<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 June 30, 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 offices) (Zip Code)
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 August 14, 1996, 5,605,641 shares of the registrant's Common Stock
were outstanding.
1
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT:
Cash & cash equivalents $ 403 $ 499
Accounts receivable , less allowance for possible
losses of $706 and $707 (Note 3) 10,547 10,549
Income taxes refundable - 1,114
Inventories (Notes 2 and 3) 20,552 20,682
Prepaid expenses and other current assets 1,326 483
Deferred income taxes 560 541
------- -------
TOTAL CURRENT ASSETS 33,388 33,868
------- -------
PROPERTY AND EQUIPMENT,
less accumulated depreciation 30,074 28,413
OTHER ASSETS, primarily costs in excess of
net assets acquired 6,704 7,085
------- -------
TOTAL ASSETS $70,166 $69,366
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable 12,278 9,660
Accrued expenses 491 1,431
Current maturities of long-term debt (Note 3) 1,604 1,845
------- -------
TOTAL CURRENT LIABILITIES 14,373 12,936
DEFERRED INCOME TAXES 384 335
LONG-TERM DEBT, less current maturities (Note 3) 21,226 22,428
------- -------
TOTAL LIABILITIES 35,983 35,699
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
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 (Note 4) 27,528 26,427
Retained earnings (Note 3) 6,289 6,904
Notes receivable from shareholders (163) (163)
Treasury stock, at cost, 2,500 shares (32) (32)
------- -------
TOTAL SHAREHOLDERS' EQUITY 34,183 33,667
------- -------
TOTAL LIABILITIES & SHAREHOLDERS' $70,166 $69,366
EQUITY ======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
2
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RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED QUARTER ENDED
------------------------- ------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
NET SALES $61,571 $69,901 $31,717 $34,859
COST OF GOODS SOLD 53,328 58,161 27,111 29,120
------- ------- ------- -------
GROSS PROFIT 8,243 11,740 4,606 5,739
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 7,162 7,022 3,497 3,536
------- ------- ------- -------
OPERATING INCOME 1,081 4,718 1,109 2,203
INTEREST EXPENSE - Net 2,033 1,585 1,064 759
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (952) 3,133 45 1,444
INCOME TAXES (BENEFIT) (338) 1,112 16 513
------- ------- ------- -------
NET INCOME (LOSS) ($ 614) $ 2,021 $ 29 $ 931
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE ($ 0.11) $ 0.38 $ 0.01 $ 0.18
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES AND SHARE
EQUIVALENTS OUTSTANDING 5,607 5,311 5,612 5,312
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements (unaudited).
3
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RIVER OAKS FURNITURE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWO
QUARTERS ENDED
------------------------
JUNE 30, JULY 1,
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($ 614) $2,021
Depreciation & amortization 1,119 800
Deferred income taxes 30 -
Changes in operating assets and liabilities
Accounts receivable 2 4,117
Inventories 130 (2,278)
Prepaid expenses and other assets (843) (466)
Accounts payable and accrued expenses 1,678 (2,052)
Refundable income taxes 1,114 -
------ ------
Net cash provided by operating activities 2,616 2,142
------ ------
Cash flows from investing activities
Purchase of property and equipment (2,400) (4,210)
------ ------
Net cash used by investing activities (2,400) (4,210)
------ ------
Cash flows from financing activities
Principal payments on long-term debt (441) (279)
Proceeds from issuance of long-term debt 500 -
Net repayments under long-term lines of credit (1,502) -
Net proceeds from issuance of common stock (Note 4) 1,131 -
Net proceeds under short-term debt agreements 4,033
------ ------
Net cash (used) provided by financing activities (312) 3,754
------ ------
Net increase (decrease) in cash and cash (96) 1,686
equivalents
Cash and cash equivalents, beginning of period 499 1,154
------ ------
Cash and cash equivalents, end of period $ 403 $2,840
====== ======
Supplemental disclosure of cash flows information:
June 30, July 1,
Cash paid (received) during the two quarters ending: 1996 1995
-------- -------
Interest 1,922 1,583
Income taxes (1,114) 1,227
</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 first two
quarters ended June 30, 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>
June 30, December 31,
1996 1995
------- ------------
<S> <C> <C>
Finished goods $ 4,796 $ 3,377
Work-in-process 4,520 4,634
Raw materials 11,236 12,671
------- -------
Total $20,552 $20,682
======= =======
</TABLE>
5
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3. LONG-TERM DEBT
At June 30, 1996 the Company had a $45,000,000 credit facility with
its factor, The CIT Group/Commercial Services, Inc. ("CIT"). The credit
facility was 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, provided 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 matured on July
31, 1998 with automatic annual renewals thereafter, subject to CIT's approval,
and bore interest at CIT's base rate plus one percent (9.25% as of June 30,
1996). At June 30, 1996 the outstanding balance under the line of credit
portion of the facility was $9,044,000.
The credit facility contained certain restrictive covenants which,
among other things, required the maintenance of specific financial covenants of
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 indebtness, the
declaration and payment of dividends and distributions and transactions with
affiliates. Under the above provisions, all of the Company's retained earnings
at June 30, 1996 were restricted as to availability for payment of dividends.
