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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 3, 1999
FAIRWOOD CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 0-18446 13-3472113
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
ONE COMMERCE CENTER
1201 N. ORANGE STREET, SUITE 790
WILMINGTON, DE 19801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (302) 884-6749
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 3, 1999, Futorian Furnishings, Inc., a Delaware corporation and
indirect subsidiary of Fairwood Corporation ("Futorian"), sold substantially all
of the assets of one of its operating divisions, the Stratford Division
("Stratford Division"), to Vanguard Design, L.L.C., a Delaware limited liability
company, Heath Home Furnishings, L.L.C., a Delaware limited liability company,
Stratford Upholstery Company, L.L.C., a Delaware limited liability company,
Simmons Upholstery, L.L.C., a Delaware limited liability company, Western
Upholstery Company, L.L.C., a Delaware limited liability company, and Vanguard
Properties II, L.L.C., a Delaware limited liability company (collectively, the
"Buyer"). Futorian completed the sale of the Stratford Division to Buyer on
June 3, 1999 for a purchase price of approximately $16.7 million in cash, plus
the assumption of certain liabilities, subject to certain post-closing
adjustments.
Futorian through its two operating divisions, the Stratford Division
and the Barcalounger Division, manufactures upholstered stationary and motion
furniture, such as modular living room groups, recliners, rockers and glider
chairs and upholstered motion furniture, such as, modular sofas and living
room and family room groups. The sale includes substantially all of the
business and assets of the Stratford Division, including the sale of its
owned manufacturing plant in New Albany, Mississippi and its office and
showroom in Bannockburn, Illinois and the assignment of leases for certain
other manufacturing and showroom facilities. Futorian has not sold and will
continue to operate the Barcalounger Division.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on the
historical consolidated financial statements of Fairwood Corporation
(the "Company").
The unaudited pro forma condensed consolidated balance sheet gives
effect to the disposition as if it was consummated on April 3,
1999. The unaudited pro forma condensed consolidated statements of
operations give effect to the disposition as if it was consummated
January 1, 1998. The pro forma adjustments are described more fully
in the accompanying notes.
The Pro Forma Financial Statements are presented for informational
purposes only and do not purport to be indicative of the results of
operations that actually would have been achieved had the
disposition been consummated on the date or for the periods
indicated and do not purport to be indicative of the financial
position or results of operations as of any future date or for any
future period. The Pro Forma Financial Statements should be read in
connection with the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, the Consolidated Financial Statements
of the Company and related notes thereto.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Proforma Condensed Consolidated Balance Sheet
April 3, 1999
(Dollars in thousands)
Proforma
Adjust-
Assets Historical ments Proforma
------ ---------- ----- --------
Current Assets:
Cash and cash equivalents $ 1,679 - 1,679
-------- -------- --------
Accounts and notes receivable:
Trade 21,123 ( 12,072) (a) 9,051
Notes receivable, affiliate 500 - 500
Escrow - 500 (b) 500
Due from affiliate 3,323 ( 3,323) (a) -
-------- -------- --------
24,946 ( 14,895) 10,051
Less allowance for discounts and
doubtful accounts 1,587 ( 1,352) (a) 235
-------- -------- --------
23,359 ( 13,543) 9,816
-------- -------- --------
Inventories 17,975 ( 10,508) (a) 7,467
Prepaid expenses and other current assets 2,870 ( 126) (a) 2,744
-------- -------- --------
Total current assets 45,883 ( 24,177) 21,706
-------- -------- --------
Property, plant and equipment, at cost 32,935 ( 24,426) (a) 8,509
Less accumulated depreciation and amortization 20,824 ( 15,524) (a) 5,300
-------- -------- --------
12,111 ( 8,902) 3,209
------ -------- --------
Other assets 337 ( 18) (a) 319
-------- -------- --------
$ 58,331 ( 33,097) 25,234
======== ======== ========
(Continued)
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Proforma Condensed Consolidated Balance Sheet (continued)
April 3, 1999
(Dollars in thousands)
Proforma
Adjust-
Liabilities and Deficit Historical ments Proforma
----------------------- ---------- ----- --------
Current Liabilities:
Line of credit and term loan $ 26,356 ( 26,356) (c) -
Overdraft 1,860 ( 1,860) (c) -
Current maturities of long-term debt:
Revolving credit 320,030 9,694 (d) 329,724
Senior subordinated debentures 80,000 - 80,000
Senior subordinated pay-in-kind debentures 105,853 - 105,853
Merger debentures 62,928 - 62,928
Other 45 ( 45) (a) -
Accounts payable 9,004 ( 6,426) (a) 2,578
Accrued interest 121,862 - 121,862
Accrued expenses 11,544 ( 4,482) (e) 7,062
Federal and state income taxes 5,027 - 5,027
-------- -------- --------
Total current liabilities 744,509 ( 29,475) 715,034
-------- -------- --------
Long-term debt:
Revolving credit - - -
Senior subordinated debentures - - -
Mortgage payable 1,995 ( 1,995) (a) -
-------- -------- --------
1,995 ( 1,995) -
-------- -------- --------
Deferred income taxes 1,957 - 1,957
Other liabilities 245 - 245
-------- -------- --------
2,202 - 2,202
-------- -------- --------
Redeemable preferred stock:
Junior preferred, cumulative, par value
$.01 per share 100 - 100
-------- -------- --------
Common stock and other shareowners' deficit:
Common stock and additional paid-in capital 55,948 - 55,948
Accumulated other comprehensive income ( 27) - ( 27)
Accumulated deficit ( 746,396) ( 1,627) (f)( 748,023)
-------- -------- --------
( 690,475) ( 1,627) ( 692,102)
-------- -------- --------
$ 58,331 ( 33,097) 25,234
======== ======== ========
See notes to the unaudited proforma condensed consolidated balance sheet.
