agent have agreed to amend the Credit Agreement
as requested on the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 SECTION 1.1 of the Credit Agreement is hereby amended by
adding the following language immediately before the parenthetical appearing in
clause (c) of the definition of "EBITDA":
", excluding non-cash charges consisting of a writedown of inventory in
the amount of $6,124,000 in the fiscal quarter ending March 31, 1998."
2. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of the
following condition:
1
<PAGE>
The Agent shall have received ten (10) copies of this
Amendment, duly executed by the LFC Funds Administrator, each of the Borrowers,
and each of the Lenders.
3. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Amendment:
(a) all representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Amendment, in each case
as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) no Default or Event or Default has occurred which has not
been waived (or, in the case of an Event of Default, cured) pursuant to
the terms of the Credit Agreement;
(c) this Amendment, and the Credit Agreement as amended
hereby, constitute legal, valid and binding obligations of the LFC
Funds Administrator and each of the Borrowers and are enforceable
against such Persons in accordance with their respective terms; and
(d) the execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the
consent or approval of any Person other than the Bankruptcy Court,
except such consents and approvals as shall have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the
other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution
and delivery of this Amendment shall in no way affect any of the
respective rights, powers or remedies of the Agent or any of the
Lenders with respect to any Event or Default nor constitute a waiver of
any provision of the Credit Agreement or any of the other Credit
Documents and (ii) all of the terms and conditions of the Credit
Agreement, the other Credit Documents and all other documents,
instruments, amendments and agreements executed and/or delivered by the
Borrowers and/or the LFC Funds Administrator pursuant thereto or in
connection therewith shall remain in full force and effect and are
hereby ratified and confirmed in all respects. The execution and
delivery of this Amendment by the Agent and each of the Lenders shall
in no way obligate the Agent or any of the Lenders at any time
hereafter to consent to any other amendment or modification of any term
or provision of the Credit Agreement or any of the other Credit
Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
2
<PAGE>
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its capacity as LFC Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its individual capacity and in its capacity as LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Treasurer
---------------------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a Florida
corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ SHOPPING SERVICE, INC., a Florida corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
4
<PAGE>
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
5
<PAGE>
AGENT:
BT COMMERCIAL CORPORATION, in its capacity as Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware corporation in
its respective capacities as Revolving Lender and
Collateral Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
CARGILL FINANCIAL SERVICES CORPORATION, in its capacity
as Revolving Lender
By: /s/ PATRICK J. HALLORAN
---------------------------------------------
Name: Patrick J. Halloran
---------------------------------------------
Title: Vice President
---------------------------------------------
FINOVA CAPITAL CORPORATION, in its capacity as
Revolving Lender
By: /s/ BRIAN RUJAWITZ
---------------------------------------------
Name: Brian Rujawitz
---------------------------------------------
Title: Assistant Vice President
---------------------------------------------
HELLER FINANCIAL, INC., in its capacity as Revolving
Lender
By: /s/ SCOTT ZIERKE
---------------------------------------------
Name: Scott Zierke
---------------------------------------------
Title: Relationship Manager
---------------------------------------------
LASALLE NATIONAL BANK, in its capacity as Revolving
Lender
By: /s/ CHRISTOPHER G. CLIFFORD
---------------------------------------------
Name: Christopher G. Clifford
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL), in its
capacity as Revolving Lender
By: /s/ STEVEN LINDERMAN
---------------------------------------------
Name: Steven Linderman
---------------------------------------------
Title: Vice President
---------------------------------------------
6
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION, in its
capacity as Revolving Lender
By: /s/ ROBERT HEINZ
---------------------------------------------
Name: Robert Heinz
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
SILVER OAK CAPITAL L.L.C., in its capacity as Revolving
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION; in its
capacity as Revolving Lender
By: /s/ SCOTT JAMES LORIMER
---------------------------------------------
Name: Scott James Lorimer
---------------------------------------------
Title: V.P./Sr. Credit Officer
---------------------------------------------
TERM LENDER:
SILVER OAK CAPITAL L.L.C., in its capacity as Term
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
7
EXHIBIT 10.53
SIXTH AMENDMENT TO POSTPETITION CREDIT AGREEMENT
THIS SIXTH AMENDMENT, dated as of June 23, 1998 to the POSTPETITION
CREDIT AGREEMENT dated as of September 5, 1997 (the "Credit Agreement"), is
among LEVITZ FURNITURE INCORPORATED, a Delaware corporation and a debtor and
debtor in possession ("LFI"), LEVITZ FURNITURE COMPANY, a Florida corporation
and a debtor in possession ("LFC"), LEVITZ FURNITURE REALTY CORPORATION, a
Florida corporation and a debtor and debtor in possession ("LFR"), LEVITZ
SHOPPING SERVICE, INC., a Florida corporation and a debtor and debtor in
possession ("LSS"), LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a Colorado
corporation and a debtor and debtor in possession ("LFC Midwest"), LEVITZ
FURNITURE COMPANY OF THE PACIFIC, INC., a California corporation and a debtor
and debtor in possession ("LFC Pacific"), LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC., a Washington corporation and a debtor and debtor in possession
("LFC Washington") LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation and a debtor and debtor in possession ("LFC Midwest
Realty"), LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a California
corporation and a debtor and a debtor in possession ("LFC Pacific Realty"),
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a Washington corporation
and debtor and a debtor in possession ("LFC Washington Realty"), JOHN M. SMYTH
COMPANY, an Illinois corporation and a debtor and debtor in possession ("JMS")
and JOHN M. SMYTH REALTY COMPANY an Illinois corporation and a debtor and debtor
in possession ("JMS Realty") (LFI, LFC, LFR, LSS, LFC Midwest, LFC Pacific, LFC
Washington, LFC Midwest Realty, LFC Pacific Realty, LFC Washington Realty, JMS
and JMS Realty sometimes hereinafter individually called a "Borrower" and
collectively called the "Borrowers"); each Revolving Lender and Term Lender
signatories hereto (collectively the "Lenders"), and BT COMMERCIAL CORPORATION,
a Delaware corporation (in its individual capacity, hereinafter called "BTCC"),
acting in its capacity as agent for the Lenders (in such capacity, together with
its successors in such capacity, hereinafter called the "Agent"). Capitalized
terms used in this Amendment and not otherwise defined have the meanings
assigned such terms in the Credit Agreement.
PRELIMINARY STATEMENTS:
A. The Borrowers and the Lenders are parties to the Credit Agreement.
B. The Borrowers have requested the Lenders and the Agent to amend the
Credit Agreement in certain respects.
C. The Lenders and the Agent have agreed to amend the Credit Agreement
as requested on the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment, the Borrowers, the Lenders and the Agent
hereby agree as follows:
1. AMENDMENTS TO CREDIT AGREEMENT.
1.1 SECTION 8.1 of the Credit Agreement is hereby amended by
deleting such section in its entirety and replacing it as follows:
8.1 MINIMUM EBITDA. At the end of each period beginning on
April 1, 1998, and ending on the last day of each month set forth below, EBITDA
for such period shall be an amount not less than the following:
PERIOD FROM APRIL
1998 TO END OF AMOUNT
--------------------- -------------------
June 1998 $(3,209,000)
September 1998 1,102,000
December 1999 12,473,000
March 1999 21,062,000
1
<PAGE>
2. CONDITIONS PRECEDENT.
This Amendment shall become effective upon satisfaction of the
following condition:
2.1 The Agent shall have received ten (10) copies of this
Amendment, duly executed by the LFC Funds Administrator, each of the Borrowers,
and each of the Lenders.
2.2 The Agent shall have received an amendment fee in the
amount of $100,000 from the Borrowers payable to the Agent for the benefit of
the Lenders.
3. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers hereby represents and warrants to each of the
Agents and Lenders that, after giving effect to this Amendment:
(a) all representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Amendment, in each case
as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties were true and accurate on and as of such
earlier date);
(b) no Default or Event or Default has occurred which has not
been waived (or, in the case of an Event of Default, cured) pursuant to
the terms of the Credit Agreement;
(c) this Amendment, and the Credit Agreement as amended
hereby, constitute legal, valid and binding obligations of the LFC
Funds Administrator and each of the Borrowers and are enforceable
against such Persons in accordance with their respective terms; and
(d) the execution and delivery by the LFC Funds Administrator
and each of the Borrowers of this Amendment does not require the
consent or approval of any Person other than the Bankruptcy Court,
except such consents and approvals as shall have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
4.1 Upon the effectiveness of this Amendment, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import, and each reference in each of the
other Credit Documents to the "Credit Agreement" shall mean and be a
reference to the Credit Agreement as amended hereby.
4.2 Except as expressly set forth herein, (i) the execution
and delivery of this Amendment shall in no way affect any of the
respective rights, powers or remedies of the Agent or any of the
Lenders with respect to any Event or Default nor constitute a waiver of
any provision of the Credit Agreement or any of the other Credit
Documents and (ii) all of the terms and conditions of the Credit
Agreement, the other Credit Documents and all other documents,
instruments, amendments and agreements executed and/or delivered by the
Borrowers and/or the LFC Funds Administrator pursuant thereto or in
connection therewith shall remain in full force and effect and are
hereby ratified and confirmed in all respects. The execution and
delivery of this Amendment by the Agent and each of the Lenders shall
in no way obligate the Agent or any of the
2
<PAGE>
Lenders at any time hereafter to consent to any other amendment or
modification of any term or provision of the Credit Agreement or any of
the other Credit Documents, whether of a similar or different nature.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS AND
DECISIONS OF THE STATE OF NEW YORK.
6. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
[The remainder of this page is intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
LFC FUNDS ADMINISTRATOR:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its capacity as LFC Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
BORROWERS:
LEVITZ FURNITURE CORPORATION, a Florida corporation, in
its individual capacity and in its capacity as LFC
Funds Administrator
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE INCORPORATED, a Delaware corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Treasurer
---------------------------------------------
LEVITZ FURNITURE REALTY CORPORATION, a Florida
corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ SHOPPING SERVICE, INC., a Florida corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
4
<PAGE>
LEVITZ FURNITURE COMPANY OF THE PACIFIC, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE MIDWEST REALTY, INC., a
Colorado corporation
By: /s/ SHEILA C. REINKEN
--------------------------------------------
Name: Sheila C. Reinken
--------------------------------------------
Title: Vice President
--------------------------------------------
LEVITZ FURNITURE COMPANY OF THE PACIFIC REALTY, INC., a
California corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
LEVITZ FURNITURE COMPANY OF WASHINGTON REALTY, INC., a
Washington corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
JOHN M. SMYTH REALTY COMPANY, an Illinois corporation
By: /s/ SHEILA C. REINKEN
---------------------------------------------
Name: Sheila C. Reinken
---------------------------------------------
Title: Vice President
---------------------------------------------
5
<PAGE>
AGENT:
BT COMMERCIAL CORPORATION, in its capacity as Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
REVOLVING LENDERS:
BT COMMERCIAL CORPORATION, a Delaware corporation in
its respective capacities as Revolving Lender and
Collateral Agent
By: /s/ WAYNE D. HILLOCK
---------------------------------------------
Name: Wayne D. Hillock
---------------------------------------------
Title: Sr. Vice President
---------------------------------------------
CARGILL FINANCIAL SERVICES CORPORATION, in its capacity
as Revolving Lender
By: /s/ PATRICK J. HALLORAN
---------------------------------------------
Name: Patrick J. Halloran
---------------------------------------------
Title: Vice President
---------------------------------------------
FINOVA CAPITAL CORPORATION, in its capacity as
Revolving Lender
By: /s/ BRIAN RUJAWITZ
---------------------------------------------
Name: Brian Rujawitz
---------------------------------------------
Title: Assistant Vice President
---------------------------------------------
HELLER FINANCIAL, INC., in its capacity as Revolving
Lender
By: /s/ SCOTT ZIERKE
---------------------------------------------
Name: Scott Zierke
---------------------------------------------
Title: Relationship Manager
---------------------------------------------
LASALLE NATIONAL BANK, in its capacity as Revolving
Lender
By: /s/ CHRISTOPHER G. CLIFFORD
---------------------------------------------
Name: Christopher G. Clifford
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
CONGRESS FINANCIAL CORPORATION (CENTRAL), in its
capacity as Revolving Lender
By: /s/ STEVEN LINDERMAN
---------------------------------------------
Name: Steven Linderman
---------------------------------------------
Title: Vice President
---------------------------------------------
6
<PAGE>
TRANSAMERICA BUSINESS CREDIT CORPORATION, in its
capacity as Revolving Lender
By: /s/ ROBERT HEINZ
---------------------------------------------
Name: Robert Heinz
---------------------------------------------
Title: Senior Vice President
---------------------------------------------
SILVER OAK CAPITAL L.L.C., in its capacity as Revolving
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
NATIONSCREDIT COMMERCIAL CORPORATION, THROUGH ITS
NATIONSCREDIT COMMERCIAL FUNDING DIVISION; in its
capacity as Revolving Lender
By: /s/ SCOTT JAMES LORIMER
---------------------------------------------
Name: Scott James Lorimer
---------------------------------------------
Title: V.P./Sr. Credit Officer
---------------------------------------------
TERM LENDER:
SILVER OAK CAPITAL L.L.C., in its capacity as Term
Lender
By: /s/ JEFFREY H. ARONSON
---------------------------------------------
Name: Jeffrey H. Aronson
---------------------------------------------
Title: Authorized Signatory
---------------------------------------------
7
EXHIBIT 10.54
EMPLOYMENT AGREEMENT
AGREEMENT, dated June 1, 1998 and effective as of June 1, 1998, by and
between Edward L. Grund ("Executive") and Levitz Furniture Incorporated ("LFI"),
a Delaware corporation, Levitz Furniture Corporation ("LFC"), a Florida
corporation, Levitz Furniture Realty Corporation ("LFC Realty"), a Florida
corporation, Levitz Shopping Service, Inc. ("LSS"), a Florida corporation,
Levitz Furniture Company of the Midwest Inc. ("LFC Midwest"), a Colorado
corporation, Levitz Furniture of the Pacific, Inc. ("LFC Pacific"), a California
corporation, Levitz Furniture Company of Washington, Inc. ("LFC Washington"), a
Washington corporation, Levitz Furniture Company of the Midwest Realty, Inc.
("LFC Midwest Realty"), a Colorado corporation, Levitz Furniture Company of the
Pacific Realty, Inc. ("LFC Pacific Realty"), a California corporation, Levitz
Furniture Company of Washington Realty, Inc., ("LFC Washington Realty"), a
Washington corporation, John M. Smyth Company ("JMS Co."), an Illinois
corporation, and John M. Smyth Realty Company ("JMS Realty"), an Illinois
corporation (together, the "Company").
WHEREAS, Executive is currently serving as President -- Store
Operations; and
WHEREAS, in light of the commencement of the Chapter 11 Case (as
defined below) on September 5, 1997, the Company desires to enter into the
Agreement as set forth herein; and
WHEREAS, the Company desires to continue to employ Executive and
Executive desires to continue to furnish services to the Company on the terms
and conditions hereinafter set forth; and
WHEREAS, the parties desire to enter into this agreement (the
"Agreement") setting forth the terms and conditions of Executive's continuing
employment relationship with the Company; and
WHEREAS, this Agreement is authorized and entered into by the parties
pursuant to that certain Order Under 11 U.S.C. Section (b) (1) Authorizing The
Debtors To Execute Employment Agreement with Edward L. Grund As Their President
- -- Store Operations, dated June __, 1998, by the Honorable Joseph J. Farnan, Jr.
in the jointly administered Chapter 11 cases styled IN RE LEVITZ FURNITURE
INCORPORATED, ET AL., Case No. 97-1842 (JJF) (Bankr. Dist. Delaware) (together,
the "Chapter 11 Case").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ
Executive, and Executive hereby accepts such continued employment, on the terms
and conditions hereinafter set forth.
2. TERM. The period of employment of Executive by the Company hereunder
(the "Employment Period") shall commence on June 1, 1998 (the "Effective Date")
and shall end on November 1, 1999, unless further extended as provided in this
Section 2 or sooner terminated in the event that Executive's employment is
terminated without breach of this Agreement as provided in Section 7. On
November 1, 1999 the term of Executive's employment shall be automatically
extended for one (1) additional year unless, at least thirty (30) days prior to
such 1st day of November (the "Renewal Date"), the Company shall have delivered
to Executive or Executive shall have delivered to the Company written notice
that the term of Executive's employment hereunder will not be extended.
3. POSITION AND DUTIES. During the Employment Period, Executive shall
serve as President -- Store Operations or, prior to a Change in Control, in such
similar position as the Chief Executive Officer of the Company may
1
<PAGE>
determine. Executive shall have such responsibilities and authority as may from
time to time be assigned to Executive by the Chief Executive Officer of the
Company, provided that such responsibilities and authority are consistent with
Executive's position with the Company. Executive agrees to devote substantially
all his working time and use his best efforts in the performance of his duties
for the Company.
4. PLACE OF PERFORMANCE. In connection with Executive's employment by
the Company, Executive shall be based at the principal executive offices of the
Company in Boca Raton, Florida, or such other location to which Executive has
consented, except for required travel on the Company's business to an extent
substantially consistent with normal business travel obligations.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. As compensation for the performance by
Executive of his obligations hereunder, during the Employment Period, the
Company shall pay Executive an annual base salary at a rate not less than three
hundred twenty-five thousand dollars ($325,000.00) per year ("Base Salary").
Base Salary shall be paid in approximately equal installments in accordance with
the Company's customary payroll practices. Base Salary may be increased from
time to time in accordance with the normal business practices of the Company
and, if so increased, shall not thereafter during the Employment Period be
decreased.
(b) SIGNING BONUS. On execution of this Agreement, the Company
shall pay Executive a signing bonus of one hundred thousand dollars
($100,000.00).
