<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 1996, or
--------------
/ / Transition Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the transition period
from to .
-------------------- -------------------
Commission File No.: 0-22188
RIVER OAKS FURNITURE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Mississippi 64-0749510
- --------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3350 McCullough Blvd.
Belden, Mississippi 38826
- --------------------------------- --------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (601) 891-4550
---------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
As of May 14, 1996, 5,605,641 shares of the registrant's Common Stock
were outstanding.
This document contains sequentially numbered pages.
1
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -------------
ASSETS (UNAUDITED)
------
CURRENT :
<S> <C> <C>
Cash & cash equivalents $ 317 $ 499
Accounts receivable , less allowance for possible
losses of $708,000 and $707,000 (Note 3) 6,809 10,549
Income taxes refundable - 1,114
Inventories ( Notes 2 and 3 ) 22,055 20,682
Prepaid expenses and other current assets 1,181 483
Deferred income taxes 560 541
------- -------
TOTAL CURRENT ASSETS 30,922 33,868
------- -------
PROPERTY AND EQUIPMENT,
less accumulated depreciation 29,506 28,413
OTHER ASSETS, including costs in excess of
net assets acquired 6,890 7,085
------- -------
TOTAL ASSETS $67,318 $69,366
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $12,071 $ 9,660
Accrued expenses 185 1,431
Current maturities of long-term debt (Note 3) 1,132 1,845
------- -------
TOTAL CURRENT LIABILITIES 13,388 12,936
DEFERRED INCOME TAXES 384 335
LONG-TERM DEBT, less current maturities (Note 3) 19,390 22,428
------- -------
TOTAL LIABILITIES 33,162 35,699
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock: $.10 par value - 5,000,000 - -
shares authorized: no shares issued
Common stock: $.10 par value - 20,000,000 shares authorized: 561 531
5,608,141 and 5,308,141 issued, respectively (note 4)
Additional paid-in-capital 27,529 26,427
Retained earnings 6,261 6,904
Notes receivable from shareholders (163) (163)
Treasury stock, at cost, 2,500 shares (32) (32)
------- -------
TOTAL SHAREHOLDERS' EQUITY 34,156 33,667
------- -------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $67,318 $69,366
======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
<PAGE> 3
RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------
MARCH 31, APRIL 1,
1996 1995
---------- ----------
<S> <C> <C>
NET SALES $29,855 $35,044
COST OF SALES 26,221 29,108
------- -------
GROSS PROFIT 3,634 5,936
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,705 3,387
------- -------
OPERATING INCOME (LOSS) (71) 2,549
INTEREST EXPENSE - NET 926 860
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (997) 1,689
INCOME TAXES (BENEFIT) (354) 600
------- -------
NET INCOME (LOSS) ($643) $ 1,089
======= =======
NET INCOME (LOSS) PER SHARE ($0.11) $ 0.21
======= =======
WEIGHTED AVERAGE COMMON SHARES AND SHARE
equivalents outstanding (note 4) 5,606 5,311
======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
<PAGE> 4
RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
MARCH 31, APRIL 1,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($643) $ 1,089
Depreciation & amortization 543 395
Deferred income taxes 30 -
Changes in operating assets and liabilities:
Accounts receivable 3,741 4,588
Inventories (1,373) (2,479)
Prepaid expenses and other (698) (151)
Accounts payable and accrued expenses 1,165 (2,666)
Income taxes payable or refundable 1,114 -
-------- --------
Net cash provided by operating activities 3,879 776
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,442) (1,740)
-------- --------
Net cash used by investing activities (1,442) (1,740)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (256) (42)
Net repayments under long-term lines of credit (3,494) -
Net proceeds from issuance of common stock (note 4) 1,131 -
Net borrowings under short-term debt agreements - 1,700
-------- --------
Net cash provided (used) by financing activities (2,619) 1,658
-------- --------
NET INCREASE (DECREASE) IN CASH AND (182) 694
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period 499 1,154
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 317 $ 1,848
======== =======
Supplemental disclosure of cash flows information:
March 31, April 1,
Cash paid (received) during the quarter ended: 1996 1995
--------- ----------
Interest 961 860
Income taxes (963) 300
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
4
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RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of River
Oaks Furniture, Inc. (the "Company") and its wholly-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated.
The financial statements are presented in accordance with the
requirements of Form 10-Q and, consequently, do not include all of the
disclosures made in an Annual Report on Form 10-K. Accordingly, the
financial statements included herein should be reviewed in
conjunction with the financial statements and the footnotes thereto
included within the Company's 1995 Annual Report on Form 10-K.
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.
The interim financial information has been prepared in accordance
with the Company's customary accounting practices and has not been
audited. In the opinion of management, such information presented
reflects all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of interim results. The results of
operations for the quarter ended March 31, 1996 are not necessarily
indicative of the results of operations to be expected for the full year
ending December 31, 1996.
2. INVENTORIES
Inventories are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Finished goods $ 4,410 $ 3,377
Work-in-process 4,517 4,634
Raw materials 13,128 12,671
--------- ---------
Total $ 22,055 $ 20,682
========= =========
</TABLE>
3. LONG-TERM DEBT
The Company has a $45,000,000 credit facility with its factor, The
CIT Group/Commercial Services, Inc. ("CIT"). The credit facility is
secured by substantially all the assets of the Company and its
subsidiaries, excluding certain real property. The terms of the facility,
as amended on March 29, 1996, provide for borrowings equal to the sum of
(i) the lesser of (a) 95% of eligible factored receivables and 85% of
eligible non-factored receivables or (b) $30,000,000, and (ii) the lesser
of (a) 60% of eligible inventory or (b) $11,000,000. This credit
facility matures on July 31, 1998 with automatic annual renewals
thereafter, subject to CIT's approval, and bears interest at
CIT's base rate plus one percent (9.25% as of March 31, 1996). At
March 31, 1996 the outstanding balance under the line of credit portion of
the facility was $6,860,000.
The credit facility contains certain restrictive covenants which,
among other things, require the maintenance of specific financial
covenants on a consolidated basis, including adjusted tangible net worth,
book net worth, working capital, debt service coverage ratios, interest
coverage ratios, and leverage ratios. The CIT arrangements also restrict
additional indebtedness, the declaration and payment of dividends and
distributions and transactions with affiliates. Under the above
provisions, all of retained earnings at March 31, 1996 were restricted as
to availability for payment of dividends.
5
<PAGE> 6
The Company also has a $6,000,000 term loan with CIT for Gaines (the
"Gaines Term Loan"), which is secured by Gaines' manufacturing real estate
and equipment. The Gaines Term Loan, as amended on March 29, 1996,
provides for principal payments under a five year note with a seven year
amortization and bears interest at CIT's base rate plus one and one-half
percent (9.75% as of March 31, 1996). As of March 31, 1996, outstanding
borrowings under the Gaines Term Loan were $5,572,000.
The Company has a $5,000,000 fully secured equipment line
of credit with Deposit Guaranty National Bank. The line, which is to
be utilized to purchase equipment and machinery as needed, matures on
September 30, 1996 and is secured by all assets purchased with such
funds. The Company may, however, convert minimum amounts of $500,000
outstanding to a term loan which will fully amortize over an 84-month
period and which would bear interest at (i) LIBOR plus 175 basis points,
(ii) the bank's prime rate, or (iii) seven-year Treasury note plus 200
basis points. In January 1996, the Company converted the balance
of $810,000 under the term loan option. Outstanding borrowings on the
equipment line were $802,000 at March 31, 1996 and bear interest at LIBOR
plus 175 basis points (7.18% as of March 31, 1996).
The Company has construction/term loan agreements in the amount of
$5,250,000 with the Bank of Mississippi (the "New BOM Construction
Loans") the proceeds of which were used for the construction of a
centralized fabric storage, cutting and distribution center. The BOM
Construction Loan agreements, which originally matured on January 2, 1997,
were converted on May 6, 1996 to a long-term real estate loan that matures
on May 6, 2001 and bears interest at the bank's prime rate (8.25% at March
31, 1996). As of March 31, 1996, outstanding borrowings under the New BOM
Construction Loans were $5,250,000.