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Notes to the Pro Forma Condensed Consolidated Balance Sheet
(a) Reflects the elimination of the assets and liabilities sold under
the Asset Purchase Agreement.
(b) Reflects the recognition of the amount of sale proceeds placed into
escrow until the final value of the assets and liabilities assumed
are determined.
(c) Reflects the repayment of the borrowings under the existing
revolving credit and term loan agreement, and funding of Stratford
Division's overdraft with the proceeds from sale of Stratford
Division's assets.
(d) The Company was required in connection with the transaction to
repay the line of credit and term loan and fund the overdraft. This
adjustment reflects the increase in borrowings to finance the repayment
of the line of credit and term loan agreement, funding of the
overdraft, less proceeds from the sale of the Stratford Division
assets. The Company intends to use the sale proceeds to reduce
borrowings.
The adjustment to the revolving credit reflects the amounts that
would have been borrowed had the transaction occurred as of April 3,
1999. The actual borrowings as of the closing date of the
transaction were $2,324 less, reflecting lower net asset values as
of that date.
Repayment of the line of credit and term loan $26,356
Funding of overdraft 1,860
Proceeds from the disposition (16,198)
Change in net asset value (2,324)
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Total adjustment 9,694
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(e) Reflects the elimination of the certain accrued expenses assumed
by the purchaser under the Asset Purchase Agreement, less the
accrual for estimated transaction costs.
Accrued expenses assumed $ (6,667)
Estimated transaction costs 2,185
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Total adjustment (4,482)
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Transaction costs include primarily severance costs, broker fees,
and legal fees.
(f) Reflects the transaction costs anticipated to be paid to effect the
merger, net of the gain on the sale of the assets.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Proforma Condensed Consolidated Statement of Operations
Three Months Ended April 3, 1999
(In thousands)
Proforma
Adjust-
Historical ments Proforma
---------- ----- --------
Net sales $ 44,851 ( 30,499) (a) 14,352
------- ------- -------
Cost of sales 41,990 ( 30,533) (a) 11,457
Selling, administrative and
general expenses 5,752 ( 3,876) (a) 1,876
------- ------- -------
47,742 ( 34,409) 13,333
------- ------- -------
Operating income (loss) ( 2,891) 3,910 1,019
Interest income 7 - 7
Interest on indebtedness ( 18,267) 484 (b) (17,783)
Other income (expenses), net 14 ( 14) -
------- ------- -------
Loss before income taxes ( 21,137) 4,380 (16,757)
Provision for income taxes - - -
------- -------- -------
Net loss $( 21,137) 4,380 (16,757)
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See notes to the unaudited proforma condensed consolidated statement of
operations.
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NOTES TO THE PROFORMA CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED APRIL 3, 1999
(a) Reflects the elimination of the Stratford Division results
of operations from the consolidated results of operations.
(b) Reflects the change in interest costs as a result of (1) the
repayment of the line of credit and term loan through the increase
in borrowings under the revolving credit facility and proceeds
from the disposition, (2) the elimination of the mortgage payable
and (3) the elimination of interest costs incurred to finance
accounts payable.
Historical interest cost under the line of credit and term loan agreement $ 600
Historical interest cost under the mortgage payable 44
Interest costs to finance accounts payable 11
Interest under additional revolving credit borrowings (171)
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Total $ 484
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The interest rate under the revolving credit agreement is prime
plus 1.5 percent which approximated 9.25 percent for the period
ended April 3, 1999. Additional borrowings under the revolving
credit facility were estimated to be $7.4 million.
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FAIRWOOD CORPORATION AND SUBSIDIARIES
Unaudited Proforma Condensed Consolidated Statement of Operations
Year Ended December 31, 1998
(In thousands)
Pro forma
Historical Adjust-
Pro forma ments Pro forma
--------- ----- ---------
Net sales $ 154,174 ( 99,436) (a) 54,738
------- ------- -------
Cost of sales 143,885 ( 99,854) (a) 44,031
Selling, administrative and
general expenses 24,110 ( 16,079) (a) 8,031
------- ------- -------
167,995 (115,933) 52,062
------- ------- -------
Operating loss ( 13,821) 16,497 2,676
Interest income 150 ( 98) (a) 52
Interest on indebtedness ( 71,863) 2,246 (b) ( 69,617)
Other income (expenses), net 29 ( 21) (a) 8
------- ------- -------
Loss before income taxes ( 85,505) 18,624 ( 66,881)
Provision for income taxes - - -
------- -------- -------
Net loss $( 85,505) 18,624 ( 66,881)
======= ======== =======
See notes to the unaudited proforma condensed consolidated statement of
operations.