(c) ANNUAL BONUSES. During the Employment Period, Executive
shall be eligible to receive such annual bonus (the "Annual Bonus") as may be
provided pursuant to the terms of the applicable incentive plans of the Company,
as such plans may from time to time be revised prior to a Change in Control of
the Company. The Annual Bonus shall be paid in accordance with the terms of such
plans; provided, however, that Executive's Annual Bonus under the first year of
this Agreement shall not be less than one hundred thousand dollars
($100,000.00).
(d) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses incurred during the Employment Period by
Executive in performing services hereunder, including all expenses of travel and
living expenses while away from home on business or at the request of and in the
service of the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company.
(e) OTHER BENEFITS. Executive shall be entitled to participate
in all of the employee benefit plans and arrangements in effect, on the
Effective Date and shall be entitled to participate in or receive benefits under
any employee benefit plan or arrangement made available by the Company in the
future to its executives and key management employees (including without
limitation each incentive plan, pension and retirement plan and arrangement,
supplemental pension and retirement plan and arrangement, stock option plan,
life insurance and health-and-accident plan and arrangement, medical insurance
plan, disability plan, survivor income plan, relocation plan and vacation plan),
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to Executive under
any plan or arrangement presently in effect or made available in the future
shall be deemed to be in lieu of the salary payable to Executive pursuant to
subsection (a) of this Section 5.
(f) VACATION. As of the Effective Date, Executive shall have a
vested right to fifteen (15) vacation days. Executive shall accrue the right to
a minimum of fifteen (15) additional vacation days in each subsequent year of
employment in accordance with the Company's vacation plan as may be amended
2
<PAGE>
from time to time. Executive's right to receive compensation in respect of
earned but unused vacation days shall be determined in accordance with the
Company's vacation plan as may be amended from time to time. In addition to any
vacation days specified in this Section 5(f), Executive shall be entitled to all
paid holidays given by the Company to its executives.
(g) SERVICES FURNISHED. During the Employment Period, the
Company shall furnish Executive with office space, stenographic assistance and
such other facilities and services, including a company car, as shall be
suitable to Executive's position and adequate for the performance of his duties
as set forth in Section 3 hereof.
6. OFFICES. Subject to Sections 3 and 4 hereof, Executive agrees to
serve without additional compensation, if elected or appointed thereto, as a
director of the Company, including LFI, LFC and any of its subsidiaries, and as
a member of any committees of the board of directors of any such corporations,
and in one or more executive positions of the Company, provided that Executive
is indemnified for serving in any and all such capacities on a basis no less
favorable than is currently provided to any other director of the Company, or
any such executive position, as the case may be.
7. TERMINATION. Executive's employment hereunder may be terminated
without any breach of this Agreement only under the circumstances set forth in
the following subsections (a), (b), (c) and (d):
(a) DEATH. Executive's employment hereunder shall terminate
upon his death.
(b) DISABILITY. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from the
full-time performance of his duties hereunder for 180 days during any 12-month
period, and within thirty (30) days after written Notice of Termination (as
defined in Section 8 hereof) is given shall not have returned to the performance
of his duties hereunder on a full-time basis, the Company may terminate
Executive's employment hereunder for "Disability." Should there be a dispute as
to whether Executive is disabled, Executive shall be examined by a
Company-designated physician at the Company's expense. If Executive's physician
disagrees with the conclusion of the physician designated by the Company, then
the Company's physician and Executive's physician shall select a third physician
whose findings shall be conclusive.
(c) CAUSE. The Company may terminate Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon the occurrence of any
of the following events:
(i) the commission by Executive of a felony that
brings material disrepute to the Company; or
(ii) the continuing failure by Executive to
substantially perform his duties hereunder (other than such
failure resulting from Executive's incapacity due to physical
or mental illness or subsequent to the issuance of a Notice of
Termination by Executive for Good Reason) after demand for
substantial performance is delivered by the Company in writing
that specifically identifies the manner in which the Company
believes Executive has not substantially performed his duties;
or
(iii) misconduct by Executive (including, but not
limited to, breach by Executive of the provisions of Section
11 hereof) that is demonstrably and materially injurious to
the Company or its subsidiaries, whether monetarily or
otherwise.
3
<PAGE>
Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds (2/3) of the entire membership of the LFI Board of Directors (the
"LFI Board") at a meeting of the LFI Board called and held for such purpose
(after reasonable notice to Executive and an opportunity for Executive, together
with his counsel, to be heard before the LFI Board), finding that in the good
faith opinion of the LFI Board, Executive was engaged in the conduct set forth
in this Section 7(c) and specifying the particulars thereof in detail.
(d) GOOD REASON. Executive may terminate his employment during
the Employment Period hereunder for "Good Reason" after the occurrence, without
the written consent of Executive, of an event constituting a material breach of
this Agreement by the Company that has not been fully cured within ten (10) days
after written notice thereof has been given by Executive to the Company,
provided that, without limiting the generality of the foregoing, within 18
months after a Change in Control, any one of the following events shall be
deemed a material breach of this Agreement:
(i) the assignment to Executive of any duties
materially inconsistent with Executive's status as an
executive officer of the Company or a substantial adverse
alteration in the nature of Executive's responsibilities from
those in effect immediately prior to the Change in Control;
(ii) a reduction by the Company in Executive's Base
Salary as in effect immediately prior to the Change in
Control;
(iii) the relocation of Executive's principal place
of employment to a location more than forty (40) miles from
the place of such employment immediately prior to the Change
in Control;
(iv) the failure by the Company to pay to Executive
any portion of Executive's current compensation or to pay to
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company within fifteen (15) days of the date such compensation
is due;
(v) the failure by the Company to provide Executive
with compensation plans which, in the aggregate, provide
Executive with substantially comparable compensation
opportunities to those compensation opportunities for which
Executive was eligible immediately prior to the Change in
Control;
(vi) the failure by the Company to continue to
provide Executive with benefits substantially similar in the
aggregate to those enjoyed by Executive under the Company's
pension, life insurance, medical, health and accident, or
disability plans in which Executive was participating at the
time of the Change in Control, the taking of any action by the
Company which would directly or indirectly materially reduce
such benefits in the aggregate or deprive Executive of fringe
benefits substantially similar in the aggregate to those
enjoyed by Executive at the time of the Change in Control, or
the failure by the Company to provide Executive with the
number of paid vacation days to which Executive is entitled on
the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the
time of the Change in Control;
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(vii) any purported termination of Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 8(a) or
that does not comply with Section 7(c), if applicable (and for
purposes of this Agreement, no such purported termination
shall be effective); or
(viii) the failure of a successor to the Company to
expressly assume and agree to perform this Agreement pursuant
to Section 13(a) hereof.
Executive's right to terminate his employment hereunder for Good Reason shall
not be affected by his incapacity due to physical or mental illness, provided
that this sentence shall not effect the Company's rights under this Section 7.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
(e) DEFINITION OF CHANGE IN CONTROL. For purposes of this
Agreement, a "Change in Control" of the Company shall mean the occurrence of any
one of the following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than any trustee or other
fiduciary holding securities under an employee benefit plan of
LFC or LFI, or any corporation owned, directly or indirectly,
by the stockholders of LFC or LFI in substantially the same
proportions as their ownership of stock of LFC or LFI, as the
case may be (a "Person"), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of LFC or LFI representing 50% or
more of the combined voting power of the then outstanding
securities of LFC or LFI, as the case may be;
(ii) during any period of two consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the LFC Board of Directors (the "LFC Board") or the
LFI Board, and any new director (other than a director
designated by a Person who has entered into an agreement with
LFC or in Section 7(e) (ii) being met, shall not constitute a
Change in Control under this Section.
8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company or by Executive (other than termination pursuant to
Section 7(a) hereof) shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 14. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean (i)
if Executive's employment is terminated by his death, the date of his death,
(ii) if Executive's employment is terminated pursuant to Section 7(b) above,
thirty (30) days after Notice of Termination (provided that Executive shall not
have returned to the performance of his duties on a full-time basis during such
thirty (30) day period), (iii) if Executive's employment is terminated pursuant
to Section 7(c) above, the date specified in the Notice of Termination, (iv) if
this contract is not renewed by the Renewal Date, the
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date 30 days after the Renewal Date, and (v) if Executive's employment is
terminated for any other reason, the date on which a Notice of Termination is
given or any later date (within 30 days) set forth in such Notice of
Termination; PROVIDED, HOWEVER, that, if within thirty (30) days after any
Notice of Termination is given the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) (a "Final Order"); provided FURTHER, HOWEVER, that
the Date of Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(c) COMPENSATION DURING DISPUTE. If a purported termination
occurs on or after a Change in Control and during the Employment Period, and
such termination is disputed in accordance with subsection (b) of this Section 8
hereof, the Company shall continue to pay Executive the full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue Executive as a participant in all compensation,
benefit and insurance plans in which Executive was participating when the notice
giving rise to the dispute was given, until the Date of Termination, determined
in accordance with subsection (b) of this Section 8. Amounts paid under this
Section 8(c) shall be offset against or reduce any other amounts due under this
Agreement. In addition, Executive shall repay any amounts paid under this
Section 8(c) if it is determined by a Final Order that such Employee was
properly terminated for Cause.