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
Long-term line of credit $ 6,860 $10,942
Term loan 5,572 5,786
Construction lines of credit 5,250 4,663
Equipment loan 802 810
Real estate facility 1,958 1,980
Capitalized lease obligations 58 70
Other 22 22
------- -------
Total debt 20,522 24,273
Less current maturities (1,132) (1,845)
------- -------
Total long-term debt $19,390 $22,428
======= =======
</TABLE>
4. COMMON STOCK
During the first quarter of 1996, the Company issued 300,000 shares
of its common stock for $1,131,000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information
derived from the Company's consolidated statements of income expressed as a
percentage of the Company's total net sales:
<TABLE>
<CAPTION>
Quarter
Ended
-------------------------------
March 31, April 1,
1996 1995
-------------- -------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 87.8 83.1
----- -----
Gross profit 12.2 16.9
Selling, general
and administrative
expenses 12.4 9.6
----- -----
Operating income (loss) (0.2) 7.3
Interest expense - net 3.1 2.5
----- -----
Income before
income taxes (benefit) (3.3) 4.8
Income taxes (benefit) (1.2) 1.7
----- -----
Net income (loss) (2.1)% 3.1%
===== =====
</TABLE>
7
<PAGE> 8
QUARTER ENDED MARCH 31, 1996 COMPARED TO THE QUARTER ENDED APRIL 1, 1995
Net sales for the first quarter ended March 31, 1996 decreased by
$5,189,000, or 14.8%, to $29,855,000 from $35,044,000 for the first quarter
ended April 1, 1995. The decline in sales volume resulted primarily from a
soft retail environment, unusually heavy snowfall in the East that affected
retail demand in several major markets and an ice storm that shut down
production at the Mississippi facilities for five days. Overall sales volume
of the River Oaks product lines decreased by $4,484,000, or 16.5%, to
$22,622,000 for the first quarter of 1996 from $27,106,000 for the first
quarter of 1995. The River Oaks and River Crest product lines were responsible
for $2,197,000 of the decline. Sales of the Roaring River product line
decreased by $2,287,000 in the first quarter of 1996 as compared to the first
quarter of 1995 as a result of management's decision to allocate marketing and
production resources to the higher price point River Crest product line. Sales
of the Gaines product line also declined by $705,000 in the first quarter of
1996 as compared to the first quarter of 1995. The Company's backlog at March
31, 1996 was approximately $16,500,000 as compared to approximately $16,900,000
at December 31, 1995.
Cost of sales for the first quarter of 1996 decreased 9.9% to $26,221,000
from $29,108,000 for the first quarter of 1995. The aggregate decrease
resulted primarily from decreased sales volume. As a percentage of net sales,
cost of sales for the first quarter of 1996 increased to 87.8% from 83.1% for
the first quarter of 1995. The increase in cost of sales and resulting decline
in gross profit margin, was due primarily to reduced levels of production
caused by the soft retail environment, five days of lost production due to an
ice storm and the consolidation of two Mississippi facilities into one.
Management believes that certain variable costs including duplicative labor
have been eliminated as a result of the consolidation of the Fulton facility
into New Albany, which was completed in March 1996. Gross profit
margin was negatively affected by the existence of these costs throughout the
majority of the first quarter and by the temporary disruption of production
caused by the complexity of the consolidation. The Fulton facility remains
idled for the use of any future capacity requirements.
Selling, general and administrative expenses for the first quarter of 1996
increased by 9.4% to $3,705,000 from $3,387,000 for the first quarter of 1995.
As a percentage of net sales, such expenses for the first quarter of 1996
increased to 12.4% from 9.6% for the first quarter of 1995. The aggregate
increase was primarily the result of reaching the necessary administrative
personnel levels and increased communication costs due to the California and
Tennessee operations. The increase as a percentage of net sales is a result of
the decreased sales volume in the first quarter of 1996.
Operating income (loss) for the first quarter of 1996 decreased by 102.8%
to $(71,000) from $2,549,000 for the first quarter of 1995. As a percentage of
net sales, operating income (loss) for the first quarter of 1996 decreased to
(0.2%) from 7.3% for the first quarter of 1995, primarily as a result of the
factors discussed above.
Net interest expense for the first quarter of 1996 increased by 7.7% to
$926,000 from $860,000 for the first quarter of 1995. As a percentage of net
sales, such expenses for the first quarter of 1996 increased to 3.1% from 2.5%
for the first quarter of 1995. The aggregate increase was primarily a result
of a larger percentage of factored sales, higher interest rates and increased
levels of borrowings outstanding resulting primarily from working capital and
capital expenditure requirements. The increase as a percentage of net sales is
a result of the decreased sales volume in the first quarter of 1996.
8
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Net income (loss) for the first quarter of 1996 decreased by 159.0% to
$(643,000) from $1,089,000 for the first quarter of 1995. As a percentage of
net sales, net income (loss) for the first quarter of 1996 decreased to (2.1)%
compared to net income of 3.1% for the first quarter of 1995, primarily as a
result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing for its operations and capital requirements
historically has been a combination of long-term borrowings, factoring of
accounts receivable and internally generated funds. The Company's capital
requirements have increased historically because of capital requirements for
capacity expansion and working capital needs to support sales growth. A
significant portion of capital expansion has historically been financed with
long-term mortgage indebtness. Factoring of accounts receivable has played an
important role in providing cash to fund increased inventory requirements
necessary for sales growth.
After reflecting changes in current assets and current liabilities,
operating activities provided net cash of $3,879,000 in the first quarter of
1996 as compared to providing $776,000 in the first quarter of 1995. For the
first quarter of 1996, cash provided by operations was primarily the result of
a higher percentage of factored sales than in prior years, as well as the
collection of a 1995 overpayment of income taxes.
Net cash used by investing activities was $1,442,000 in the first quarter
of 1996 as compared to $1,740,000 used in the first quarter of 1995. Net
capital expenditures in the first quarter of 1996 were $1,442,000 as compared
to $1,740,000 in the first quarter of 1995 and were incurred primarily in
connection with a new management information system and the completion of the
centralized fabric storage, cutting and distribution center and administrative
offices. Capital expenditures were funded primarily with long-term borrowings.
In the first quarter of 1996, financing activities used net cash of
$2,619,000 as compared to $1,658,000 provided in the first quarter of 1995 and
reflected repayment of long-term borrowings of $3,750,000. During the first
quarter of 1996, the Company issued 300,000 shares of its common stock,
resulting in cash proceeds of $1,131,000.
The Company factors most of its customer accounts receivable with The CIT
Group/BCC, Inc., ("CIT") under a $45,000,000 credit facility (the "CIT Credit
Facility") which is secured by receivables, inventory and equipment. The terms
of the CIT Credit Facility, as amended on March 29, 1996, allow borrowings
equal to (i) the lesser of (a) 95% of eligible factored receivables and 85% of
eligible non-factored receivables or (b) $30,000,000 and (ii) the lesser of (a)
60% of eligible inventory or (b) $11,000,000. The CIT Facility matures on July
31, 1998 and bears interest at CIT's base rate plus one percent (9.25% as of
March 31, 1996).
The Company also has a $6,000,000 term loan with CIT for Gaines (the
"Gaines Term Loan"), which is secured by Gaines' manufacturing real estate and
equipment. The Gaines Term Loan, as amended on March 29, 1996, provides for
principal payments under a five year note with a seven year amortization and
bears interest at CIT's base rate plus one percent (9.75% as of March
31, 1996). As of March 31, 1996, outstanding borrowings under the Gaines Term
Loan were $5,571,000.
9
<PAGE> 10
The Company has a $5,000,000 fully secured equipment line of credit with
Deposit Guaranty National Bank. The line, which is to be utilized to purchase
equipment and machinery as needed, matures on September 30, 1996 and is secured
by all assets purchased with such funds. The Company may, however, convert
minimum amounts of $500,000 outstanding to a term loan which will fully
amortize over an 84-month period and which would bear interest at (i) LIBOR
plus 175 basis points, (ii) the bank's prime rate, or (iii) seven-year Treasury
note plus 200 basis points. In January 1996, the Company converted the balance
of $810,000 under the term loan option. Outstanding borrowings on the
equipment line were $802,000 at March 31, 1996 and bear interest at LIBOR plus
175 basis points (7.18% as of March 31, 1996).
Also, the Company established a $2,000,000 fully secured real estate loan
with Deposit Guaranty National Bank (the"Deposit Guaranty Real Estate Loan")
which was utilized to purchase a new manufacturing facility in New Albany,
Mississippi. The Deposit Guaranty Real Estate Loan is secured by the building
and land and matures on October 1, 2000. Outstanding borrowings under this
facility at March 31, 1996 were $1,958,000 and bear interest at LIBOR plus 175
basis points (7.19% at March 31, 1996).
The Company has construction/term loan agreements in the amount of
$5,250,000 with the Bank of Mississippi (the "New BOM Construction Loans"), the
proceeds of which were used for the construction of a centralized fabric
storage, cutting and distribution center. The BOM Construction Loan
agreements, which originally matured on January 2, 1997, were converted on May
6, 1996 to a long term real estate loan that matures on May 6, 2001 and bears
interest at the bank's prime rate (8.25% at March 31, 1996). As of March 31,
1996, outstanding borrowings under the New BOM Construction Loans were
$5,250,000.
Management anticipates that the Company's capital expenditures for the
remaining three quarters of 1996 will be approximately $1,700,000. These
estimated capital expenditures consist primarily of the completion of the
administrative offices and the completion of the new management information
system.
RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") issued by FASB is effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The disclosure requirements of FAS 123 are also effective for financial
statements for fiscal years beginning after December 15, 1995. The new
standard encourages entities to adopt a fair value method of accounting for
employee stock-based compensation plans and requires such accounting for
transactions in which an entity acquires goods or services form non-employees
through issuance of equity instruments. As allowed under the provisions of FAS
123, the Company will continue to measure compensation cost of employee
stock-based compensation plans using the intrinsic value based method of
accounting prescribed by the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." As such, the Company will make pro
forma disclosures in its annual financial statements
10
<PAGE> 11
of net income and earnings per share as if the fair value based method of
accounting had been applied.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q
concerning the effects of the reorganization of certain of the Company's
facilities and the implementation of new information systems are
forward-looking in nature. Such forward-looking statements are necessarily
estimates reflecting the Company's best judgment of its expected future results
of operations and performance based upon current information and, as a result,
involve a number of risks and uncertainties. Because of the prospective nature
of such forward-looking statements, the Company's future results of operations
and performance may differ materially from those estimated by the Company as a
result of a variety of factors, including the cyclical and seasonal nature of
the furniture market, the availability and cost of labor and raw materials, the
Company's ability to expand the geographic scope of its operations, general
conditions in the economy and capital markets, and other factors which may be
identified from time to time in the Company's Securities and Exchange
Commission filings and other public announcements.
INFLATION
Although the effects on the Company cannot be accurately determined,
inflation in recent years has primarily affected the Company's manufacturing
costs in the areas of labor, manufacturing overhead and raw materials,
including lumber. The Company does not believe that inflation has had a
significant impact on its result of operations for the periods presented.
Historically, the Company believes it has been able to minimize the effects of
inflation by improving its purchasing efficiency, increasing its employee
productivity and, to a lesser degree, increasing selling prices of its
products.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 4, 1993, the trustees of the Ansin Foundation, established by a
former shareholder of the Company, and an executor of the estate of the former
shareholder, filed a complaint in the United States District Court, District of
Massachusetts, against the Company and the Chief Executive Officer and the
Secretary of Company, both of whom are also Company directors. The complaint
contained allegations of fraud, breach of fiduciary duty and unfair and
deceptive business practices in connection with the repurchase of the former
shareholder's shares because of alleged misstatements and omissions as to the
value of the former shareholder's shares and the financial condition of the
Company and the failure by the defendants to disclose plans for a subsequent
initial public offering.
On March 25, 1996, the trial in this matter commenced, and on, April 8,
1996, the jury returned a verdict awarding damages against the Company in the
amount of $2.3 million. Additionally, the jury awarded damages against each of
the Chief Executive Officer and the Secretary in his individual capacity. The
Company intends to contest the jury's verdict in the District Court by applying
for a judgment notwithstanding the verdict and, if necessary, by taking an
appeal to the United States Court of Appeals for the First Circuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Descriptions of Exhibits
------- ------------------------
<S> <C>
10.1 Amendments to the $45,000,000 Credit Facility between the
Registrant and CIT Group/BCC, Inc.
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
The Company has not filed any current reports of Form 8-K during the
first quarter of 1996.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
RIVER OAKS FURNITURE, INC.
Date: May 14, 1996 /s/ John D. Nail
-----------------------
John D. Nail
President
Date: May 14, 1996 /s/ Johnny C. Walker
-----------------------
Johnny C. Walker
Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Exhibits Page Number
- ----------- ---------------------------------------------------- -----------
<S> <C> <C>
10.1 Amendments to the $45,000,000 Credit Facility between the 15
Registrant and CIT Group/BCC, Inc.
27 Financial Data Schedule (for SEC use only)
</TABLE>
14
<PAGE> 1
EXHIBIT 10.1
15
<PAGE> 2
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated this ____ day of March, 1996, is made by and among
GAINES MANUFACTURING COMPANY, a Tennessee corporation (the
"Borrower");
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation (the
"Lender"); and
RIVER OAKS FURNITURE, INC., a Mississippi corporation, R.O. WEST,
INC., a California corporation, and R.O. EAST, INC., a Mississippi corporation
(collectively, the "Guarantors"),
to the Loan and Security Agreement, dated July 25, 1995 (as amended,
modified, restated or supplemented from time to time, the "Loan Agreement"),
between the Borrower and the Lender. All capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Loan
Agreement.
RECITALS
A. Pursuant to the Loan Agreement, the Lender has agreed to make
loans and extend credit to the Borrower in the amounts, upon the terms and
subject to the conditions contained therein.
B. To induce the Lender to enter into the Loan Agreement, and to
make the loans and extend the credit to the Borrower contemplated thereby, each
of the Guarantors executed and delivered to the Lender its respective Guaranty
of all of the Obligations owing from time to time by the Borrower to the
Lender, whether under the Loan Agreement or otherwise.
C. Certain Events of Default have occurred and currently exist
under the River Oaks Loan Agreement which constitute a corresponding Event of
Default under the Loan Agreement pursuant to Section 10.1.17 thereof. The
Borrower and the Guarantors have requested that the Lender waive such existing
Events of Default under the River Oaks Loan Agreement and amend certain of the
financial covenants set forth therein which gave rise to the occurrence of such
Events of Default.
D. The Lender has agreed to such requests provided, among other
things, the Borrower and the Guarantors agree to amend the Loan Agreement and
certain of the other Loan Documents as set forth herein.
E. To accomplish the foregoing, the Borrower, the Lender and the
Guarantors have agreed to execute this Amendment.
<PAGE> 3
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the Borrower, the Guarantors and the Lender hereby
agree as follows:
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
The Loan Agreement is hereby amended as follows:
1.1 Rate of Interest - Revolver Loans. Section 2.1.1, Rate of
Interest - Revolver Loans, is amended in its entirety to read as follows:
"2.1.1 Rate of Interest - Revolver Loans. Subject to the
provisions of subsection 2.1.4 of this Agreement, Borrower agrees to
pay interest on the unpaid principal amount of the Revolver Loans
outstanding from the respective dates such principal amounts are
advanced until paid (whether at stated maturity, on acceleration, or
otherwise) at a variable rate per annum equal to the Base Rate in
effect from time to time plus one percent (1.0%)."
1.2 Rates of Interest - Term Loan. Section 2.1.2, Rates of
Interest - Term Loan, is amended in its entirety to read as follows:
"2.1.2 Rate of Interest - Term Loan. Subject to the
provisions of subsection 2.1.4 of this Agreement, Borrower agrees to
pay interest on the unpaid principal amount outstanding under the Term
Loan from the date the Term Loan is advanced until paid (whether at
stated maturity, on acceleration, or otherwise) at a variable rate per
annum equal to the Base Rate in effect from time to time plus one and
one-half percent (1.5%)."
1.3 Selection of Interest Rate; Computation of Interest. Section
2.1.3, Selection of Interest Rate; Computation of Interest, is amended as
follows:
(a) The heading of Section 2.1.2 is amended to read
"Computation of Interest"; and
(b) Section 2.1.3(i) is deleted in its entirety and in
lieu thereof is substituted the following:
"(i) For any month in which the Base Rate applies, changes in
the rate of interest due to a change in the Base Rate shall take
effect as of the opening of business on the day that any such change
in the Base Rate becomes effective."
2
<PAGE> 4
1.4 Audit Fees and Expenses. Section 2.3, Audit Fees and
Expenses, is amended by deleting in clause (ii) thereof, the figure "50,000"
and by substituting in lieu thereof the figure "$70,000".
1.5 Illegality. Section 2.6, Illegality, is deleted in its
entirety and in lieu thereof is substituted the phrase "RESERVED".
1.6 Increased Costs. Section 2.7, Increased Costs, is deleted in
its entirety and in lieu thereof is substituted the phrase "RESERVED".
1.7 Appendix A. Appendix A, General Definitions, is amended by
deleting the definitions of "Base Rate Advance", "Eurocurrency Liabilities",
"LIBOR Rate", "LIBOR Rate Advance" and "Statutory Reserves" in their entirety.
ARTICLE II
MODIFICATION OF LOAN DOCUMENTS AND CONDITIONS
2.1 Loan Documents. The Loan Agreement and each of the other Loan
Documents are amended to provide that any reference therein to the Loan
Agreement or any of the other Loan Documents shall mean, unless otherwise
specifically provided, the Loan Agreement and the other Loan Documents as
amended hereby, and as further amended, restated, supplemented or modified from
time to time.
2.2 Factoring Agreement. Section 14.3 of the Factoring Agreement
is amended in its entirety to read as follows:
"14.3 In no event shall the factoring fee or commission
payable by you hereunder for each calendar month or part thereof
during the period in which this Agreement is in effect when added to
the factoring fee or commission payable by R. O. West, Inc. and River
Oaks Furniture, Inc. under their respective factoring agreements with
us for such month or part thereof, be less than $37,917 for the first
and second years of the Original Term and $32,084 for the third year
of the Original Term or for any Renewal Term."
2.3 Consent by Guarantors. The Guarantors hereby consent to, and
agree to be bound by, each of the amendments to the Loan Agreement and the
other Loan Documents set forth herein.