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NOTES TO THE PROFORMA CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998
(c) Reflects the elimination of the Stratford division results of
operations from the consolidated results of operations.
(d) Reflects the change in interest costs as a result of (1) the
repayment of the line of credit and term loan through the increase
in borrowings under the line of credit facility and proceeds from
the disposition, (2) the elimination of the mortgage payable and
(3) the elimination of interest costs incurred to finance trade
accounts payable.
Historical interest cost under the line of credit and term loan agreement $ 2,740
Historical interest cost under the mortgage payable 176
Interest costs to finance accounts payable 52
Interest under additional revolving credit borrowings (722)
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Total $ 2,246
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The interest rate under revolving credit agreement is prime plus 1.5
percent which approximated 9.75 for the year ended December 31,
1998. The additional borrowings under the revolving credit facility
was estimated to be $7.4 million.
(c) EXHIBITS
2.1* Asset Purchase Agreement dated May 28, 1999
* Pursuant to Item 601(b)(2) of Regulation S-K, the schedules,
exhibits and appendices to this exhibit are omitted. Exhibit 2.1
contains a list of omitted schedules, exhibits and appendices.
The Registrant agrees to furnish supplementary copies of such
schedules, exhibits and appendices to the Commission upon request.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIRWOOD CORPORATION
Date: June 18, 1999 By: /s/ John B. Sganga
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John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
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List of Omitted Exhibits, Appendices and Schedules
(This list is not a part of the Asset Purchase Agreement)
EXHIBITS
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Exhibit A Escrow Agreement
Exhibit B Hired Employees (List)
Exhibit C Accounts Receivable
Exhibit D-1 Bill of Sale
Exhibit D-2 General Assignment and Assumption Agreement
Exhibit D-3 Assignment and Assumption of Intellectual Property
Exhibit D-4 Assignment and Assumption of Telephone Numbers
Exhibit E1-E4 Form of Deeds
Exhibit E-5 High Point Sublease
Exhibit E-5.1 Lake Shore Drive Sublease
Exhibit F Assignment and Assumption of Leases
Exhibit G License Agreement - Futorian Name
Exhibit H Purchase Price Allocation
Exhibit I Form of Legal Opinion of Seller's Legal Counsel
Exhibit J Form of Legal Opinion of Buyer's Legal Counsel
Exhibit K Limited Guaranty
Exhibit L AmSouth Letter of Credit
Exhibit M Waiver of Conditions
Exhibit N Officer's Bringdown Certificates
Exhibit 7.(1) Guntown Consent to Assignment and Assumption
APPENDICES
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Appendix I Accounting Principles
Appendix II Seller's Customer Sites
Appendix III Seller's Knowledgeable Persons
Appendix V Example of Preliminary Purchase Price
Appendix VI Insurance Policies
Appendix VII Excluded Contracts
SCHEDULES
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Schedule 3(a) Foreign Jurisdiction Where Qualified to do Business
Schedule 3(c) Non-Contravention
Schedule 3(d) Consents and Approvals
Schedule 3(f) Broker Fees
Schedule 3(g) Financial Statements
Schedule 3(h) Events Subsequent to Most Recent Fiscal Year End
Schedule 3(j) Legal Compliance
Schedule 3(j)(iv) Environmental Permits
Schedule 3(k)(iv) Tax Matters
Schedule 3(l)(i) Real Property
Schedule 3(l)(ii) Realty Leases
Schedule 3(l)(ii)(C) Realty Leases - potential breaches
Schedule3(m)(ii) Infringement or Misappropriation with Intellectual
Property
Schedule 3(m)(iii) Material Intellectual Property Licenses and Other Agreements
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Schedule 3(m)(iv) Marks
Schedule 3(m)(iv)(A) Trademark Registrations and Applications
Schedule 3(m)(v) Patents and Patent Applications
Schedule 3(m)(vi) Copyright Registrations and Applications
Schedule 3(m)(vii) Specifically Created, Developed or Modified Software
Schedule 3(o) Contracts and Agreements
Schedule 3(p) Accounts Receivable as of Most Recent Balance Sheet
Schedule 3(r) Insurance
Schedule 3(s) Litigation
Schedule 3(t) Product Warranty
Schedule 3(v)(ii) Employees
Schedule 3(w) Employee Benefit Plans
Schedule 3(x) Excluded Liabilities - Debt
Schedule 3(y) Environment, Health and Safety
Schedule3(z) Certain Business Relationships with Seller
Schedule 3(aa)(A) Top Twenty-Five Vendors
Schedule 3(aa)(B) Top Twenty-Five Customers
Schedule 4(d) Buyer Consents
Schedule 4(e) Brokers' Fees
Schedule 4(f) Buyer Financial Statements
Schedule 5(b)(1) Seller Required Consents
Schedule 5(b)(2) Buyer Required Consents
Schedule 5(c) Accrued Liabilities
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