The Company also had a $6,000,000 term loan with CIT for Gaines (the
"Gaines Term Loan"), which was secured by Gaines' manufacturing real estate and
equipment. The Gaines Term Loan, as amended on March 29, 1996, provided for
principal payments under a five year note with a seven year amortization and
bore interest at CIT's base rate plus one and one-half percent (9.75% as of
June 30, 1996). As of June 30, 1996, outstanding borrowings under the Gaines
Term Loan were $5,399,000.
On July 26, 1996, the Company entered into a Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with BNY Financial Corporation
("BNYFC") and other lenders (the "Banks"), which together with related
agreements (collectively, the "Financing Documents") provides the Company and
its direct and indirect subsidiaries with a $42 million revolving credit
facility (with a $3 million overadvance sublimit), a $9 million term loan, and
certain factoring arrangements (collectively, the "BNYFC Facility"). Proceeds
of the BNYFC Facility have been used to refinance the Company's indebtedness to
CIT described above, with the CIT Facility being terminated effective July 26,
1996. Additional proceeds are available under the BNYFC Facility to the
Company and its direct and indirect subsidiaries for working capital purposes,
subject to the satisfaction of the terms and conditions established by the
Financing Documents, including without limitation, compliance with borrowing
base requirements. The BNYFC Facility is secured by substantially all of the
Company's assets, excluding certain real property.
Revolving loans under the Credit Facility bear interest at a floating
rate per annum equal to, at the election of the Company, either (i) 1.5% over
the one month London Interbank Offered Rate (as published in The Wall Street
Journal), or (ii) the higher of the prime rate of the Bank of New York or 0.50%
over the federal funds rate; subject in either case to a 0.50% increase if any
overadvances are outstanding for more than four days in any month. The term
loan under the BNYFC Facility bears interest at a floating rate equal to, at
the election of the Company, either (i) 2.50% over the one month London
Interbank Offered Rate (as published in The Wall Street Journal), or (ii) 1.00%
over the higher of (A) the prime rate of the Bank of New York or (B) 0.50% over
the federal funds rate; subject in either case to a 0.50% reduction
6
<PAGE> 7
if the outstanding principle amount of the term loan is $7 million or less and
no default or event of default exists.
The BNYFC Facility terminates on July 26, 1999, subject to successive
one year extensions thereafter unless notice of non-renewal is given by the
Banks or the Company 90 days prior to the termination date. The Credit
Facility is subject to earlier termination at the option of the Banks upon the
occurrence of certain "Events of Default" enumerated in the Loan Documents.
All amounts due to the Banks are payable upon the termination of the Credit
Facility for any reason. The term loan requires 59 equal monthly payments of
principal in the amount of $107,142.86 commencing September 1, 1996, with all
remaining principal and other amounts owing to the Banks being payable in full
on the earlier to occur of (i) the termination of the Credit Facility, and (ii)
July 26, 2001.
The Financing Documents contain provisions that are customary for
financing transactions of this type, including representations, warranties,
conditions, covenants, and default provisions. Among other things, the Company
is required to maintain profitability and certain consolidated financial ratios
while the Credit Facility is in place, including ratios relating to tangible
net worth, interest coverage, debt service coverage, indebtedness to tangible
net worth, working capital, and the excess of current assets over current
liabilities. The consolidated performance thresholds required by the tangible
net worth, working capital, and current ratios increase quarterly through
December 31, 1998, and the thresholds required by the interest coverage, debt
service coverage, and indebtedness to tangible net worth ratios increase
annually through December 31, 1998.
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 need, 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 then
outstanding balance of $810,000 under the term loan option. Outstanding
borrowings on the equipment line were $764,000 at June 30, 1996 and bears
interest at LIBOR plus 175 basis points (7.22% as of June 30, 1996).
Further, on May 6, 1996, the Company converted the outstanding balance
on its Construction Loan Agreements with the Bank of Mississippi, which were
due January 1997, to a $5,650,000 long-term real estate loan and a $100,000
short-term real estate loan (the "BOM Real Estate Loans"), bearing interest,
payable monthly at the bank's prime (8.25% at June 30, 1996). The new
long-term real estate loan provides for monthly principle payments of $31,390,
with the balance due in May 2001. The new short-term real estate loan provides
for monthly principle payments of $8,335, with the balance due in May 1997.
7
<PAGE> 8
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- ------------
<S> <C> <C>
Long-term line of credit $ 9,044 $10,942
Term loan 5,399 5,786
BOM real estate loan 5,662 4,663
Equipment loan 764 810
Real estate facility 1,902 1,980
Capitalized lease obligations 48 70
Other 11 22
------- -------
Total debt 22,830 24,273
Less current maturities (1,604) (1,845)
------- -------
Total long-term debt $21,226 $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.
5. LEASE AGREEMENTS
On July 11, 1996, the Company entered into a property management
agreement with the Bank of Mississippi for a manufacturing facility located in
Booneville, Mississippi. This agreement will allow the Bank of Mississippi the
time necessary to complete its foreclosure proceedings against a third party
and will terminate on the foreclosure sale date, at which time the Company will
initiate a twelve month lease for the building with the Bank of Mississippi.