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DISABILITY; DEATH. During any period that Executive fails
to perform his duties hereunder as a result of incapacity due to physical or
mental illness ("Disability Period"), Executive shall continue to receive his
full Base Salary at the rate in effect at the beginning of such period, less all
compensation payable to Executive under any Company-funded disability plan, if
any, as in effect during such period, until his employment is terminated
pursuant to Section 7(b). Subsequent to the termination of Executive's
employment pursuant to Section 7(b), or in the event Executive's employment is
terminated by reason of his death, the Company shall have no further obligations
to Executive under this Agreement and Executive's benefits shall be determined
under the Company's retirement, insurance and other compensation programs then
in effect in accordance with the terms of such programs.
(b) BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON.
If during the Employment Period Executive's employment is terminated by the
Company other than for Cause or Disability or by Executive for Good Reason, or
if this contract is not renewed by the Renewal Date, then --
(i) in addition to any amounts due Executive pursuant
to Sections 5(a) or 5(b) hereof, the Company shall pay
Executive (or his legal representatives or estate) an amount,
in cash, equal to one and one-half (1-1/2) times his Base
Salary as in effect on the Date of Termination in equal
monthly installments over an eighteen (18) month period;
provided, however, that after nine (9) months after the Date
of Termination, Executive shall make reasonable efforts to
seek other employment; provided, further, however, that
Executive will not be required to accept a position of
substantially different character than the highest position
held by such Executive with the Company or a position that
would cause such Executive to violate Section 11(b) hereof,
nor will Executive be required to accept a position in a
location that is unreasonable given the personal
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circumstances of Executive. To the extent that Executive shall
receive compensation and benefits from such other employment,
whether as an employee, consultant, independent contractor,
owner or otherwise, (together, "Other Employment") the
payments to be made and the benefits provided by the Company
under this Section 9(b) (i) for the period beginning nine (9)
months after termination of employment hereof shall be
correspondingly reduced. Notwithstanding the foregoing, if on
or after a Change in Control, a termination of the type
referred to in this section 9(b) occurs, or if this contract
is not renewed for an additional period of at least 18 months
at least 30 days prior to the expiration of the original or
extended term of this contract, as applicable, then the
Company shall pay to Executive a lump sum amount, in cash,
equal to one and one-half (1-1/2) times the sum of Base Salary
(at the rate in effect immediately prior to the occurrence of
the circumstance giving rise to the Notice of Termination) and
such amount shall not be reduced by any amounts Executive
shall receive from Other Employment; and provided further
(ii) the Company shall maintain in full force and
effect, for the continued benefit of Executive and his
dependents for the remainder of the Employment Period, all
employee welfare benefit plans and programs in which Executive
was entitled to participate immediately prior to the Date of
Termination, provided that Executive's continued participation
is possible under the general terms and provisions of such
plans and programs. In the event that Executive's
participation in any such plan or program is barred, the
Company shall arrange to provide Executive and his dependents
with benefits substantially similar to those which Executive
and his dependents would otherwise have been entitled to
receive under such plans and programs from which their
continued participation is barred. This paragraph is qualified
by Section 10.
(iii) in determining the retirement benefits to which
Executive is entitled under the Company's Supplemental
Executive Retirement Plan (the "SERP"), Executive shall be
deemed to have accumulated (after the Date of Termination)
thirty-six (36) additional months of service credit thereunder
at Executive's highest annual rate of compensation during the
twelve (12) months immediately preceding the Date of
Termination ("Additional Service Credit"). Executive shall be
entitled to commence receipt of his benefit under this
paragraph (iii) on the first day of the month following the
expiration of the Employment Period; PROVIDED, HOWEVER, that
if Executive elects to commence payments of such benefit prior
to his attainment of age 55, his annual benefit (as increased
hereunder) shall be reduced by 3% for each year that his
actual age is less than 55 years. Notwithstanding the
foregoing, if Executive's termination occurs on or after a
Change in Control, the Company shall pay Executive, in lieu of
the additional periodic payments described herein above, a
lump sum amount, in cash, equal to the actuarial equivalent of
the excess of (i) the retirement pension (determined as a
straight life annuity commencing at Normal Retirement Age) to
which Executive would be entitled under the terms of the SERP
(without regard to any amendment to the SERP made subsequent
to a Change in Control and on or prior to the Date of
Termination, which amendment adversely affects in any manner
with computation of retirement benefits thereunder), taking
into account Executive's Additional Service Credit over (ii)
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the retirement pension (determined as a straight life annuity
commencing at Normal Retirement Age) to which Executive would
be entitled pursuant to the provisions of the SERP. For
purposes of this Section 9(b) (iii), "actuarial equivalent"
shall be determined using the Pension Benefit Guaranty
Corporation rates for immediate annuities for the month in
which the Date of Termination occurs.
Notwithstanding the foregoing, by entering into the
Agreement, the Company is not assuming any Executive's SERP,
nor granting any rights to administrative priority to any
employee with respect to his or her SERP, which rights shall
be unaffected by the execution of such Agreement, and
Executive so acknowledges and agrees. Without limiting the
foregoing, the Company reserves the right to seek assumption
of the SERP, and/or administrative priority for or allowance
of the claims arising under the SERP. Similarly, Executive
reserves the right to move for assumption of the SERP, or seek
administrative priority and/or allowance of the claims arising
thereunder. In addition, the official Creditors' Committee
reserves the right to oppose assumption of the SERP, seek
rejection or termination of the SERP, and/or oppose the amount
of priority of any claims arising under the SERP.
(c) BY COMPANY FOR CAUSE OR BY EXECUTIVE OTHER THAN FOR GOOD
REASON. If Executive's employment shall be terminated by the Company for Cause
or by Executive other than for Good Reason, then the Company shall pay Executive
his Base Salary (at the rate in effect at the time Notice of Termination is
given) through the Date of Termination, and the Company shall have no additional
obligations to Executive under this Agreement except as set forth in subsection
(d) of this Section 9.
(d) COMPENSATION PLANS. Following any termination of
Executive's employment, the Company shall pay Executive all unpaid amounts, if
any, to which Executive is entitled as of the Date of Termination under any
compensation plan or program of the Company, at the time such payments are due.
(e) CONTINGENT LIMITATION.
(i) Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received
or to be received by Executive in connection with a Change in
Control or the termination of Executive's employment (whether
pursuant to the terms of this Agreement (the "Severance
Payments") or any other plan, arrangement or agreement with
the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the
Severance Payments, being hereinafter called "Total Payments")
would be subject (in whole or part) to the excise tax ("Excise
Tax") imposed under section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") as determined by the
Company's independent accountant, then the Severance Payments
shall be reduced to the extent necessary so that no portion of
the Total Payments is subject to the Excise Tax (after taking
into account any reduction in the Total Payments provided by
reason of section 280G of the Code in such other plan,
arrangement or agreement); PROVIDED, HOWEVER, that such
reduction shall be made only if (A) the net amount of such
Total Payments, as so reduced (and after deduction of the net
amount of federal, state and local income tax on such reduced
Total Payments), is greater than (B) the net amount of such
Total Payments, without
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<PAGE>
reduction (but after deduction of the net amount of federal,
state and local income tax and Excise Tax on such Total
Payments).
(ii) For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (A) no portion of the Total
Payments the receipt or enjoyment of which Executive shall
have effectively waived in writing prior to the Date of
Termination shall be taken into account, (B) no portion of the
Total Payments shall be taken into account which in the
opinion of tax counsel selected by the Company does not
constitute a "parachute payment" within the meaning of section
280G(b) (2) of the Code (including by reason of section
280G(b) (4) (A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into
account which constitutes reasonable compensation for services
actually rendered (within the meaning of section 280G(b) (4)
(B) of the Code) in excess of the Base Amount allocable to
such reasonable compensation, and (C) the value of any noncash
benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Company in
accordance with the principles of sections 280G(d) (3) and (4)
of the Code. For purposes of determining the amount of the
deductions for income tax described in clauses (A) and (B) of
paragraph (i) of this Section 9(e), Executive shall be deemed
to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which occurs
the Date of Termination and state and local income taxes at
the highest marginal rate of taxation in the state and
locality of Executive's residence on the Date of Termination,
net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local
taxes.
(iii) Prior to the payment date set fourth in Section
9(f), the Company shall provide Executive with its calculation
of the amounts referred to in this Section 9(e) and such
supporting materials as are reasonably necessary for Executive
to evaluate the Company's calculations. If Executive objects
to the Company's calculations, the Company shall pay to
Executive such portion of the Severance Payments (up to 100%
thereof) as Executive determines is necessary to result in
Executive's receiving the greater of clauses (A) and (B) of
paragraph (i) of this Section 9(e).
(f) TIME OF PAYMENTS. The lump sum payments provided for in
Section 9(b) shall be made not later than the fifth business day following the
Date of Termination, PROVIDED, HOWEVER, that if the amount of such payments, and
the contingent limitation on such payments set forth in Section 9(e) cannot be
finally determined on or before such day, the Company shall pay Executive on
such day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b) (2) (B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth business day after demand by the Company (together with interest at the
rate provided in section 1274(b) (2) (B) of the Code).