2.4 Conditions. The effectiveness of this Amendment is
conditioned upon (a) the payment by River Oaks to the Lender of a fee in the
amount of $25,000 as required by Section 2.4 of that certain First Amendment to
the River Oaks Loan Agreement executed of even date herewith, (b) the execution
and delivery by the Borrower and the Guarantors of amendments to each of the
West Loan Agreement and the River Oaks Loan Agreement containing terms
3
<PAGE> 5
substantially identical to the terms hereof, and (c) the execution and delivery
by the Borrower and the Guarantors of the amendments to each of the
Notification Factoring Agreements between the Lender and Borrower, the Lender
and West and the Lender and River Oaks deleting therefrom the last two
sentences of each paragraph 14.2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower and the Guarantors each hereby represent and warrant to
the Lender that:
3.1 Compliance With the Loan Agreement. As of the execution of
this Agreement, and after giving effect to the waivers of the Events of Default
set forth in Section 4.2 of that certain First Amendment to the River Oaks Loan
Agreement executed of even date herewith, the Borrower and its Subsidiaries are
in compliance with all of the terms and provisions set forth in the Loan
Agreement and the other Loan Documents to be observed or performed.
3.2 Representations in Loan Documents. The representations and
warranties of the Borrower and the Guarantors set forth in the Loan Agreement
and the other Loan Documents are true and correct in all material respects
except to the extent that such representations and warranties relate solely to
or are specifically expressed as of a particular date or period which is past
or expired as of the date hereof.
3.3 No Event of Default. After giving effect to the waiver of the
Events of Default by the Lender as set forth in Section 4.2 of that certain
First Amendment to the River Oaks Loan Agreement executed of even date
herewith, no Default or Event of Default exists.
3.4 Acknowledgments by the Borrower and the Guarantors. The
Borrower and the Guarantors each acknowledges and agrees that:
(a) As of the close of business on March 26, 1996, the
aggregate principal amount of the Advances owing by the Borrower under the Loan
Agreement is in the sum of $10,722,047, consisting of $5,571,428 outstanding
under the Term Loan and $5,150,619 of Revolver Loans outstanding;
(b) All of the Advances owing by the Borrower to the
Lender as set forth in Section 4.1(a) above are absolutely due and owing by the
Borrower to the Lender without any defenses, deductions, offsets or
counterclaims; and
(c) The Loan Documents executed by the Borrower and the
Guarantors are the legal, valid and binding obligations of the Borrower and the
Guarantors that are parties thereto, enforceable in accordance with their
respective terms without any defenses, deductions, offsets or counterclaims.
4
<PAGE> 6
ARTICLE IV
GENERAL
4.1 Full Force and Effect. As expressly amended hereby, the Loan
Agreement and the other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof. As used in the Loan Agreement and
the other Loan Documents, "hereinafter", "hereto", "hereof", or words of
similar import, shall, unless the context otherwise requires, mean the Loan
Agreement or the other Loan Documents, as the case may be, as amended by this
Amendment.
4.2 Applicable Law. This Amendment shall be governed by and
construed in accordance with the internal laws and judicial decisions of the
State of North Carolina.
4.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one and the same instrument.
4.4 Further Assurances. The Borrower and each Guarantor shall
execute and deliver to the Lender such documents, certificates and opinions as
the Lender may reasonably request to effect the amendments contemplated by this
Amendment.
4.5 Headings. The headings of this Amendment are for the purpose
of reference only and shall not effect the construction of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers to be effective on
the day and year first above written.
BORROWER:
GAINES MANUFACTURING COMPANY
By: ____________________________________
Title: _____________________________
5
<PAGE> 7
LENDER:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: ____________________________________
Title: _____________________________
GUARANTORS:
RIVER OAKS FURNITURE, INC.
By: ____________________________________
Title: _____________________________
R.O. WEST, INC.
By: ____________________________________
Title: _____________________________
R.O. EAST, INC.
By: ____________________________________
Title: _____________________________
6
<PAGE> 8
FIRST AMENDMENT TO
FACTORING AGREEMENT
THIS FIRST AMENDMENT ("Amendment"), dated this ____ day of March,
1996, is made by and among
RIVER OAKS FURNITURE, INC., a Mississippi corporation (the "Client");
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation (the
"Lender"); and
GAINES MANUFACTURING COMPANY, a Tennessee corporation, R.O. WEST,
INC., a California corporation, and R.O. EAST, INC., a Mississippi corporation
(collectively, the "Guarantors"),
to the Notification Factoring Agreement, dated July 25, 1995 (as
amended, modified, restated or supplemented from time to time, the "Factoring
Agreement"), between the Client and the Lender. All capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Factoring Agreement.
RECITALS
A. Pursuant to the Factoring Agreement, Lender has agreed to
extend certain factoring accommodations to Client.
B. Client and Lender have agreed to amend certain provisions of
the Factoring Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
expressly acknowledged, Client and Lender hereby agree as follows:
ARTICLE I
AMENDMENTS TO FACTORING AGREEMENT
The Factoring Agreement is hereby amended retroactively to the
calendar year ended December 31, 1995 by deleting the last two sentences of
paragraph 14.2 in their entirety.
<PAGE> 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Client hereby represents and warrants to Lender that:
(a) Compliance With the Factoring Agreement. As of the
execution of this Amendment, Client is in compliance with all of the terms and
provisions set forth in the Factoring Agreement to be observed or performed by
Client, except where the failure of Client to comply has been waived in writing
by Lender.
(b) Representations in Factoring Agreement. The
representations and warranties of Client set forth in the Factoring Agreement
are true and correct in all material respects.
(c) No Event of Default. No event of default exists
under the Factoring Agreement.
ARTICLE III
MODIFICATION OF FACTORING AGREEMENT
3.1 Factoring Agreement. Any individual or collective reference
to the Factoring Agreement shall hereafter mean the Factoring Agreement as
amended by this Amendment, and as further amended, restated, supplemented or
modified from time to time.
3.2 Consent of Guarantors. The Guarantors hereby consent to, and
agree to be bound by, each of the amendments to the Factoring Agreement set
forth herein.
ARTICLE IV
GENERAL
(a) Full Force and Effect. Except as expressly amended
hereby, the Factoring Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used in the Factoring Agreement,
"hereinafter", "hereto", "hereof", or words of similar import, shall mean the
Factoring Agreement, as amended by this Amendment.
(b) Applicable Law. This Amendment shall be governed by
and construed in accordance with the internal laws and judicial decisions of
the State of North Carolina.
(c) Headings. The headings of this Amendment are for the
purpose of reference only and shall not effect the construction of this
Amendment.
-2-
<PAGE> 10
(d) Waiver of Jury Trial. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, CLIENT AND LENDER EACH WAIVE RIGHT TO A JURY TRIAL
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE
FACTORING AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered under seal by their duly authorized officers to be
effective as of the date first above written.
CLIENT:
RIVER OAKS FURNITURE, INC.
By: ____________________________________
Title: _____________________________
LENDER:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: ____________________________________
Title: _____________________________
GUARANTORS:
GAINES MANUFACTURING COMPANY
By: ____________________________________
Title: _____________________________
R.O. WEST, INC.
By: ____________________________________
Title: _____________________________
[signatures continued on next page]
R.O. EAST, INC.
-3-
<PAGE> 11
By: ____________________________________
Title: _____________________________
-4-
<PAGE> 12
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated this ____ day of March, 1996, is made by and among
R. O. WEST, INC., a California corporation (the "Borrower");
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation (the
"Lender"); and
RIVER OAKS FURNITURE, INC., a Mississippi corporation, GAINES
MANUFACTURING COMPANY, a Tennessee corporation, and R.O. EAST, INC., a
Mississippi corporation (collectively, the "Guarantors"),
to the Loan and Security Agreement, dated July 25, 1995 (as amended,
modified, restated or supplemented from time to time, the "Loan Agreement"),
between the Borrower and the Lender. All capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Loan
Agreement.
RECITALS
A. Pursuant to the Loan Agreement, the Lender has agreed to make
loans and extend credit to the Borrower in the amounts, upon the terms and
subject to the conditions contained therein.
B. To induce the Lender to enter into the Loan Agreement, and to
make the loans and extend the credit to the Borrower contemplated thereby, each
of the Guarantors executed and delivered to the Lender its respective Guaranty
of all of the Obligations owing from time to time by the Borrower to the
Lender, whether under the Loan Agreement or otherwise.
C. Certain Events of Default have occurred and currently exist
under the River Oaks Loan Agreement which constitute a corresponding Event of
Default under the Loan Agreement pursuant to Section 10.1.17 thereof. The
Borrower and the Guarantors have requested that the Lender waive such existing
Events of Default under the River Oaks Loan Agreement and amend certain of the
financial covenants set forth therein which gave rise to the occurrence of such
Events of Default.
D. The Lender has agreed to such requests provided, among other
things, the Borrower and the Guarantors agree to amend the Loan Agreement and
certain of the other Loan Documents as set forth herein.
<PAGE> 13
E. To accomplish the foregoing, the Borrower, the Lender and the
Guarantors have agreed to execute this Amendment.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the Borrower, the Guarantors and the Lender hereby
agree as follows:
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
The Loan Agreement is hereby amended as follows:
1.1 Rate of Interest - Revolver Loans. Section 2.1.1, Rate of
Interest - Revolver Loans, is amended in its entirety to read as follows:
"2.1.1 Rate of Interest - Revolver Loans. Subject to the
provisions of subsection 2.1.3 of this Agreement, Borrower agrees to
pay interest on the unpaid principal amount of the Revolver Loans
outstanding from the respective dates such principal amounts are
advanced until paid (whether at stated maturity, on acceleration, or
otherwise) at a variable rate per annum equal to the Base Rate in
effect from time to time plus one percent (1.0%)."