On July 11, 1996, the Company also entered into a twelve month lease
agreement with the F & B Leasing, LCC for the equipment and furniture located
at the Booneville, Mississippi facility. The lease provides for a $1,500 per
month lease payment and contains an option for the Company to extend the lease
for another twelve month term at the end of the lease period and an option to
purchase, at any time, the furniture and equipment for an amount, not to exceed
$150,000.
The agreement and lease above allow the Company to further complement
it's existing lines with upholstered motion furniture.
6. LITIGATION
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 the 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.
8
<PAGE> 9
On March 25, 1996, the trial in this matter commenced, and on, April
8, 1996, the jury returned a verdict awarding compensatory damages against the
Company in the amount of $2.3 million. Additionally, the jury awarded
compensatory and punitive damages against each of the Chief Executive Officer
and the Secretary in their individual capacities. A notice of appeal has been
filed with the United States Court of Appeals for the First Circuit, and a
briefing schedule has been issued by such court. No schedule for oral
arguments on the appeal has been set.
9
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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>
Two Quarters Quarter
Ended Ended
-------------------------------- -----------------------------
June 30, July 1, June 30, July 1,
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.6 83.2 85.5 83.5
----- ----- ----- -----
Gross profit 13.4 16.8 14.5 16.5
Selling, general
and administrative
expenses 11.6 10.0 11.0 10.2
----- ----- ----- -----
Operating income 1.8 6.8 3.5 6.3
Interest expense - net 3.3 2.3 3.3 2.2
----- ----- ----- -----
Income before
income taxes (benefit) (1.5) 4.5 0.2 4.1
Income taxes (benefit) (0.5) 1.6 0.1 1.4
----- ----- ----- -----
Net income (loss) (1.0)% 2.9% 0.1% 2.7%
===== ===== ===== =====
</TABLE>
10
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QUARTER ENDED JUNE 30, 1996 COMPARED TO THE QUARTER ENDED JULY 1, 1995
Net sales for the second quarter ended June 30, 1996 decreased by
$3,142,000 or 9.0% to $31,717,000 from $34,859,000 for the second quarter
ended July 1, 1995. The decline in sales volume resulted primarily from a
continuing weak national retail environment. Overall sales volume of the River
Oaks product lines decreased by $2,868,000, or 10.7%, to $24,010,000 for the
second quarter of 1996 from $26,878,000 for the second quarter of 1995. The
River Oaks and River Crest product lines were responsible for $2,807,000 of
this decline. Sales of the Gaines product line also declined by $274,000 or
3.4% in the second quarter of 1996 as compared to the second quarter of 1995.
Cost of sales for the second quarter of 1996 decreased 6.9% to
$27,111,000 from $29,120,000 for the second quarter of 1995. The aggregate
decrease resulted primarily from decreased sales volume. As a percentage of
net sales, cost of sales for the second quarter of 1996 increased to 85.5% from
83.5% for the second quarter of 1995. This decline in gross profit margin was
due primarily to reduced levels of production caused by the soft retail
environment, partially offset by reductions in certain variable costs,
including duplicative labor, eliminated as a result of the consolidation of the
Fulton facility into New Albany, completed in March 1996. The Fulton facility
remains idled, except for a small sewing operation, to be held available for
future capacity requirements.
Selling, general and administrative expenses for the second quarter of
1996 decreased by 1.1% to $3,497,000 from $3,536,000 for the second quarter of
1995. As a percentage of net sales, such expenses in the second quarter of
1996 increased to 11.0% from 10.2% for the second quarter of 1995. The
aggregate decrease was primarily the result of a reduction in commission
expense relative to a reduction in sales volume. The increase as a percentage
of net sales is primarily a result of the decreased sales volume in the second
quarter of 1996.
Operating income for the second quarter of 1996 decreased 49.7% to
$1,109,000 from $2,203,000 for the second quarter of 1995. As a percentage of
net sales, operating income for the second quarter of 1996 decreased to 3.5%
from 6.3% for the second quarter of 1995, primarily as a result of the factors
discussed above.
Net interest expense for the second quarter of 1996 increased 40.2% to
$1,064,000 from $759,000 for the second quarter of 1995. As a percentage of
net sales, such expenses for the second quarter of 1996 increased to 3.3% from
2.2% for the second quarter of 1995. The aggregate increase was primarily a
result of higher interest rates and increased levels of borrowings outstanding
resulting 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 second quarter of 1996.
Net income for the second quarter of 1996 decreased by 96.9% to
$29,000 from $931,000 for the second quarter of 1995. As a percentage of net
sales, net income for the second quarter of 1996 decreased to 0.1% compared to
net income of 2.7% for the second quarter of 1995, primarily as a result of the
factors discussed above.
11
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TWO QUARTERS ENDED JUNE 30, 1996 COMPARED TO THE TWO QUARTERS ENDED JULY 1,
1995
Net sales for the first two quarters ended June 30, 1996 decreased by
$8,330,000 or 11.9% to $61,571,000 from $69,901,000 for the first two quarters
ended July 1, 1995. The decline in sales volume resulted primarily from a weak
national 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 in the first quarter.