10. MITIGATION. Executive shall not be required to mitigate the amount
of any payment provided for Executive by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for
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Executive hereunder be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by Executive to the Company, or otherwise
except as is hereinafter specifically provided in Section 9(b) (i) and this
Section 10. To the extent that Executive, during the relevant period described
in Section 9(b) (ii) hereof, shall receive from a subsequent employer benefits
similar to those to be provided under Section 9(b) (ii), the benefits to be
provided under the provisions of said Section 9(b) (ii) shall be correspondingly
reduced. If the Date of Termination shall occur prior to a Change in Control,
the benefits to be provided under Section 9(b) (i) hereof shall also be reduced
to the extent of any salary to which Executive becomes entitled from any
subsequent employer for the period beginning nine (9) months after the Date of
Termination.
11. CONFIDENTIAL INFORMATION; NONCOMPETITION REQUIREMENT.
(a) CONFIDENTIAL INFORMATION. Executive shall hold in a
fiduciary capacity for the benefit of the Company all trade secrets,
confidential information, and knowledge or data relating to the Company and its
businesses, which shall have been obtained by Executive during Executive's
employment by the Company and which shall not have been or now or hereafter have
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such trade secrets, information,
knowledge or data to anyone other than the Company and those designated by the
Company. Any termination of Executive's employment or of this Agreement shall
have no effect on the continuing operation of this Section 11(a).
(b) NONCOMPETITION REQUIREMENT. During any period that
Executive is performing services hereunder or Executive is entitled to payment
pursuant to Section 9(b) (i), and for a period of one (1) year following a
termination of Executive's employment by the Company for Cause or by Executive
other than for Good Reason, Executive agrees that, without the prior written
consent of the Company, he shall not, directly or indirectly, with or without
pay, either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, manager, investor, lender, advisor,
owner, associate or in any other individual or representative capacity, engage
or participate in any business that is in competition in any manner whatsoever
("Competitive Business") with any of the Company's retail stores unless such
Competitive Business is located more than fifty (50) miles from the site, as of
the Date of Termination, of any such retail store of the Company; PROVIDED,
however, that the noncompetition requirement of this Section 11(b) shall be
limited to six months after the Date of Termination if Executive's employment is
terminated on or after a Change in Control.
(c) INJUNCTIVE RELIEF. In the event of a breach or threatened
breach of this Section 11, Executive agrees that the Company shall be entitled
to injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, Executive acknowledging that damages would be
inadequate and insufficient.
12. INDEMNIFICATION; LEGAL FEES. The Company shall indemnify Executive
to the full extent permitted by law and the by-laws of the Company for all
expenses, costs, liabilities and legal fees which Executive may incur in the
discharge of his duties hereunder, including any legal fees and expenses
incurred by Executive in contesting or disputing any termination of the
Executive's employment or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or proceeding to
the extent attributable to the application of Section 4999 of the Code to any
payment or benefit provided hereunder) other than for any such expenses, costs,
liabilities or legal fees incurred as a result of Executive's bad faith or gross
negligence. In the event that it is determined by a Final Order that Executive's
contest or dispute of his termination was frivolous,
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Executive shall repay all legal fees previously paid by the Company to
Executive's counsel for work done to contest or dispute such termination.
Payments due to Executive under this section shall be made at the later of the
time specified in Section 9(f), or within five (5) days after Executive's
request for payment accompanied with such evidence of fees and expenses incurred
as the Company reasonably may require. Any termination of Executive's employment
or of this Agreement shall have no effect on the continuing operation of this
Section 12.
13. SUCCESSORS; BINDING AGREEMENT.
(a) COMPANY'S SUCCESSORS. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 13 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(b) EXECUTIVE'S SUCCESSORS. This Agreement and all rights of
Executive hereunder shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts would still be payable to him hereunder if he had continued to
live, all such amounts unless otherwise provided herein shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive:
Edward L. Grund
7218 S.W. 102nd Street
Miami, Florida 33156
If to the Company:
Levitz Furniture Corporation
7887 N. Federal Highway
Boca Raton, Florida 33487
Attention: General Counsel
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
15. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and such officer of the Company, as may be
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specifically designated by the LFI Board or its compensation committee. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. This Agreement shall be binding
on all successors to the Company. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida without regard to its conflicts of law principles. All references to
sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for hereunder shall
be paid net of any applicable withholding required under federal, state or local
law. The obligations of the parties under Section 9 shall survive the expiration
of the term of this Agreement. The compensation and benefits payable to
Executive under this Agreement shall be in lieu of any other severance benefits
to which Executive may otherwise be entitled upon his termination of employment
under any severance plan, program, policy or arrangement of the Company.
16. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
LEVITZ FURNITURE INCORPORATED
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE CORPORATION
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE REALTY CORPORATION
By:
----------------------------------
Name:
Title:
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LEVITZ SHOPPING SERVICES, INC.
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF
THE MIDWEST, INC.
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF
THE PACIFIC, INC.
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC.
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF THE
MIDWEST REALTY, INC.
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE OF THE PACIFIC
REALTY, INC.
By:
----------------------------------
Name:
Title:
LEVITZ FURNITURE OF WASHINGTON
REALTY, INC.
By:
----------------------------------
Name:
Title:
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JOHN M. SMYTH COMPANY
By:
----------------------------------
Name:
Title:
JOHN M. SMYTH REALTY COMPANY
By:
----------------------------------
Name:
Title:
EXECUTIVE
-------------------------------------
14
EXHIBIT 10.55
EMPLOYMENT AGREEMENT
AGREEMENT, dated January __, 1998 and effective as of December 15,
1997, by and between ___________ (the "Executive") and Levitz Furniture
Incorporated ("LFI"), a Delaware corporation, Levitz Furniture Corporation
("LFC"), a Florida corporation, Levitz Furniture Realty Corporation ("LFC
Realty"), a Florida corporation, Levitz Shopping Service, Inc. ("LSS"), a
Florida corporation, Levitz Furniture Company of the Midwest Inc. ("LFC
Midwest"), a Colorado corporation, Levitz Furniture of the Pacific, Inc. ("LFC
Pacific"), a California corporation, Levitz Furniture Company of Washington,
Inc. ("LFC Washington"), a Washington corporation, Levitz Furniture Company of
the Midwest Realty, Inc. ("LFC Midwest Realty"), a Colorado corporation, Levitz
Furniture Company of the Pacific Realty, Inc. ("LFC Pacific Realty"), a
California corporation, Levitz Furniture Company of Washington Realty, Inc.,
("LFC Washington Realty"), a Washington corporation, John M. Smyth Company ("JMS
Co."), an Illinois corporation, and John M. Smyth Realty Company ("JMS Realty"),
an Illinois corporation (together, the "Company").
WHEREAS, Executive is currently a party to a separate agreement
concerning certain terms and conditions of employment or termination of
employment; and
WHEREAS, in light of the commencement of the Chapter 11 Case (as
defined below) on September 5, 1997, the Company desires to amend such
agreements as set forth herein; and
WHEREAS, the Company desires to continue to employ Executive and
Executive desires to continue to furnish services to the Company on the terms
and conditions hereinafter set forth; and
WHEREAS, the parties desire to enter into this amended agreement (the
"Agreement") setting forth the terms and conditions of the continuing employment
relationship of Executive with the Company; and
WHEREAS, this Agreement is authorized and entered into by the parties
pursuant to that certain Order Under 11 U.S.C. Section 105, 363 And 365
Authorizing Implementation of Employee Retention Program, entered on or about
December 15, 1997 by the Honorable Joseph J. Farnan, Jr. in the jointly
administered Chapter 11 cases styled IN RE LEVITZ FURNITURE INCORPORATED, ET
AL., Case No. 97-1842 (JJF) (Bankr. Dist. Delaware) (together, the "Chapter 11
Case").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth below, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ
Executive, and Executive hereby accepts such continued employment, on the terms
and conditions hereinafter set forth.
2. TERM. The period of employment of Executive by the Company hereunder
(the "Employment Period") shall commence on December 15, 1997 (the "Effective
Date") and shall end on June 15, 1999, unless further extended as provided in
this Section 2 or sooner terminated in the event that Executive's employment is
terminated without breach of this Agreement as provided in Section 7. On June
15, 1999 the term of Executive's employment shall be automatically extended for
one (1) additional year unless, at least thirty (30) days prior to such 15th day
of June (the "Renewal Date"), the Company shall have delivered to Executive or
Executive shall have delivered to the Company written notice that the term of
Executive's employment hereunder will not be extended.
3. POSITION AND DUTIES. During the Employment Period, Executive shall
serve as ____________ or, prior to a Change in Control, in such similar
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position as the Chief Executive Officer of the Company may determine. Executive
shall have such responsibilities and authority as may from time to time be
assigned to Executive by the Chief Executive Officer of the Company, provided
that such responsibilities and authority are consistent with Executive's
position with the Company. Executive agrees to devote substantially all his
working time and use his best efforts in the performance of his duties for the
Company.
4. PLACE OF PERFORMANCE. In connection with Executive's employment by
the Company, Executive shall be based at the offices of the Company in
_________, or such other location to which Executive has consented, except for
required travel on the Company's business to an extent substantially consistent
with normal business travel obligations.
5. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. As compensation for the performance by
Executive of his obligations hereunder, during the Employment Period, the
Company shall pay Executive an annual base salary at a rate no less than that in
effect on the Effective Date ("Base Salary"). Base Salary shall be paid in
approximately equal installments in accordance with the Company's customary
payroll practices. Base Salary may be increased from time to time in accordance
with the normal business practices of the Company and, if so increased, shall
not thereafter during the Employment Period be decreased.
(b) BONUSES. During the Employment Period, Executive shall be
eligible to receive such annual bonus (the "Annual Bonus") as may be provided
pursuant to the terms of the applicable incentive plans of the Company, as such
plans may from time to time be revised prior to a Change in Control of the
Company. The Annual Bonus shall be paid in accordance with the terms of such
plans.
(c) EXPENSES. The Company shall promptly reimburse Executive
for all reasonable business expenses incurred during the Employment Period by
Executive in performing services hereunder, including all expenses of travel and
living expenses while away from home on business or at the request of and in the
service of the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company.
(d) OTHER BENEFITS. Executive shall be entitled to participate
in all of the employee benefit plans and arrangements in effect, and in which
Executive participates, on the Effective Date and shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement made available by the Company in the future to its executives and
key management employees (including without limitation each incentive plan,
pension and retirement plan and arrangement, supplemental pension and retirement
plan and arrangement, stock option plan, life insurance and health-and-accident
plan and arrangement, medical insurance plan, disability plan, survivor income
plan, relocation plan and vacation plan), subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to subsection (a) of this Section 5.
(e) VACATION. Executive shall be entitled to the number of
vacation days in each calendar year, and to compensation in respect of earned
but unused vacation days, determined in accordance with the Company's vacation
plan. Executive shall also be entitled to all paid holidays given by the Company
to its executives.
(f) SERVICES FURNISHED. During the Employment Period, the
Company shall furnish Executive with office space, stenographic assistance and
such other facilities and services as shall be suitable to Executive's
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position and adequate for the performance of his duties as set forth in Section
3 hereof.
6. OFFICES. Subject to Sections 3 and 4 hereof, Executive agrees to
serve without additional compensation, if elected or appointed thereto, as a
director of the Company, including LFI, LFC and any of its subsidiaries, and as
a member of any committees of the board of directors of any such corporations,
and in one or more executive positions of the Company, provided that Executive
is indemnified for serving in any and all such capacities on a basis no less
favorable than is currently provided to any other director of the Company, or
any such executive position, as the case may be.
7. TERMINATION. Executive's employment hereunder may be terminated
without any breach of this Agreement only under the circumstances set forth in
the following subsections (a), (b), (c) and (d):
(a) DEATH. Executive's employment hereunder shall terminate
upon his death.
(b) DISABILITY. If, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have been absent from the
full-time performance of his duties hereunder for 180 days during any 12-month
period, and within thirty (30) days after written Notice of Termination (as
defined in Section 8 hereof) is given shall not have returned to the performance
of his duties hereunder on a full-time basis, the Company may terminate
Executive's employment hereunder for "Disability." Should there be a dispute as
to whether Executive is disabled, the Executive shall be examined by a
Company-designated physician at the Company's expense. If Executive's physician
disagrees with the conclusion of the physician designated by the Company, then
the Company's physician and Executive's physician shall select a third physician
whose findings shall be conclusive.
(c) CAUSE. The Company may terminate Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon the occurrence of any
of the following events:
(i) the commission by Executive of a felony that
brings material disrepute to the Company; or
(ii) the continuing failure by Executive to
substantially perform his duties hereunder (other than such
failure resulting from Executive's incapacity due to physical
or mental illness or subsequent to the issuance of a Notice of
Termination by Executive for Good Reason) after demand for
substantial performance is delivered by the Company in writing
that specifically identifies the manner in which the Company
believes Executive has not substantially performed his duties;
or
(iii) misconduct by Executive (including, but not
limited to, breach by Executive of the provisions of Section
11 hereof) that is demonstrably and materially injurious to
the Company or its subsidiaries, whether monetarily or
otherwise.
(d) GOOD REASON. Executive may terminate his employment during
the Employment Period hereunder for "Good Reason" after the occurrence, without
the written consent of Executive, of an event constituting a material breach of
this Agreement by the Company that has not been fully cured within ten (10) days
after written notice thereof has been given by Executive to the Company,
provided that, without limiting the generality of the foregoing, within 18
months after a Change in Control, any one of the following events shall be
deemed a material breach of this Agreement:
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(i) the assignment to Executive of any duties
materially inconsistent with Executive's status as an
executive officer of the Company or a substantial adverse
alteration in the nature of Executive's responsibilities from
those in effect immediately prior to the Change in Control;
(ii) a reduction by the Company in Executive's Base
Salary as in effect immediately prior to the Change in
Control;
(iii) the relocation of Executive's principal place
of employment to a location more than forty (40) miles from
the place of such employment immediately prior to the Change
in Control;
(iv) the failure by the Company to pay to Executive
any portion of Executive's current compensation or to pay to
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company within fifteen (15) days of the date such compensation
is due;
(v) the failure by the Company to provide Executive
with compensation plans which, in the aggregate, provide
Executive with substantially comparable compensation
opportunities to those compensation opportunities for which
Executive was eligible immediately prior to the Change in
Control;
(vi) the failure by the Company to continue to
provide Executive with benefits substantially similar in the
aggregate to those enjoyed by Executive under the Company's
pension, life insurance, medical, health and accident, or
disability plans in which Executive was participating at the
time of the Change in Control, the taking of any action by the
Company which would directly or indirectly materially reduce
such benefits in the aggregate or deprive Executive of fringe
benefits substantially similar in the aggregate to those
enjoyed by Executive at the time of the Change in Control, or
the failure by the Company to provide Executive with the
number of paid vacation days to which Executive is entitled on
the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the
time of the Change in Control;
(vii) any purported termination of Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 8(a) or
that does not comply with Section 7(c), if applicable (and for
purposes of this Agreement, no such purported termination
shall be effective); or
(viii) the failure of a successor to the Company to
expressly assume and agree to perform this Agreement pursuant
to Section 13(a) hereof.
Executive's right to terminate his employment hereunder for Good Reason shall
not be affected by his incapacity due to physical or mental illness, provided
that this sentence shall not effect the Company's rights under this section 7.
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any act or failure to act constituting Good Reason
hereunder.
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(e) DEFINITION OF CHANGE IN CONTROL. For purposes of this
Agreement, a "Change in Control" of the Company shall mean the occurrence of any
one of the following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than any trustee or other
fiduciary holding securities under an employee benefit plan of
LFC or LFI, or any corporation owned, directly or indirectly,
by the stockholders of LFC or LFI in substantially the same
proportions as their ownership of stock of LFC or LFI, as the
case may be (a "Person"), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of LFC or LFI representing 50% or
more of the combined voting power of the then outstanding
securities of LFC or LFI, as the case may be;
(ii) during any period of two consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the board of LFC or the board of LFI, and any new
director (other than a director designated by a Person who has
entered into an agreement with LFC or LFI to effect a
transaction described in clause (i), (iii) or (iv) of this
paragraph) whose election by the Board or the board of LFI or
nomination for election by LFC's or LFI's stockholders, as the
case may be, was approved by a vote of at least two-thirds
(2/3) of the directors of the board of LFC or the board of
LFI, as the case may be, then still in office who either were
directors thereof at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute at least a
majority thereof; or
(iii) the shareholders of LFC or LFI approve a merger
or consolidation of LFC or LFI with any other corporation,
other than (A) a merger or consolidation which would result in
the voting securities of LFC or LFI outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting
power of the voting securities of LFC or LFI, as the case may
be, or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or acquisition
effected to implement a recapitalization of LFC or LFI (or
similar transaction) in which no Person acquires more than 50%
of the then outstanding securities of LFC or LFI, as the case
may be; or
(iv) the shareholders of LFC or LFI approve a plan of
complete liquidation of LFC or LFI or an agreement for the
sale or disposition by LFC or LFI of all or substantially all
of LFC's or LFI's assets.
Notwithstanding the foregoing, consummation of a Company reorganization plan (1)
that results in stock of any Company being held by its existing creditors and/or
equity holders and under which no single new equity holder (or its affiliates,
as defined in the Bankruptcy Code) holds more than 50% of the voting power of
such Company; or (2) that results in the conditions set forth in Section 7(e)
(ii) being met, shall not constitute a Change in Control under this Section.
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8. TERMINATION PROCEDURE.
(a) NOTICE OF TERMINATION. Any termination of Executive's
employment by the Company or by Executive (other than termination pursuant to
Section 7(a) hereof) shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 14. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated.