1.2 Selection of Interest Rate; Computation of Interest. Section
2.1.2, Selection of Interest Rate; Computation of Interest, is amended as
follows:
(a) The heading of Section 2.1.2 is amended to read
"Computation of Interest"; and
(b) Section 2.1.2(i) is deleted in its entirety and in
lieu thereof is substituted the following:
"(i) For any month in which the Base Rate applies, changes in
the rate of interest due to a change in the Base Rate shall take
effect as of the opening of business on the day that any such change
in the Base Rate becomes effective."
1.3 Audit Fees and Expenses. Section 2.3, Audit Fees and
Expenses, is amended by deleting in clause (ii) thereof, the figure "50,000"
and by substituting in lieu thereof the figure "$70,000".
1.4 Illegality. Section 2.6, Illegality, is deleted in its
entirety and in lieu thereof is substituted the phrase "RESERVED".
2
<PAGE> 14
1.5 Increased Costs. Section 2.7, Increased Costs, is deleted in
its entirety and in lieu thereof is substituted the phrase "RESERVED".
1.6 Appendix A. Appendix A, General Definitions, is amended by
deleting the definitions of "Base Rate Advance", "Eurocurrency Liabilities",
"LIBOR Rate", "LIBOR Rate Advance" and "Statutory Reserves" in their entirety.
ARTICLE II
MODIFICATION OF LOAN DOCUMENTS AND CONDITIONS
2.1 Loan Documents. The Loan Agreement and each of the other Loan
Documents are amended to provide that any reference therein to the Loan
Agreement or any of the other Loan Documents shall mean, unless otherwise
specifically provided, the Loan Agreement and the other Loan Documents as
amended hereby, and as further amended, restated, supplemented or modified from
time to time.
2.2 Consent by Guarantors. The Guarantors hereby consent to, and
agree to be bound by, each of the amendments to the Loan Agreement and the
other Loan Documents set forth herein.
2.3 Conditions. The effectiveness of this Amendment is
conditioned upon (a) the payment by River Oaks to the Lender of a fee in the
amount of $25,000 as required by Section 2.4 of that certain First Amendment to
the River Oaks Loan Agreement executed of even date herewith, (b) the execution
and delivery by the Borrower and the Guarantors of amendments to each of the
Gaines Loan Agreement and the River Oaks Loan Agreement containing terms
substantially identical to the terms hereof, and (c) the execution and delivery
by the Borrower and the Guarantors of the amendments to each of the
Notification Factoring Agreements between the Lender and Borrower, the Lender
and Gaines and the Lender and River Oaks deleting therefrom the last two
sentences of each paragraph 14.2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower and the Guarantors each hereby represent and warrant to
the Lender that:
3.1 Compliance With the Loan Agreement. As of the execution of
this Agreement, and after giving effect to the waivers of the Events of Default
set forth in Section 4.2 of that certain First Amendment to the River Oaks Loan
Agreement executed of even date herewith, the Borrower and its Subsidiaries are
in compliance with all of the terms and provisions set forth in the Loan
Agreement and the other Loan Documents to be observed or performed.
3.2 Representations in Loan Documents. The representations and
warranties of the Borrower and the Guarantors set forth in the Loan Agreement
and the other Loan Documents are
3
<PAGE> 15
true and correct in all material respects except to the extent that such
representations and warranties relate solely to or are specifically expressed
as of a particular date or period which is past or expired as of the date
hereof.
3.3 No Event of Default. After giving effect to the waiver of the
Events of Default by the Lender as set forth in Section 4.2 of that certain
First Amendment to the River Oaks Loan Agreement executed of even date
herewith, no Default or Event of Default exists.
3.4 Acknowledgments by the Borrower and the Guarantors. The
Borrower and the Guarantors each acknowledges and agrees that:
(a) As of the close of business on March 26, 1996, the
aggregate principal amount of the Advances owing by the Borrower under the Loan
Agreement is in the sum of $3,747,323;
(b) All of the Advances owing by the Borrower to the
Lender as set forth in Section 4.1(a) above are absolutely due and owing by the
Borrower to the Lender without any defenses, deductions, offsets or
counterclaims; and
(c) The Loan Documents executed by the Borrower and the
Guarantors are the legal, valid and binding obligations of the Borrower and the
Guarantors that are parties thereto, enforceable in accordance with their
respective terms without any defenses, deductions, offsets or counterclaims.
ARTICLE IV
GENERAL
4.1 Full Force and Effect. As expressly amended hereby, the Loan
Agreement and the other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof. As used in the Loan Agreement and
the other Loan Documents, "hereinafter", "hereto", "hereof", or words of
similar import, shall, unless the context otherwise requires, mean the Loan
Agreement or the other Loan Documents, as the case may be, as amended by this
Amendment.
4.2 Applicable Law. This Amendment shall be governed by and
construed in accordance with the internal laws and judicial decisions of the
State of North Carolina.
4.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one and the same instrument.
4
<PAGE> 16
4.4 Further Assurances. The Borrower and each Guarantor shall
execute and deliver to the Lender such documents, certificates and opinions as
the Lender may reasonably request to effect the amendments contemplated by this
Amendment.
4.5 Headings. The headings of this Amendment are for the purpose
of reference only and shall not effect the construction of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers to be effective on
the day and year first above written.
BORROWER:
R. O. WEST, INC.
By: ____________________________________
Title: _____________________________
LENDER:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: ____________________________________
Title: _____________________________
GUARANTORS:
RIVER OAKS FURNITURE, INC.
By: ____________________________________
Title: _____________________________
GAINES MANUFACTURING COMPANY
By: ____________________________________
Title: _____________________________
R.O. EAST, INC.
5
<PAGE> 17
By: ____________________________________
Title: _____________________________
6
<PAGE> 18
FIRST AMENDMENT TO
FACTORING AGREEMENT
THIS FIRST AMENDMENT ("Amendment"), dated this ____ day of March,
1996, is made by and among
GAINES MANUFACTURING COMPANY, a Tennessee corporation (the "Client");
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation (the
"Lender"); and
RIVER OAKS FURNITURE, INC., a Mississippi corporation, R.O. WEST,
INC., a California corporation, and R.O. EAST, INC., a Mississippi corporation
(collectively, the "Guarantors"),
to the Notification Factoring Agreement, dated July 25, 1995 (as
amended, modified, restated or supplemented from time to time, the "Factoring
Agreement"), between the Client and the Lender. All capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Factoring Agreement.
RECITALS
A. Pursuant to the Factoring Agreement, Lender has agreed to
extend certain factoring accommodations to Client.
B. Client and Lender have agreed to amend certain provisions of
the Factoring Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
expressly acknowledged, Client and Lender hereby agree as follows:
ARTICLE I
AMENDMENTS TO FACTORING AGREEMENT
The Factoring Agreement is hereby amended retroactively to the
calendar year ended December 31, 1995 by deleting the last two sentences of
paragraph 14.2 in their entirety.
<PAGE> 19
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Client hereby represents and warrants to Lender that:
(a) Compliance With the Factoring Agreement. As of the
execution of this Amendment, Client is in compliance with all of the terms and
provisions set forth in the Factoring Agreement to be observed or performed by
Client, except where the failure of Client to comply has been waived in writing
by Lender.
(b) Representations in Factoring Agreement. The
representations and warranties of Client set forth in the Factoring Agreement
are true and correct in all material respects.
(c) No Event of Default. No event of default exists
under the Factoring Agreement.
ARTICLE III
MODIFICATION OF FACTORING AGREEMENT
3.1 Factoring Agreement. Any individual or collective reference
to the Factoring Agreement shall hereafter mean the Factoring Agreement as
amended by this Amendment, and as further amended, restated, supplemented or
modified from time to time.
3.2 Consent of Guarantors. The Guarantors hereby consent to, and
agree to be bound by, each of the amendments to the Factoring Agreement set
forth herein.
ARTICLE IV
GENERAL
(a) Full Force and Effect. Except as expressly amended
hereby, the Factoring Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used in the Factoring Agreement,
"hereinafter", "hereto", "hereof", or words of similar import, shall mean the
Factoring Agreement, as amended by this Amendment.
(b) Applicable Law. This Amendment shall be governed by
and construed in accordance with the internal laws and judicial decisions of
the State of North Carolina.
(c) Headings. The headings of this Amendment are for the
purpose of reference only and shall not effect the construction of this
Amendment.
-2-
<PAGE> 20
(d) Waiver of Jury Trial. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, CLIENT AND LENDER EACH WAIVE RIGHT TO A JURY TRIAL
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE
FACTORING AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered under seal by their duly authorized officers to be
effective as of the date first above written.
CLIENT:
GAINES MANUFACTURING COMPANY
By: ____________________________________
Title: _____________________________
LENDER:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: __________________________________
Title: _____________________________
GUARANTORS:
RIVER OAKS FURNITURE, INC.