Overall sales volume of the River Oaks product lines decreased by $7,354,000,
or 13.6%, to $46,631,000 for the first two quarters of 1996 from $53,985,000
for the first two quarters of 1995. The River Oaks and River Crest product
were responsible for $7,182,000 of the decline. Sales of the Gaines product
line also declined by $976,000 or 6.1% in the first two quarters of 1996 as
compared to the first two quarters of 1995. The Company's backlog at June 30,
1996 was approximately $13,000,000 as compared to approximately $16,900,000 at
December 31, 1995.
Cost of sales for the first two quarters of 1996 decreased 8.3% to
$53,328,000 from $58,161,000 for the first two quarters of 1995. The aggregate
decrease resulted primarily from decreased sales volume. As a percentage of
net sales, cost of sales for the first two quarters of 1996 increased to 86.6%
from 83.2% for the first two quarters 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 weak national retail environment, five days
of lost production due to a first quarter ice storm and the temporary
disruption related to the consolidation of two Mississippi facilities into one.
This was offset by reductions in certain variable costs including duplicative
labor eliminated by the consolidation of the Fulton facility into New Albany,
completed in March 1996. The Fulton facility remains idled, except for a small
sewing operation, for future capacity requirements.
Selling, general and administrative expenses for the first two
quarters of 1996 increased by 2.0% to $7,162,000 from $7,022,000 for the first
two quarters of 1995. As a percentage of net sales, such expenses in the first
two quarters of 1996 increased to 11.6% from 10.0% for the first two quarters
of 1995. The aggregate increase was primarily the result of reaching the
necessary administrative personnel levels in the first quarter. The increase
as a percentage of net sales is a result of the decreased sales volume in the
first two quarters of 1996.
Operating income for the first two quarters of 1996 decreased 77.1% to
$1,081,000 from $4,718,000 for the first two quarters of 1995. As a percentage
of net sales, operating income for the first two quarters of 1996 decreased to
1.8% from 6.8% for the first two quarters of 1995, primarily as a result of the
factors discussed above.
Net interest expense for the first two quarters of 1996 increased
28.3% to $2,033,000 from $1,585,000 for the first two quarters of 1995. As a
percentage of net sales, such expenses for the first two quarters of 1996
increased to 3.3% from 2.3% for the first two quarters of 1995. The aggregate
increase was primarily a result of higher interest rates and increased levels
of borrowings resulting 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 two quarters of 1996.
Net income (loss) for the first two quarters of 1996 decreased by
130.4% to $(614,000) from $2,021,000 for the first two quarters of 1995. As a
percentage of net sales, net income (loss) for the first two quarters of 1996
decreased to (1.0%) compared to net income of 2.9% for the first two quarters
of 1995, primarily as a result of the factors discussed above.
12
<PAGE> 13
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 in connection with 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 $2,616,000 in the first two quarters
of 1996 as compared to providing $2,142,000 in the first two quarters of 1995.
For the first two quarters 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, consisting primarily of capital
expenditures, was $2,400,000 in the first two quarters of 1996 compared to
$4,210,000 used in the first two quarters of 1995. Capital expenditures in
each period 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 two quarters of 1996, financing activities used net cash
of $312,000 compared to $3,754,000 provided in the first two quarters of 1995
and reflected repayment of long-term borrowings of $1,943,000. During the
first quarter of 1996, the Company issued 300,000 shares of its common stock,
resulting in cash proceeds of $1,131,000.
Until July, 1996 the Company factored 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 was secured by receivables,
inventory and equipment. The terms of the CIT Credit Facility, as amended on
March 29, 1996, allowed for 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 matured on July 31, 1998 and bore interest at
CIT's base rate plus one percent (9.25% as of June 30, 1996).
The Company also had a $6,000,000 term loan with CIT for Gaines (the
"Gaines Term Loan"), which was secured by Gaines' manufacturing real estate and
equipment. The Gaines Term Loan, as amended on March 29, 1996, provided for
principal payments under a five year note with a seven year amortization and
bore interest at CIT's base rate plus one and one-half percent (9.75% as of
June 30, 1996). As of June 30, 1996, outstanding borrowings under the Gaines
Term Loan were $5,399,000.
On July 26, 1996, the Company entered into a Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with BNY Financial Corporation
("BNYFC") and other lenders (the "Banks"), which together with related
agreements (collectively, the "Financing Documents") provides the Company and
its direct and indirect subsidiaries with a $42 million revolving credit
facility (with a $3 million overadvance sublimit), a $9 million term loan, and
certain factoring arrangements (collectively, the "BNYFC Facility"). Proceeds
of the BNYFC Facility have been used to refinance the Company's indebtedness to
CIT described above, with the CIT Facility being terminated effective July 26,
1996. Additional proceeds are available under the BNYFC Facility to the
Company and its direct and indirect subsidiaries for working capital purposes,
subject to the satisfaction of the terms and conditions
13
<PAGE> 14
established by the Financing Documents, including without limitation,
compliance with borrowing base requirements. The BNYFC Facility is secured by
substantially all of the Company's assets, excluding certain real property.
