FILMORE FURNITURE LTD
Filmore Furniture Ltd. manufactures colonial maple furniture. The company was incorporated in 1970 by Fred Filmore, who had been the sole proprietor prior to that. In 1983, Fred Filmore retired and sold his business to his only son Phil, age 38, for a small sum. That year, annual sales totalled $1,300,000.
Phil Filmore was an aggressive manager and strategist. He modernized the plant, introduced new product designs and accessories such as mirrors and lamps, and implemented new marketing strategies and merchandising ideas. These innovations were quite successful, and helped the company to establish a good reputation in the furniture industry. From 1983 to 1993, ...view middle of the document...
Anticipating that the Canada-US Free Trade Agreement (1989) would bring during the 1990s both increased import competition from larger American companies and opportunities to export into the large US market, Filmore Furniture modernized its manufacturing facilities from 1986 to 1993. While the business had grown significantly, its profits and cash flow were not sufficient to pay for the modernization programs. Therefore, Phil had to obtain financing from external sources. Phil was reluctant to borrow to finance these capital expenditures, as the interest expenses would further narrow the company's already-low profit margins and add another fixed cost that could prove dangerous during a recession. Instead, he invited five local professional people to become shareholders of the company. After this was done, Phil Filmore owned 63 percent of the shares and the five investors 31 percent. The other 6 percent of the shares were held by employees of the company who had invested funds many years ago.
During the snowstorms of early 1999, Phil Filmore died suddenly in a car accident. He left his entire estate, including his 63 percent of the company's shares, to his wife, Lucinda. Phil's life insurance provided a disappointingly small amount of money for Mrs. Filmore. At the time Phil took out the policy many years before, the family's lifestyle had been more modest, the cost of living had been much lower and interest rates much higher, so the investment income from the proceeds of the policy would have been adequate for the family's needs. However, by 1999, all of this had changed -- the cost of living had increased considerably, but interest rates had fallen. As a result, Mrs. Filmore was disappointed to learn that after the proceeds of the policy had been invested, the after-tax income from them would barely cover the $1,400 per month payments on the $200,000 mortgage on the large home they had bought in 1989.
Lucinda Filmore was 47 years old, and had not worked since leaving her job as a kindergarten teacher 14 years ago in order to raise their two children. She had never been active in the affairs of the company, knew nothing about the furniture business, and she did not know what to do. She discussed her dilemma with several close friends in order to get advice. She had to make an important business decision; should she sell, or hold on to the business? She had long distance discussions with Beauregard Bouvier, the largest of the five investors, Perry Pluckem, her lawyer, Sam Sheckles, a local banker; and Sally Forth, a long-time friend.
Beauregard Bouvier spoke on behalf of the five investors. who together owned 31 percent of the company's shares. They wished to retain their shares, but they showed no interest in playing any role in the management of the company. He felt that her best course of action was to keep the business, and philosophically favoured promoting managers from within the company. He suggested that the most...