(b) DATE OF TERMINATION. "Date of Termination" shall mean (i)
if Executive's employment is terminated by his death, the date of his death,
(ii) if Executive's employment is terminated pursuant to Section 7(b) above,
thirty (30) days after Notice of Termination (provided that Executive shall not
have returned to the performance of his duties on a full-time basis during such
thirty (30) day period), (iii) if Executive's employment is terminated pursuant
to Section 7(c) above, the date specified in the Notice of Termination, (iv) if
this contract is not renewed by the Renewal Date, the date 30 days after the
Renewal Date, and (v) if Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given or any later date
(within 30 days) set forth in such Notice of Termination; PROVIDED, HOWEVER,
that, if within thirty (30) days after any Notice of Termination is given the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding and final arbitration award or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) (a "Final
Order"); PROVIDED FURTHER, HOWEVER, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
(c) COMPENSATION DURING DISPUTE. If a purported termination
occurs on or after a Change in Control and during the Employment Period, and
such termination is disputed in accordance with subsection (b) of this Section 8
hereof, the Company shall continue to pay Executive the full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue Executive as a participant in all compensation,
benefit and insurance plans in which Executive was participating when the notice
giving rise to the dispute was given, until the Date of Termination, determined
in accordance with subsection (b) of this Section 8. Amounts paid under this
Section 8(c) shall be offset against or reduce any other amounts due under this
Agreement. In addition, Executive shall repay any amounts paid under this
Section 8(c) if it is determined by a Final Order that such Employee was
properly terminated for Cause.
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DISABILITY; DEATH. During any period that Executive fails
to perform his duties hereunder as a result of incapacity due to physical or
mental illness ("Disability Period"), Executive shall continue to receive his
full Base Salary at the rate in effect at the beginning of such period, less all
compensation payable to Executive under any Company-funded disability plan, if
any, as in effect during such period, until his employment is terminated
pursuant to Section 7(b). Subsequent to the termination of Executive's
employment pursuant to Section 7(b), or in the event Executive's employment is
terminated by reason of his death, the Company shall have no further obligations
to Executive under this Agreement and Executive's benefits shall be determined
under the Company's retirement, insurance and other compensation programs then
in effect in accordance with the terms of such programs.
(b) BY COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD REASON.
If during the Employment Period Executive's employment is terminated by the
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Company other than for Cause or Disability or by Executive for Good Reason, or
if this contract is not renewed by the Renewal Date, then --
(i) in addition to any amounts due Executive pursuant
to Sections 5(a) or 5(b) hereof, the Company shall pay
Executive (or his legal representatives or estate) an amount,
in cash, equal to one and one-half (1-1/2) times his Base
Salary as in effect on the Date of Termination in equal
monthly installments over an eighteen (18) month period;
provided, however, that after nine (9) months after the Date
of Termination, Executive shall make reasonable efforts to
seek other employment; provided, further, however, that
Executive will not be required to accept a position of
substantially different character than the highest position
held by such Executive with the Company or a position that
would cause such Executive to violate Section 11(b) hereof,
nor will Executive be required to accept a position in a
location that is unreasonable given the personal circumstances
of the Executive. To the extent that the Executive shall
receive compensation and benefits from such other employment,
whether as an employee, consultant, independent contractor,
owner or otherwise, (together, "Other Employment") the
payments to be made and the benefits provided by the Company
under this Section 9(b) (i) for the period beginning nine (9)
months after termination of employment hereof shall be
correspondingly reduced. Notwithstanding the foregoing, if on
or after a Change in Control, a termination of the type
referred to in this section 9(b) occurs, or if this contract
is not renewed for an additional period of at least 18 months
at least 30 days prior to the expiration of the original or
extended term of this contract, as applicable, then the
Company shall pay to Executive a lump sum amount, in cash,
equal to one and one-half (1-1/2) times the sum of Base Salary
(at the rate in effect immediately prior to the occurrence of
the circumstance giving rise to the Notice of Termination) and
such amount shall not be reduced by any amounts Executive
shall receive from Other Employment; and provided further
(ii) the Company shall maintain in full force and
effect, for the continued benefit of Executive and his
dependents for the remainder of the Employment Period, all
employee welfare benefit plans and programs in which Executive
was entitled to participate immediately prior to the Date of
Termination, provided that Executive's continued participation
is possible under the general terms and provisions of such
plans and programs. In the event that Executive's
participation in any such plan or program is barred, the
Company shall arrange to provide Executive and his dependents
with benefits substantially similar to those which Executive
and his dependents would otherwise have been entitled to
receive under such plans and programs from which their
continued participation is barred. This paragraph is qualified
by Section 10.
(iii) in determining the retirement benefits to which
Executive is entitled under the Company's Supplemental
Executive Retirement Plan (the "SERP"), Executive shall be
deemed to have accumulated (after the Date of Termination)
thirty-six (36) additional months of service credit thereunder
at Executive's highest annual rate of compensation during the
twelve (12) months immediately preceding the Date of
Termination ("Additional Service Credit") and shall be deemed
to be thirty-six (36) months older than his age on the Date of
Termination ("Additional
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Age Credit"). If, after taking into account such Additional
Age Credit, Executive is not entitled to receive a benefit
under the SERP but is deemed to be at least 50 years of age,
Executive shall nevertheless be entitled to receive his
accrued benefit thereunder (as increased pursuant to this
Section 9(b) (iii)) ("Vested Benefit"). Executive shall be
entitled to commence receipt of his benefit under this
paragraph (iii) on the first day of the month following the
expiration of the Employment Period; PROVIDED, HOWEVER, that
if Executive elects to commence payments of such benefit prior
to his attainment of age 55, his annual benefit (as increased
hereunder) shall be reduced by 3% for each year that his
actual age is less than 55 years. Notwithstanding the
foregoing, if Executive's termination occurs on or after a
Change in Control, the Company shall pay Executive, in lieu of
the additional periodic payments described hereinabove, a lump
sum amount, in cash, equal to the actuarial equivalent of the
excess of (i) the retirement pension (determined as straight
lift annuity commencing at Normal Retirement Age) to which
Executive would be entitled under the terms of the SERP
(without regard to any amendment to the SERP made subsequent
to a Change in Control and on or prior to the Date of
Termination, which amendment adversely affects in any manner
the computation of retirement benefits thereunder), taking
into account Executive's Additional Service Credit, Additional
Age Credit and Vested Benefit, over (ii) the retirement
pension (determined as a straight lift annuity commencing at
Normal Retirement Age) to which Executive would be entitled
pursuant to the provisions of the SERP. For purposes of this
Section 9(b) (iii), "actuarial equivalent" shall be determined
using the Pension Benefit Guaranty Corporation rates for
immediate annuities for the month in which the Date of
Termination occurs.
Notwithstanding the foregoing, by entering into the
Agreement, the Company is not assuming any Executive's SERP,
nor granting any rights to administrative priority to any
employee with respect to his or her SERP, which rights shall
be unaffected by the execution of such Agreement, and
Executive so acknowledges and agrees. Without limiting the
foregoing, the Company reserves the right to seek assumption
of the SERP, and/or administrative priority for or allowance
of the claims arising under the SERP. Similarly, Executive
reserves the right to move for assumption of the SERP, or seek
administrative priority and/or allowance of the claims arising
thereunder. In addition, the official Creditors' Committee
reserves the right to oppose assumption of the SERP, seek
rejection or termination of the SERP, and/or oppose the amount
of priority of any claims arising under the SERP.
(c) BY COMPANY FOR CAUSE OR BY EXECUTIVE OTHER THAN FOR GOOD
REASON. If Executive's employment shall be terminated by the Company for Cause
or by Executive other than for Good Reason, then the Company shall pay Executive
his Base Salary (at the rate in effect at the time Notice of Termination is
given) through the Date of Termination, and the Company shall have no additional
obligations to Executive under this Agreement except as set forth in subsection
(d) of this Section 9.
(d) COMPENSATION PLANS. Following any termination of
Executive's employment, the Company shall pay Executive all unpaid amounts, if
any, to any, to which Executive is entitled as of the Date of Termination under
any compensation plan or program of the Company, at the time such payments are
due.
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(e) CONTINGENT LIMITATION.
(i) Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received
or to be received by Executive in connection with a Change in
Control or the termination of Executive's employment (whether
pursuant to the terms of this Agreement (the "Severance
Payments") or any other plan, arrangement or agreement with
the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the
Severance Payments, being hereinafter called "Total Payments")
would be subject (in whole or part) to the excise tax ("Excise
Tax") imposed under section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") as determined by the
Company's independent accountant, then the Severance Payments
shall be reduced to the extent necessary so that no portion of
the Total Payments is subject to the Excise Tax (after taking
into account any reduction in the Total Payments provided by
reason of section 280G of the Code in such other plan,
arrangement or agreement); PROVIDED, HOWEVER, that such
reduction shall be made only if (A) the net amount of such
Total Payments, as so reduced (and after deduction of the net
amount of federal, state and local income tax on such reduced
Total Payments), is greater than (B) the net amount of such
Total Payments, without reduction (but after deduction of the
net amount of federal, state and local income tax and Excise
Tax on such Total Payments).