Revolving loans under the Credit Facility bear interest at a floating
rate per annum equal to, at the election of the Company, either (i) 1.5% over
the one month London Interbank Offered Rate (as published in The Wall Street
Journal), or (ii) the higher of the prime rate of the Bank of New York or 0.50%
over the federal funds rate; subject in either case to a 0.50% increase if any
overadvances are outstanding for more than four days in any month. The term
loan under the Credit Facility bears interest at a floating rate equal to, at
the election of the Company, either (i) 2.50% over the one month London
Interbank Offered Rate (as published in The Wall Street Journal), or (ii) 1.00%
over the higher of (A) the prime rate of the Bank of New York or (B) 0.50% over
the federal funds rate; subject in either case to a 0.50% reduction if the
outstanding principal amount of the term loan is $7 million or less and no
default or event of default exists.
The BNYFC Facility terminates on July 26, 1999, subject to successive
one year extensions thereafter unless notice of non-renewal is given by the
Banks or the Company 90 days prior to the termination date. The BNYFC
Facility is subject to earlier termination at the option of the Banks upon the
occurrence of certain "Events of Default" enumerated in the Loan Documents.
All amounts due to the Banks are payable upon the termination of the BNYFC
Facility for any reason. The term loan requires 59 equal monthly payments of
principal in the amount of $107,142.86 commencing September 1, 1996, with all
remaining principal and other amounts owing to the Banks being payable in full
on the earlier to occur of (i) the termination of the BNYFC Facility, and (ii)
July 26, 2001.
The Financing Documents contain provisions that are customary for
financing transactions of this type, including representations, warranties,
conditions, covenants, and default provisions. Among other things, the Company
is required to maintain profitability and certain consolidated financial ratios
while the BNYFC Facility is in place, including ratios relating to tangible
net worth, interest coverage, debt service coverage, indebtedness to tangible
net worth, working capital, and the excess of current assets over current
liabilities. The consolidated performance thresholds required by the tangible
net worth, working capital, and current ratios increase quarterly through
December 31, 1998, and the thresholds required by the interest coverage, debt
service coverage, and indebtedness to tangible net worth ratios increase
annually through December 31, 1998.
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 $764,000 at June 30, 1996 and bears interest at LIBOR plus
175 basis points (7.22% as of June 30, 1996).
Also, the Company has 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 June 30, 1996 were $1,902,000 and bear interest at LIBOR plus 175
basis points (7.22% at June 30, 1996).
14
<PAGE> 15
The Company had construction/term loan agreements 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 and a short term
real estate loan that mature on May 6, 2001 and May 1, 1997, respectively.
Both loans bear interest at the bank's prime rate (8.25% at June 30, 1996). As
of June 30, 1996, outstanding borrowings under the new long term and short term
BOM Construction Loans were $5,587,000 and $75,000, respectively.
Management anticipates that the Company's capital expenditures for the
remaining two quarters of 1996 will be approximately $800,000. These estimated
capital expenditures consist primarily of the completion of the new management
information system. See "Forward-Looking Statements."
On July 11, 1996, the Company entered into a property management
agreement and an equipment lease in Booneville, Mississippi that will allow the
company to begin production of upholstered motion furniture. Management
believes the ability to produce and market motion furniture will enhance the
Company's existing product lines and further its efforts to be a single source
supplier. See "Forward-Looking Statements."
In the event that a final, nonappealable judgment is rendered against
the Company in the litigation described under the caption "Legal Proceedings"
in Part II of this Quarterly Report on Form 10-Q (the "Ansin Litigation"), the
Company expects to rely upon its traditional sources of working capital,
including internally generated funds and long term borrowings, to satisfy any
such judgement. Although the ultimate outcome of litigation on appeal cannot
be predicted with certainty, management of the Company does not believe, based
upon discussions with counsel, that the ultimate outcome of the Ansin
Litigation will have a material adverse effect on the Company. See
"Forward-Looking Statements."
RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") issued by FASB is effective for fiscal
years that begin 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 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 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Quarterly Report on Form 10-Q (including statements concerning the
effects of the reorganization of certain of the Company's facilities, the
implementation of new information systems, expected capital expenditures, the
efforts of the Company to become a single source supplier, and the ultimate
outcome of the Ansin Litigation and the effect of such resolution on the
operations or financial results or position of the Company) 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, and the ultimate resolution and impact of the Ansin
Litigation, 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 uncertainties necessarily associated with appellate
litigation; the deference generally given to findings of fact made by juries;
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; changes in fashion or tastes; demographic changes;
competition; import protection and regulation; changes in business strategy or
development plans; availability, terms and deployment of capital; business
ability and judgement of management and other personnel; and other factors
which may be identified from time to time in the Company's Securities and
Exchange Commission filings and other public announcements. In addition to the
other factors, uncertainties and assumptions set forth in this Quarterly Report
on Form 10-Q, the Company's statements regarding the Ansin Litigation are made
in light of, and are based at least partially upon, the current financial
position of the Company.
15
<PAGE> 16
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.
16
<PAGE> 17
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 the 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 compensatory
damages against the Company in the amount of $2.3 million.