By: ____________________________________
Title: _____________________________
R.O. WEST, INC.
By: ____________________________________
Title: _____________________________
[signatures continued on next page]
R.O. EAST, INC.
-3-
<PAGE> 21
By: ____________________________________
Title: _____________________________
-4-
<PAGE> 22
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated this ____ day of March, 1996, is made by and among
RIVER OAKS FURNITURE, INC., a Mississippi corporation (the
"Borrower");
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation (the
"Lender"); and
GAINES MANUFACTURING COMPANY, a Tennessee corporation, R.O. WEST,
INC., a California corporation, and R.O. EAST, INC., a Mississippi corporation
(collectively, the "Guarantors"),
to the Loan and Security Agreement, dated July 25, 1995 (as amended,
modified, restated or supplemented from time to time, the "Loan Agreement"),
between the Borrower and the Lender. All capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Loan
Agreement.
RECITALS
A. Pursuant to the Loan Agreement, the Lender has agreed to make
loans and extend credit to the Borrower in the amounts, upon the terms and
subject to the conditions contained therein.
B. To induce the Lender to enter into the Loan Agreement, and to
make the loans and extend the credit to the Borrower contemplated thereby, each
of the Guarantors executed and delivered to the Lender its respective Guaranty
of all of the Obligations owing from time to time by the Borrower to the
Lender, whether under the Loan Agreement or otherwise.
C. Certain Events of Default have occurred and currently exist
under the Loan Agreement. The Borrower and the Guarantors have requested that
the Lender waive such existing Events of Default and amend certain of the
financial covenants set forth in Section 8.1.3 of the Loan Agreement.
D. The Lender has agreed to such requests provided, among other
things, the Borrower and the Guarantors agreed to amend the Loan Agreement and
certain of the other Loan Documents as set forth herein.
E. To accomplish the foregoing, the Borrower, the Lender and the
Guarantors have agreed to execute this Amendment.
<PAGE> 23
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the Borrower, the Guarantors and the Lender hereby
agree as follows:
ARTICLE I
AMENDMENTS TO LOAN AGREEMENT
The Loan Agreement is hereby amended as follows:
1.1 Rate of Interest - Revolver Loans. Section 2.1.1, Rate of
Interest - Revolver Loans, is amended in its entirety to read as follows:
"2.1.1 Rate of Interest - Revolver Loans. Subject to the
provisions of subsection 2.1.3 of this Agreement, Borrower agrees to
pay interest on the unpaid principal amount of the Revolver Loans
outstanding from the respective dates such principal amounts are
advanced until paid (whether at stated maturity, on acceleration, or
otherwise) at a variable rate per annum equal to the Base Rate in
effect from time to time plus one percent (1.0%)."
1.2 Selection of Interest Rate; Computation of Interest. Section
2.1.2, Selection of Interest Rate; Computation of Interest, is amended as
follows:
(a) The heading of Section 2.1.2 is amended to read
"Computation of Interest"; and
(b) Section 2.1.2(i) is deleted in its entirety and in
lieu thereof is substituted the following:
"(i) For any month in which the Base Rate applies, changes in
the rate of interest due to a change in the Base Rate shall take
effect as of the opening of business on the day that any such change
in the Base Rate becomes effective."
1.3 Audit Fees and Expenses. Section 2.4, Audit Fees and
Expenses, is amended by deleting in clause (ii) thereof, the figure "50,000"
and by substituting in lieu thereof the figure "$70,000".
1.4 Illegality. Section 2.7, Illegality, is deleted in its
entirety and in lieu thereof is substituted the phrase "RESERVED".
1.5 Increased Costs. Section 2.8, Increased Costs, is deleted in
its entirety and in lieu thereof is substituted the phrase "RESERVED".
2
<PAGE> 24
1.6 Repayment of Revolver Loans. Section 3.2.1, Repayment of
Revolver Loans, is amended by deleting clause (ii) thereof in its entirety and
by substituting in lieu thereof the following:
"(ii) The Seasonal Revolver Loans shall be payable upon
Lender's Demand."
1.7 Additional Real Property Liens. If the Seasonal Revolver
Loans are not paid in full on or before May 30, 1996, then, as soon as
practicable thereafter, but in no event more than thirty (30) days thereafter
without Lender's prior written approval, Borrower and its Subsidiaries shall:
(i) Execute, deliver and record at the expense of
Borrower such mortgages, deeds of trust, assignment of rents, UCC
financing statements and other loan documentation as Lender or its
counsel may reasonably request to grant to Lender, as additional
security for all of the Obligations owing to Lender, a perfected first
priority Lien in all of the Additional Real Property, all in a form
reasonably acceptable to Lender and its counsel;
(ii) Deliver to Lender, at the expense of
Borrower, (1) mortgagee title insurance policies in amounts and issued
by title insurance companies satisfactory to Lender, insuring a valid
first priority Lien in favor of Lender in the Additional Real Property
subject only to easements, exceptions, reservations, rights of way and
other similar encumbrances which do not materially detract from the
value of the Additional Real Property or do not materially impair the
use thereof in the operations of Borrower and its Subsidiaries; (2)
phase I environmental assessments or audits of the Additional Real
Property conducted by one or more environmental engineers selected by
Borrower and reasonably acceptable to Lender, together with a letter
from each such environmental engineer addressed to Lender advising
Lender that it is entitled to rely on such environmental reports in
extending credit to Borrower pursuant to this Agreement; (3) current
surveys of each parcel of the Additional Real Property; and (4)
appraisals of the Additional Real Property conducted by one or more
MAI appraisers selected by Borrower and reasonably acceptable to
Lender; and
(iii) Pay all reasonable expenses, legal or
otherwise, incurred by Lender in connection with the obtaining of a
Lien in the Additional Real Property, including, without limitation,
legal fees and expenses, recording fees, mortgage taxes, title
insurance premiums, survey expenses, appraisal expenses, and similar
closing costs.
1.8 Consolidated Adjusted Tangible Net Worth. Section 8.3.1,
Consolidated Adjusted Tangible Net Worth, is amended in its entirety to read as
follows:
3
<PAGE> 25
"8.3.1 Consolidated Adjusted Tangible Net Worth. Borrower
and its Subsidiaries shall maintain at all times a Consolidated
Adjusted Tangible Net Worth of not less than the amount shown below
for the period corresponding thereto:
<TABLE>
<CAPTION>
Consolidated Adjusted
Period Tangible Net Worth
------ ----------------------
<S> <C>
December 31, 1995 through and $26,200,000
including March 30, 1996
March 31, 1996 through $26,318,000
June 29, 1996
June 30, 1996 through and including $27,086,000
September 29, 1996
September 30, 1996 through and $27,855,000
including December 30, 1996
December 31, 1996 through and $28,992,000
including March 30, 1997
March 31, 1997 through and $36,717,000
including June 29, 1997
June 30, 1997 through and including $38,043,000
September 29, 1997
September 30, 1997 through and $39,497,000
including December 30, 1997
December 31, 1997 and at all times $41,056,000"
thereafter
</TABLE>
1.9 Book Net Worth. Section 8.3.2, Book Net Worth, is amended in
its entirety to read as follows:
"8.3.2 Book Net Worth. Borrower and its Subsidiaries shall
maintain a Book Net Worth at all times of not less than the amount
shown below for the period corresponding thereto:
4
<PAGE> 26
<TABLE>
<CAPTION>
Period Book Net Worth
------ --------------
<S> <C>
December 31, 1995 through and $33,100,000
including March 30, 1996
March 31, 1996 through $33,127,000
June 29, 1996
June 30, 1996 through and including $33,844,000
September 29, 1996
September 30, 1996 through and $34,562,000
including December 30, 1996
December 31, 1996 through and $35,648,000
including March 30, 1997
March 31, 1997 through and $43,092,000
including June 29, 1997
June 30, 1997 through and including $44,370,000
September 29, 1997
September 30, 1997 through and $45,780,000
including December 30, 1997
December 31, 1997 and at all times $47,295,000"
thereafter
</TABLE>
1.10 Consolidated Debt Service Coverage Ratio. Section 8.3.3,
Consolidated Debt Service Coverage Ratio, is amended in its entirety to read
as follows:
"8.3.3 Consolidated Debt Service Coverage Ratio. Borrower
and its Subsidiaries shall maintain a Consolidated Debt Service
Coverage Ratio of not less than the ratio shown below for the period
corresponding thereto:
First fiscal quarter of fiscal year 0.48 to 1.0
ending December 31, 1996
Second fiscal quarter of fiscal year 1.15 to 1.0
ending December 31, 1996
5
<PAGE> 27
<TABLE>
<CAPTION>
Period Ratio
------- -----
<S> <C>
Third fiscal quarter of fiscal year 1.29 to 1.0
ending December 31, 1996
Fourth fiscal quarter of fiscal year 1.55 to 1.0
ending December 31, 1996
First fiscal quarter of fiscal year 2.7 to 1.0
ending December 31, 1997
Second fiscal quarter of fiscal year 2.3 to 1.0
ending December 31, 1997
Third fiscal quarter of fiscal year 2.4 to 1.0
ending December 31, 1997
Fourth fiscal quarter of fiscal year 2.4 to 1.0"
ending December 31, 1997 and
each fiscal quarter thereafter
</TABLE>
1.11 Consolidated Interest Coverage Ratio. Section 8.3.4,
Consolidated Interest Coverage Ratio, is amended in its entirety to read as
follows:
"8.3.4 Consolidated Interest Coverage Ratio. Borrower and
its Subsidiaries shall maintain a Consolidated Interest Coverage
Ratio of not less than the ratio shown below for the period
corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------- -----
<S> <C>
First fiscal quarter of fiscal year .86 to 1.0
ending December 31, 1996
Second fiscal quarter of fiscal year 2.34.to 1.0
ending December 31, 1996
Third fiscal quarter of fiscal year 2.64 to 1.0
ending December 31, 1996
Fourth fiscal quarter of fiscal year 3.03 to 1.0
ending December 31, 1996
</TABLE>
6
<PAGE> 28
<TABLE>
<CAPTION>
Period Ratio
------- -----
<S> <C>
First fiscal quarter of fiscal year 4.6 to 1.0
ending December 31, 1997
Second fiscal quarter of fiscal year 4.0 to 1.0
ending December 31, 1997
Third fiscal quarter of fiscal year 4.0 to 1.0
ending December 31, 1997
Fourth fiscal quarter of fiscal year 3.9 to 1.0"
ending December 31, 1997 and
each fiscal quarter thereafter
</TABLE>
1.12 Consolidated Leverage Ratio. Section 8.3.5, Consolidated
Leverage Ratio, is amended in its entirety to read as follows:
"8.3.5 Consolidated Leverage Ratio. Borrower and its
Subsidiaries shall maintain a Consolidated Leverage Ratio of not less than the
ratio shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------- -----
<S> <C>
December 31, 1995 through and 2.15 to 1.0
including March 30, 1996
March 31, 1996 through 2.43 to 1.0
June 29, 1996
June 30, 1996 through and including 2.28 to 1.0
September 29, 1996
September 30, 1996 through and 2.12 to 1.0
including December 30, 1996
December 31, 1996 through and 2.01 to 1.0
including March 30, 1997
March 31, 1997 through and 1.0 to 1.0
including June 29, 1997
</TABLE>
7
<PAGE> 29
<TABLE>
<CAPTION>
Period Ratio
------- -----
<S> <C>
June 30, 1997 through and including 1.0 to 1.0
September 29, 1997
September 30, 1997 through and 1.0 to 1.0
including December 30, 1997
December 31, 1997 and at all times 1.1 to 1.0"
thereafter
</TABLE>
1.13 Capital Expenditures. Section 8.3.6, Capital Expenditures,
is amended in its entirety to read as follows:
8.3.6 Capital Expenditures. Borrower and its Subsidiaries
shall not make Capital Expenditures (including, without limitation,
by way of capitalized leases) which, in the aggregate, as to Borrower
and its Subsidiaries, exceed $600,000 during the fourth fiscal quarter
of the fiscal year ending December 31, 1995; $572,000 during the
first, second, third or fourth fiscal quarters of the fiscal year
ending December 31, 1996; and $250,000 during any fiscal quarter of
any fiscal year thereafter."
1.14 Consolidated Working Capital. Section 8.3.7, Consolidated
Working Capital, is amended in its entirety to read as follows:
"8.3.7 Consolidated Working Capital. Borrower and its
Subsidiaries shall maintain Consolidated Working Capital of not less
than the amount shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Consolidated Working Capital
------ ----------------------------
<S> <C>
December 31, 1995 through and $44,800,000
including March 30, 1996
March 31, 1996 through $39,915,000
June 29, 1996
June 30, 1996 through and including $39,298,000
September 29, 1996
September 30, 1996 through and $37,985,000
including December 30, 1996
</TABLE>
8
<PAGE> 30
<TABLE>
<CAPTION>
Period Consolidated Working Capital
------ ----------------------------
<S> <C>
December 31, 1996 through and $38,900,000
including March 30, 1997
March 31, 1997 through and $37,036,000
including June 29, 1997
June 30, 1997 through and including $36,689,000
September 29, 1997
September 30, 1997 through and $42,156,000
including December 30, 1997
December 31, 1997 and at all times $45,581,000"
thereafter
</TABLE>
1.15 Appendix A. Appendix A, General Definitions, is amended as
follows:
(a) The definitions of "Base Rate Advance", "Eurocurrency
Liabilities", "LIBOR Rate", "LIBOR Rate Advance" and "Statutory Reserves" are
deleted in their entirety.
(b) The definition of "Seasonal Borrowing Base Amount" is
amended in its entirety to read as follows:
"Seasonal Borrowing Base Amount" - such amount as Lender shall
elect, in the exercise of its sole discretion, to include within the
Borrowing Base, but in no event shall the Seasonal Borrowing Base
Amount exceed at any time the sum of $5,000,000 at any time from the
date of the First Amendment to the Agreement through May 30, 1996 and
zero ($-0-) on May 31, 1996 and at all times thereafter."
(c) An additional definition of "Additional Real
Property" is added as follows:
"Additional Real Property - all of the real Property of
Borrower and Gaines except for (i) the real Property of Gaines in
which Gaines has granted Lender a Lien pursuant to the Gaines Loan
Agreement, and (ii) the real Property of Borrower located in Belden,
Lee County, Mississippi which is erroneously referred to in Section
8.2.4(vi) of the Agreement as Tupelo, Lee County, Mississippi, and New
Albany, Union County, Mississippi."
9
<PAGE> 31
ARTICLE II
MODIFICATION OF LOAN DOCUMENTS AND CONDITIONS
2.1 Loan Documents. The Loan Agreement and each of the other Loan
Documents are amended to provide that any reference therein to the Loan
Agreement or any of the other Loan Documents shall mean, unless otherwise
specifically provided, the Loan Agreement and the other Loan Documents as
amended hereby, and as further amended, restated, supplemented or modified from
time to time.
2.2 Factoring Agreement. Section 14.3 of the Factoring Agreement
is amended in its entirety to read as follows:
"14.3 In no event shall the factoring fee or commission
payable by you hereunder for each calendar month or part thereof
during the period in which this Agreement is in effect when added to
the factoring fee or commission payable by R. O. West, Inc. and Gaines
Manufacturing Company under their respective factoring agreements with
us for such month or part thereof, be less than $37,917 for the first
and second years of the Original Term and $32,084 for the third year
of the Original Term or for any Renewal Term."
2.3 Consent by Guarantors. The Guarantors hereby consent to, and
agree to be bound by, each of the amendments to the Loan Agreement and the
other Loan Documents set forth herein.
2.4 Conditions. The effectiveness of this Amendment and the
waivers of the Events of Default set forth in Section 4.2 hereof is conditioned
upon (a) the payment by the Borrower to the Lender of a fee in the amount of
$25,000 payable upon the execution hereof by the Borrower, (b) the execution
and delivery by the Borrower and the Guarantors of amendments to each of the
West Loan Agreement and the Gaines Loan Agreement containing terms
substantially identical to the terms hereof, and (c) the execution and delivery
by the Borrower and the Guarantors of the amendments to each of the
Notification Factoring Agreements between the Lender and Borrower, the Lender
and West and the Lender and Gaines deleting therefrom the last two sentences of
each paragraph 14.2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower and the Guarantors each hereby represent and warrant to
the Lender that:
3.1 Compliance With the Loan Agreement. As of the execution of
this Agreement, and after giving effect to the waivers of the Events of Default
set forth in Section 4.2 below, the
10
<PAGE> 32
Borrower and its Subsidiaries are in compliance with all of the terms and
provisions set forth in the Loan Agreement and the other Loan Documents to be
observed or performed.
3.2 Representations in Loan Documents. The representations and
warranties of the Borrower and the Guarantors set forth in the Loan Agreement
and the other Loan Documents are true and correct in all material respects
except to the extent that such representations and warranties relate solely to
or are specifically expressed as of a particular date or period which is past
or expired as of the date hereof.
3.3 No Event of Default. After giving effect to the waiver of the
Events of Default by the Lender as set forth in Section 4.2 below, no Default
or Event of Default exists.