(ii) For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (A) no portion of the Total
Payments the receipt or enjoyment of which Executive shall
have effectively waived in writing prior to the Date of
Termination shall be taken into account, (B) no portion of the
Total Payments shall be taken into account which in the
opinion of tax counsel selected by the Company does not
constitute a "parachute payment" within the meaning of section
280G(b) (2) of the Code (including by reason of section
280G(b) (4) (A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into
account which constitutes reasonable compensation for services
actually rendered (within the meaning of section 280G(b) (4)
(B) of the Code) in excess of the Base Amount allocable to
such reasonable compensation, and (C) the value of any noncash
benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Company in
accordance with the principles of sections 280G(d) (3) and (4)
of the Code. For purposes of determining the amount of the
deductions for income tax described in clauses (A) and (B) of
paragraph (i) of this Section 9(e), Executive shall be deemed
to pay federal income taxes at the highest marginal rate of
federal income taxation in the calendar year in which occurs
the Date of Termination and state and local income taxes at
the highest marginal rate of taxation in the state and
locality of Executive's residence on the Date of Termination,
net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local
taxes.
(iii) Prior to the payment date set fourth in Section
9(f), the Company shall provide Executive with its calculation
of the amounts referred to in this Section 9(e) and such
supporting materials as are reasonably necessary
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for Executive to evaluate the Company's calculations. If
Executive objects to the Company's calculations, the Company
shall pay to Executive such portion of the Severance Payments
(up to 100% thereof) as Executive determines is necessary to
result in Executive's receiving the greater of clauses (A) and
(B) of paragraph (i) of this Section 9(e).
(f) TIME OF PAYMENTS. The lump sum payments provided for in
Section 9(b) shall be made not later than the fifth business day following the
Date of Termination, PROVIDED, HOWEVER, that if the amount of such payments, and
the contingent limitation on such payments set forth in Section 9(e) cannot be
finally determined on or before such day, the Company shall pay Executive on
such day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b) (2) (B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth business day after demand by the Company (together with interest at the
rate provided in section 1274(b) (2) (B) of the Code).
10. MITIGATION. Executive shall not be required to mitigate the amount
of any payment provided for Executive by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for Executive hereunder
be reduced by any compensation earned by Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by Executive to the Company, or otherwise except as is
hereinafter specifically provided in Section 9(b) (i) and this Section 10. To
the extent that Executive, during the relevant period described in Section 9(b)
(ii) hereof, shall receive from a subsequent employer benefits similar to those
to be provided under Section 9(b) (ii), the benefits to be provided under the
provisions of said Section 9(b) (ii) shall be correspondingly reduced. If the
Date of Termination shall occur prior to a Change in Control, the benefits to be
provided under Section 9(b) (i) hereof shall also be reduced to the extent of
any salary to which Executive becomes entitled from any subsequent employer for
the period beginning nine (9) months after the Date of Termination.
11. CONFIDENTIAL INFORMATION; NONCOMPETITION REQUIREMENT.
(a) CONFIDENTIAL INFORMATION. Executive shall hold in a
fiduciary capacity for the benefit of the Company all trade secrets,
confidential information, and knowledge or data relating to the Company and its
businesses, which shall have been obtained by Executive during Executive's
employment by the Company and which shall not have been or now or hereafter have
become public knowledge (other than by acts by Executive or representatives of
Executive in violation of this Agreement). Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such trade secrets, information,
knowledge or data to anyone other than the Company and those designated by the
Company. Any termination of Executive's employment or of this Agreement shall
have no effect on the continuing operation of this Section 11(a).
(b) NONCOMPETITION REQUIREMENT. During any period that
Executive is performing services hereunder or Executive is entitled to payment
pursuant to Section 9(b) (i), and for a period of one (1) year following a
termination of Executive's employment by the Company for Cause or by Executive
other than for Good Reason, Executive agrees that, without the prior written
consent of the Company, he shall not, directly or indirectly, with or without
pay, either as an employee, employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, manager, investor, lender, advisor,
owner, associate or in any other individual or representative capacity, engage
10
<PAGE>
or participate in any business that is in competition in any manner whatsoever
("Competitive Business") with any of the Company's retail stores unless such
Competitive Business is located more than fifty (50) miles from the site, as of
the Date of Termination, of any such retail store of the Company; PROVIDED,
however, that the noncompetition requirement of this Section 11(b) shall be
limited to six months after the Date of Termination if Executive's employment is
terminated on or after a Change in Control.
(c) INJUNCTIVE RELIEF. In the event of a breach or threatened
breach of this Section 11, Executive agrees that the Company shall be entitled
to injunctive relief in a court of appropriate jurisdiction to remedy any such
breach or threatened breach, Executive acknowledging that damages would be
inadequate and insufficient.
12. INDEMNIFICATION; LEGAL FEES. The Company shall indemnify Executive
to the full extent permitted by law and the by-laws of the Company for all
expenses, costs, liabilities and legal fees which Executive may incur in the
discharge of his duties hereunder, including any legal fees and expenses
incurred by Executive in contesting or disputing any termination of the
Executive's employment or in seeking to obtain or enforce any right or benefit
provided by this Agreement or in connection with any tax audit or proceeding to
the extent attributable to the application of Section 4999 of the Code to any
payment or benefit provided hereunder) other than for any such expenses, costs,
liabilities or legal fees incurred as a result of Executive's bad faith or gross
negligence. In the event that it is determined by a Final Order that Executive's
contest or dispute of his termination was frivolous, Executive shall repay all
legal fees previously paid by the Company to Executive's counsel for work done
to contest or dispute such termination. Payments due to Executive under this
section shall be made at the later of the time specified in Section 9(f), or
within five (5) days after Executive's request for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
Any termination of Executive's employment or of this Agreement shall have no
effect on the continuing operation of this Section 12.
13. SUCCESSORS; BINDING AGREEMENT.
(a) COMPANY'S SUCCESSORS. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle Executive to compensation from
the Company in the same amount and on the same terms as he would be entitled to
hereunder if he terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as herein before defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this Section 13 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(b) EXECUTIVE'S SUCCESSORS. This Agreement and all rights of
Executive hereunder shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts would still be payable to him hereunder if he had continued to
live, all such amounts unless otherwise provided herein shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
11
<PAGE>
14. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Executive:
If to the Company:
Levitz Furniture Corporation
6111 Broken Sound Parkway, N.W.
Boca Raton, Florida 33487-2799
Attention: General Counsel
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
15. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and such officer of the Company, as may be
specifically designated by the Board or its compensation committee. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. This Agreement shall be binding on all successors
to the Company. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Florida without
regard to its conflicts of law principles. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be paid
net of any applicable withholding required under federal, state or local law.
The obligations of the parties under Section 9 shall survive the expiration of
the term of this Agreement. The compensation and benefits payable to Executive
under this Agreement shall be in lieu of any other severance benefits to which
Executive may otherwise be entitled upon his termination of employment under any
severance plan, program, policy or arrangement of the Company.
16. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
LEVITZ FURNITURE INCORPORATED
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE CORPORATION
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE REALTY CORPORATION
By:
--------------------------------------
Name:
Title:
LEVITZ SHOPPING SERVICES, INC.
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF
THE MIDWEST, INC.
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF
THE PACIFIC, INC.
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE COMPANY OF
WASHINGTON, INC.
By:
--------------------------------------
Name:
Title:
13
<PAGE>
LEVITZ FURNITURE COMPANY OF THE
MIDWEST REALTY, INC.
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE OF THE PACIFIC
REALTY, INC.
By:
--------------------------------------
Name:
Title:
LEVITZ FURNITURE OF WASHINGTON
REALTY, INC.
By:
--------------------------------------
Name:
Title:
JOHN M. SMYTH COMPANY
By:
--------------------------------------
Name:
Title:
JOHN M. SMYTH REALTY COMPANY
By:
--------------------------------------
Name:
Title:
-------------------------------------
14
EXHIBIT 21.01
Subsidiaries of Levitz Furniture Incorporated:
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
Levitz Furniture Corporation Florida
Subsidiaries of Levitz Furniture Corporation:
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
Levitz Furniture Company
of the Midwest, Inc. Colorado
Levitz Furniture Company
of the Pacific, Inc. California
Levitz Furniture Company
of Washington, Inc. Washington
John M. Smyth Company Illinois
1
EXHIBIT 21.02
Subsidiaries of Levitz Furniture Corporation:
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
Levitz Furniture Company
of the Midwest, Inc. Colorado
Levitz Furniture Company
of the Pacific, Inc. California
Levitz Furniture Company
of Washington, Inc. Washington
John M. Smyth Company Illinois
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,339
<SECURITIES> 0
<RECEIVABLES> 24,118
<ALLOWANCES> 0
<INVENTORY> 142,618
<CURRENT-ASSETS> 179,038
<PP&E> 267,978
<DEPRECIATION> 124,729
<TOTAL-ASSETS> 1,006,804
<CURRENT-LIABILITIES> 252,698
<BONDS> 5,702
0
0
<COMMON> 303
<OTHER-SE> (186,364)
<TOTAL-LIABILITY-AND-EQUITY> 1,006,804
<SALES> 836,802
<TOTAL-REVENUES> 836,802
<CGS> 467,591
<TOTAL-COSTS> 467,591
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,592
<INCOME-PRETAX> (127,269)
<INCOME-TAX> (39,687)
<INCOME-CONTINUING> (87,582)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,805)
<CHANGES> 0
<NET-INCOME> (93,387)
<EPS-PRIMARY> (3.12)
<EPS-DILUTED> 0
</TABLE>