Additionally, the jury awarded compensatory and punitive damages
against each of the Chief Executive Officer and the Secretary in their
individual capacities. A notice of appeal has been filed with the
United States Court of Appeals for the First Circuit, and a briefing
schedule has been issued by such court. No schedule for oral
arguments on the appeal has been set. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May
22, 1996. During the Annual Meeting, the following three directors
were elected to serve until the 1999 Annual Meeting or their earlier
retirement from the Board of Directors:
<TABLE>
<CAPTION>
Director For Against Withheld
-------- --- ------- --------
<S> <C> <C> <C>
Stephen L. Simons 4,853,038 0 37,762
Thomas D. Keenum, Sr. 4,852,838 0 37,962
A. Douglas Jumper, Sr. 4,853,038 0 37,762
</TABLE>
The following individuals continued to serve as directors
after the Annual Meeting: John D. Nail, Johnny C. Walker, Don D.
Murphy, John B. Apple, R. Gerald Turner and John J. Chulick.
Additionally, during the Annual Meeting, the appointment of
BDO Seidman as independent accountants for the Company was ratified as
follows:
For Against Withheld Abstain
--- ------- -------- -------
4,871,115 13,485 0 6,200
Additionally, during the Annual Meeting, the approval of
amendments to the 1993 Non-Qualified Stock Option Plan was ratified
as follows:
For Against Withheld Abstain
--- ------- -------- -------
4,453,142 165,690 0 254,512
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Descriptions of Exhibits
------- ------------------------
<S> <C>
10.1 $5,650,000 construction/term loan agreement between the
Registrant and the Bank of Mississippi
10.2 $100,000 Construction/term loan agreement between the
Registrant and the Bank of Mississippi
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 second quarter of 1996.
17
<PAGE> 18
SIGNATURE
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: August 14, 1996 /s/ John D. Nail
--------------------------
John D. Nail
President
Date: August 14, 1996 /s/ Johnny C. Walker
--------------------------
Johnny C. Walker
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Exhibits Page Number
- ----------- ---------------------------------------------------------------------- -----------
<S> <C> <C>
10.1 $5,650,000 construction/term loan agreement between the 17
Registrant and the Bank of Mississippi
10.2 $100,000 Construction/term loan agreement between the Registrant 24
and the Bank of Mississippi
27 Financial Data Schedule (for SEC use only)
</TABLE>
19
<PAGE> 1
Exhibit 10.1
PROMISSORY NOTE
MAKER: River Oaks Furniture, Inc.
May 6, 1996
AMOUNT: $5,650,000.00 Tupelo, Mississippi
Customer No. 0145839
Note No. 97652
FOR VALUE RECEIVED, the undersigned, River Oaks Furniture, Inc., a
Mississippi Corporation, ("Maker"), hereby promises to pay to the order of the
Bank of Mississippi, a Mississippi banking corporation, Tupelo, Mississippi
("Lender"), payable at Lender's office in Tupelo, Mississippi, located at One
Mississippi Plaza, Post Office Box 789, Tupelo, Mississippi, 38802, in
immediately available funds and in lawful coin or currency of the United States
of America which shall be legal tender for payment of all debts and dues,
public and private, the principal sum of Five Million Six Hundred
Fifty-Thousand AND 00/100 DOLLARS ($5,650,000.00), together with interest from
and after the date hereof on the unpaid outstanding principal balance at a
floating rate of interest per annum set forth below.
This Promissory Note (this "Note") is referred to in and was delivered
pursuant to a Loan Agreement dated as of May 6, 1996,
between Maker and Lender. The term "Loan Agreement" includes such Loan
Agreement as it may be amended, modified, or extended from time to time,
together with all exhibits thereto. The terms, provisions, and conditions of
the Loan Agreement are by this reference made a part of this Note. If any
provision contained in this Note is in direct conflict with, or inconsistent
with, any provision in the Loan Agreement or any other documents, the provision
most favorable to Lender as determined by Lender shall control.
The following terms apply to this Note:
1. INTEREST. Interest shall accrue daily from the date hereof and shall
be at a floating rate equal to the Lender's Prime Rate, being that rate of
interest as shall be determined by the Lender, as it may from time to time
change ("Prime Rate"). Said Prime Rate is not intended to be Lender's lowest or
most favorable rate in effect at anytime. After the date hereof, the rate of
interest shall be adjusted by an amount equal to any increase or decrease in
the Prime Rate, with such adjustments to be effective as of the opening of
business on the day that any such change becomes effective, provided, however,
in no event shall the rate of interest under this Note exceed the maximum rate
of interest allowable by law. In the event Maker is in default under this
<PAGE> 2
Note, interest shall accrue daily from the date of default at the rate of two
percent (2.00%) per annum above the Prime Rate on the principal amount
outstanding from time to time until such time as the default shall have been
cured. Adjustments in the interest rate shall become effective without notice
to Maker and Maker hereby waives notice of any such adjustments. Interest
shall be calculated on the basis of a 365-day year. The Maker hereby
authorized the Lender to charge any account of the Maker for all sums due
hereunder.
2. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST. Unless accelerated
pursuant to the terms hereof, the principal of this Note together with accrued
and unpaid interest on the principal balance of this Note shall be due and
payable as follows:
a. Interest shall be payable in arrears on the first day of
each month commencing on the first day of
June, 1996 and continuing on the first day of each month thereafter
until the full principal sum has been paid;
b. Commencing on the first day of June, 1996, and continuing on the
first day of each month thereafter for a period of fifty-nine (59)
consecutive months, monthly payments of principal in the amount of
Thirty-One Thousand Three Hundred Ninety and 00/100 Dollars
($31,390.00) each shall be payable; and
c. On May 1, 2001, a final payment of the principal balance,
plus all other sums hereunder, shall be payable.