ARTICLE IV
WAIVERS OF EVENTS OF DEFAULT
4.1 Acknowledgments by the Borrower and the Guarantors. The
Borrower and the Guarantors each acknowledges and agrees that:
(a) As of the close of business on March 26, 1996, the
aggregate principal amount of the Advances owing by the Borrower under the Loan
Agreement is in the sum of $22,416,606;
(b) All of the Advances owing by the Borrower to the
Lender as set forth in Section 4.1(a) above are absolutely due and owing by the
Borrower to the Lender without any defenses, deductions, offsets or
counterclaims;
(c) The Loan Documents executed by the Borrower and the
Guarantors are the legal, valid and binding obligations of the Borrower and the
Guarantors that are parties thereto, enforceable in accordance with their
respective terms without any defenses, deductions, offsets or counterclaims;
(d) The following Events of Default (the "Existing Events
of Default") under the Loan Agreement currently exist: (i) the failure of the
Borrower to repay in full all of the Seasonal Revolver Loans outstanding under
the Loan Agreement on January 22, 1995 (which is 180 consecutive days after the
first funding thereof on July 25, 1995) in violation of Section 3.2.1(ii) of
the Loan Agreement; (ii) the failure of the Borrower and its Subsidiaries to
maintain a Book Net Worth of at least $35,535,000 for the period from September
30, 1995 through December 30, 1995 in violation of Section 8.3.2 of the Loan
Agreement; (iii) the failure of the Borrower and its Subsidiaries to maintain a
Consolidated Debt Service Coverage Ratio of not less than 3.0 to 1.0 for the
third fiscal quarter of fiscal year ending December 31, 1995 in violation of
Section 8.3.3 of the Loan Agreement; (iv) the failure of the Borrower and its
Subsidiaries to maintain a Consolidated Interest Coverage Ratio of not less
than 3.4 to 1.0 for the third fiscal quarter of the fiscal year ending December
31, 1995 in violation of Section 8.3.4 of the Loan
11
<PAGE> 33
Agreement; (v) the failure of the Borrower and its Subsidiaries to maintain a
Consolidated Leverage Ratio of less than 1.6 to 1.0 for the period from
September 30, 1995 through December 30, 1995 in violation of Section 8.3.5 of
the Loan Agreement; (vi) the making by the Borrower and its Subsidiaries of
Capital Expenditures for the third fiscal quarter of the fiscal year ending
December 31, 1995 in excess of $1,750,000 in violation of Section 8.3.6 of the
Loan Agreement; and (vii) the failure of the Borrower and its Subsidiaries to
maintain a Consolidated Working Capital of not less than $37,885,000 for the
period from September 30, 1995 through December 30, 1995 in violation of
Section 8.3.7 of the Loan Agreement; and
(e) Prior to the execution of this Amendment by the
Lender and the granting of the waiver of the Existing Events of Default as set
forth in Section 4.2 hereof, the Existing Events of Default have not been
waived by the Lender and, as a result of the occurrence thereof, the Lender is
entitled to collect from the Borrower and the Guarantors, pursuant to Section
2.13 of the Loan Agreement and each of the Gaines Loan Agreement and the West
Loan Agreement, interest at the Default Rate on all of the loans outstanding
thereunder from the period from February 1, 1996 through and including the date
of the execution of this Amendment by the Lender.
4.2 Waiver of Existing Events of Default. In reliance upon the
representations, warranties, acknowledgments and agreements of the Borrower and
the Guarantors set forth in this Amendment, the Lender hereby waives
enforcement of its rights against the Borrower and the Guarantors arising from
the Existing Events of Default to the extent, and only to the extent, that the
Existing Events of Default occurred or existed for any periods ending on or
before December 31, 1995. This waiver shall be effective only for the Existing
Events of Default and only for periods through and including December 31, 1995,
and in no event shall this waiver be deemed to be a waiver of (a) enforcement
of the Lender's rights with respect to any other Event of Default now existing
or hereafter arising or (b) compliance by the Borrower and its Subsidiaries
with the covenants and other provisions of the Loan Agreement referenced in
Section 4.1(d) above at any time after December 31, 1995 or any of the other
covenants or provisions set forth in the Loan Agreement or the other Loan
Documents.
ARTICLE V
GENERAL
5.1 Full Force and Effect. As expressly amended hereby, the Loan
Agreement and the other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof. As used in the Loan Agreement and
the other Loan Documents, "hereinafter", "hereto", "hereof", or words of
similar import, shall, unless the context otherwise requires, mean the Loan
Agreement or the other Loan Documents, as the case may be, as amended by this
Amendment.
5.2 Applicable Law. This Amendment shall be governed by and
construed in accordance with the internal laws and judicial decisions of the
State of North Carolina.
12
<PAGE> 34
5.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one and the same instrument.
5.4 Further Assurances. The Borrower and each Guarantor shall
execute and deliver to the Lender such documents, certificates and opinions as
the Lender may reasonably request to effect the amendments contemplated by this
Amendment.
5.5 Headings. The headings of this Amendment are for the purpose
of reference only and shall not effect the construction of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers to be effective on
the day and year first above written.
BORROWER:
RIVER OAKS FURNITURE, INC.
By: ____________________________________
Title: _____________________________
LENDER:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: ____________________________________
Title: _____________________________
GUARANTORS:
GAINES MANUFACTURING COMPANY
By: ____________________________________
Title: _____________________________
R.O. WEST, INC.
By: ____________________________________
Title: _____________________________
13
<PAGE> 35
[signatures continued on next page]
R.O. EAST, INC.
By: ____________________________________
Title: _____________________________
14
<PAGE> 36
FIRST AMENDMENT TO
FACTORING AGREEMENT
THIS FIRST AMENDMENT ("Amendment"), dated this ____ day of March,
1996, is made by and among
R. O. WEST, INC., a California corporation (the "Client");
THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation (the
"Lender"); and
RIVER OAKS FURNITURE, INC., a Mississippi corporation, GAINES
MANUFACTURING COMPANY, a Tennessee corporation, and R.O. EAST, INC., a
Mississippi corporation (collectively, the "Guarantors"),
to the Notification Factoring Agreement, dated July 25, 1995 (as
amended, modified, restated or supplemented from time to time, the "Factoring
Agreement"), between the Client and the Lender. All capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Factoring Agreement.
RECITALS
A. Pursuant to the Factoring Agreement, Lender has agreed to
extend certain factoring accommodations to Client.
B. Client and Lender have agreed to amend certain provisions of
the Factoring Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
expressly acknowledged, Client and Lender hereby agree as follows:
ARTICLE I
AMENDMENTS TO FACTORING AGREEMENT
The Factoring Agreement is hereby amended retroactively to the
calendar year ended December 31, 1995 by deleting the last two sentences of
paragraph 14.2 in their entirety.
<PAGE> 37
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Client hereby represents and warrants to Lender that:
(a) Compliance With the Factoring Agreement. As of the
execution of this Amendment, Client is in compliance with all of the terms and
provisions set forth in the Factoring Agreement to be observed or performed by
Client, except where the failure of Client to comply has been waived in writing
by Lender.
(b) Representations in Factoring Agreement. The
representations and warranties of Client set forth in the Factoring Agreement
are true and correct in all material respects.
(c) No Event of Default. No event of default exists
under the Factoring Agreement.
ARTICLE III
MODIFICATION OF FACTORING AGREEMENT
3.1 Factoring Agreement. Any individual or collective reference
to the Factoring Agreement shall hereafter mean the Factoring Agreement as
amended by this Amendment, and as further amended, restated, supplemented or
modified from time to time.
3.2 Consent of Guarantors. The Guarantors hereby consent to, and
agree to be bound by, each of the amendments to the Factoring Agreement set
forth herein.
ARTICLE IV
GENERAL
(a) Full Force and Effect. Except as expressly amended
hereby, the Factoring Agreement shall continue in full force and effect in
accordance with the provisions thereof. As used in the Factoring Agreement,
"hereinafter", "hereto", "hereof", or words of similar import, shall mean the
Factoring Agreement, as amended by this Amendment.
(b) Applicable Law. This Amendment shall be governed by
and construed in accordance with the internal laws and judicial decisions of
the State of North Carolina.
(c) Headings. The headings of this Amendment are for the
purpose of reference only and shall not effect the construction of this
Amendment.
-2-
<PAGE> 38
(d) Waiver of Jury Trial. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, CLIENT AND LENDER EACH WAIVE RIGHT TO A JURY TRIAL
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE
FACTORING AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered under seal by their duly authorized officers to be
effective as of the date first above written.
CLIENT:
R. O. WEST, INC.
By: ____________________________________
Title: _____________________________
LENDER:
THE CIT GROUP/COMMERCIAL SERVICES,
INC.
By: ____________________________________
Title: _____________________________
GUARANTORS:
RIVER OAKS FURNITURE, INC.
By: ____________________________________
Title: _____________________________
GAINES MANUFACTURING COMPANY
By: ____________________________________
Title: _____________________________
[signatures continued on next page]
R.O. EAST, INC.
-3-
<PAGE> 39
By: ____________________________________
Title: _____________________________
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 317
<SECURITIES> 0
<RECEIVABLES> 7,517
<ALLOWANCES> (708)
<INVENTORY> 22,055
<CURRENT-ASSETS> 30,922
<PP&E> 32,904
<DEPRECIATION> (3,398)
<TOTAL-ASSETS> 67,318
<CURRENT-LIABILITIES> 13,388
<BONDS> 0
0
0
<COMMON> 561
<OTHER-SE> 33,595
<TOTAL-LIABILITY-AND-EQUITY> 67,318
<SALES> 29,855
<TOTAL-REVENUES> 29,855
<CGS> 26,221
<TOTAL-COSTS> 30,852
<OTHER-EXPENSES> 4,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 926
<INCOME-PRETAX> (997)
<INCOME-TAX> (354)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (643)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0.00
</TABLE>