3. EXPENSES AND CHARGES. Upon demand Maker agrees to pay all expenses
related to the loan evidenced hereby incurred or to be incurred in its making,
servicing, or collection, including, but not limited to, reasonable attorneys'
fees, filing and recording fees, insurance premiums, appraisal fees, and taxes.
Maker further agrees to pay to Lender, upon demand, all charges for services
rendered or to be rendered by its officers and employees or others with whom
the Lender shall contract or otherwise engage for such services directly for
inspecting, verifying, and servicing the collaterals securing the obligations
set forth herein and for the collection of said loan. At Lender's option,
Lender may pay such expenses or charges and may consider such payment as an
additional advance or obligation under the Note secured by the collaterals
hereunder, which Maker agrees to repay with interest from the date of the
advance at the rate provided in Note.
Initialed for Maker _____
Initialed for Lender _____
2
<PAGE> 3
4. LATE PAYMENT CHARGES. In the event that Maker is more than fifteen
(15) days late in the payment of any portion of principal and interest
hereunder as and when the same is or becomes due, Maker shall pay a late
payment charge in the amount of four percent (4%) of the amount of any
delinquency if such delinquency is not paid in full as and when each payment of
principal and interest is due hereunder. Only one late payment charge may be
charged with respect to any specific monthly installment and no such late
payment charged may be collected on a partial payment resulting solely from the
deduction of a late payment charge from a regularly scheduled monthly payment.
In no event shall the late payment charge exceed the maximum rate allowable by
law.
5. COLLECTION FEE. In the event a default occurs in the timely payment
of any portion of principal and interest hereon as and when the same is or
becomes due and such payment is not made by Maker within ten (10) calendar days
after written demand is given to Maker, and thereafter the same is placed in
the hands of an attorney or agent for collection, or suit is brought on the
same, or proceedings are had in bankruptcy, receivership, reorganization or
other judicial proceedings for establishment or collection of any amount called
for hereunder, or any amount payable or to be payable is collected through any
such proceedings, Maker hereby agrees and promises to pay to Lender a
reasonable amount for attorneys' and/or collection fees.
6. SECURITY. Maker has pledged certain collateral, including but not
limited to real property located in Lee County, Mississippi, as security for
the obligations of Maker hereunder and as security for any other present or
future indebtedness or liability of Maker to Lender, whether now due or
hereafter to become due, directly or indirectly (as principal, endorser,
surety, guarantor, or otherwise), including, without limitation, any and all
antecedent debt of Maker to Lender, whether or not identified in this
instrument and whether or not any or all of said indebtedness is of the same
nature or type as that secured by this collateral. All other collateral which
Lender has or may at any time acquire from any other sources in connection with
any obligations of the Maker to Lender shall constitute collateral or
cross-collateral for all obligations, without apportionment or designation as
to particular obligations of the Maker owed to Lender under this Note, and
Lender shall have the right, in its sole discretion, to determine the order in
which the Lender's rights in or remedies against all such collateral are to be
exercised and which types of the collateral or which portions of the collateral
are to be proceeded against and the order of application of proceeds of the
collateral as against particular obligations of the Maker.
Initialed for Maker _____
Initialed for Lender _____
3
<PAGE> 4
7. PREPAYMENT. If Maker prepays this Note before May 1, 2001, Maker
agrees to pay Lender, as liquidated damages for the loss of a bargain and not
as a penalty, an amount equal to the product of one percent (1%) of the balance
of the note outstanding at the time of prepayment.
8. DEFAULT. The occurrence of any one or more of the events of default
provided for in the Loan Agreement, this Note, or any other loan, credit, or
security agreement shall constitute a default under this Note, whereupon Lender
or any holder hereof may, at its, his or her option, exercise any or all
rights, powers and remedies afforded under this Note, the Loan Agreement, or
any loan, credit or security agreement with Lender, or all other instruments
evidencing, securing or guaranteeing this Note, or by law, including the right
to declare the unpaid balance of principal and accrued interest on this Note at
once mature, due and payable and to offset against the amounts then owing under
this Note or any and all monies, securities, notes and other properties of the
Maker in the possession, custody or control of, or on deposit with, or
otherwise pledged or owed to Lender or any other holder hereof, including ,
without limitation, all such monies, securities, notes and other properties
held in general or special accounts or for safekeeping or as collateral or
otherwise by Lender.
9. NO WAIVER BY LENDER. No delay or omission on the part of Lender, or
any other holder, in exercising any right hereunder or related to the
obligations evidenced hereby shall operate as a waiver of such right or of any
other right. A waiver on any one occasion shall not be construed as a bar to
or waiver of any such right and/or remedy on any future occasion.
10. RIGHT OF SETOFF. Maker agrees that any monies or other property at
any time in the possession of Lender belonging to Maker and any deposits,
balance of deposits or other sums at any time credited by or due from Lender to
Maker, may at all times, at the option of Lender, be held and treated as
collateral security for the payment of any liability of Maker to Lender,
whether due or not due, and Lender may, at its sole option and at anytime
before or after default, setoff the amount due or to become due hereon against
any claim of Maker against Lender.
Initialed for Maker _____
Initialed for Lender _____
4
<PAGE> 5
11. WAIVER. Maker hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or endorsement of this Note.
12. PARAGRAPH HEADINGS. Paragraph headings appearing in this Note are
for convenience of reference only and shall not be used to interpret, expand or
limit the meaning of any provision of this Note.
13. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of Mississippi and the United States of
America. Mississippi shall be proper place of venue for suit hereon. Maker
irrevocably agrees that any legal proceedings in respect of this Note shall be
brought in the appropriate courts of Mississippi or the United States District
Court for that district.
14. SUCCESSORS AND ASSIGNS. This Note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and assigns
of the Maker and Lender.
15. SEVERABILITY. If any provision of this Note or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Note and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
16. WAIVER OF JURY TRIAL. MAKER HEREBY EXPRESSLY WAIVES THE
RIGHT TO TRIAL BY JURY.
17. NOTICES
a. Any notice required to be given or furnished under this
Note shall be in writing and shall be deemed to have been
duly served, given, or delivered:
(i) if to Lender, when actually received and
signed for by the particular division or person
specified herein after having been sent
Initialed for Maker _____
Initialed for Lender _____
5
<PAGE> 6
certified United States mail (return receipt requested)
and addressed as specified herein; or
(ii) if to Maker, either (1) when delivered at the
address appearing on the books and records of Lender as
that of Maker or (2) when deposited in the United
States mail, postage prepaid (or sent certified United
States mail) and addressed to Maker at the address
appearing on the books and records of Lender as that of
Maker or (3) when sent by fax machine to the fax number
of Maker appearing on the books and records of Lender
as that of Maker.
Maker's present address: River Oaks Furniture, Inc.
P. O. Box 480
Belden, MS 38826
Attention: Johnny Walker
Lender's present address: Bank of Mississippi
One Mississippi Plaza
Post Office Drawer 789
Tupelo, Mississippi 38802-0789
Attention: Corporate Banking Division
b. Either party may change the address to which such notice is to
be provided by furnishing written notice of such change to the other
party in the manner authorized above, but no such notice of change shall
be effective unless and until received by such other party.
IN WITNESS WHEREOF, this Promissory Note has been executed by the
undersigned as of the day and year first hereinabove written.
MAKER: River Oaks Furniture, Inc.
BY: /s/ Johnny Walker
-----------------------------
Johnny Walker, Vice President
BY: /s/ Kim Long
-----------------------------
Kim Long, Assistant Secretary
6
<PAGE> 1
Exhibit 10.2
PROMISSORY NOTE
MAKER: River Oaks Furniture, Inc.
May 6, 1996
AMOUNT: $100,000.00 Tupelo, Mississippi
Customer No. 0145839
Note No. 97653
FOR VALUE RECEIVED, the undersigned, River Oaks Furniture, Inc., a
Mississippi Corporation, ("Maker"), hereby promises to pay to the order of the
Bank of Mississippi, a Mississippi banking corporation, Tupelo, Mississippi
("Lender"), payable at Lender's office in Tupelo, Mississippi, located at One
Mississippi Plaza, Post Office Box 789, Tupelo, Mississippi, 38802, in
immediately available funds and in lawful coin or currency of the United States
of America which shall be legal tender for payment of all debts and dues,
public and private, the principal sum of One Hundred Thousand AND 00/100
DOLLARS ($100,000.00), together with interest from and after the date hereof on
the unpaid outstanding principal balance at a floating rate of interest per
annum set forth below.
This Promissory Note (this "Note") is referred to in and was delivered
pursuant to a Loan Agreement dated as of May 6, 1996, between Maker and Lender.
The term "Loan Agreement" includes such Loan Agreement as it may be amended,
modified, or extended from time to time, together with all exhibits thereto.
The terms, provisions, and conditions of the Loan Agreement are by this
reference made a part of this Note. If any provision contained in this Note is
in direct conflict with, or inconsistent with, any provision in the Loan
Agreement or any other documents, the provision most favorable to Lender as
determined by Lender shall control.
The following terms apply to this Note:
1. INTEREST. Interest shall accrue daily from the date hereof and shall
be at a floating rate equal to the Lender's Prime Rate, being that rate of
interest as shall be determined by the Lender, as it may from time to time
change ("Prime Rate"). Said Prime Rate is not intended to be Lender's lowest
or most favorable rate in effect at anytime. After the date hereof, the rate of
interest shall be adjusted by an amount equal to any increase or decrease in
the Prime Rate, with such adjustments to be effective as of the opening of
business on the day that any such change becomes effective, provided, however,
in no event shall the rate of interest under this Note exceed the maximum rate
of interest allowable by law. In the event Maker is in default under this
<PAGE> 2
Note, interest shall accrue daily from the date of default at the rate of two
percent (2.00%) per annum above the Prime Rate on the principal amount
outstanding from time to time until such time as the default shall have been
cured. Adjustments in the interest rate shall become effective without notice
to Maker and Maker hereby waives notice of any such adjustments. Interest
shall be calculated on the basis of a 365-day year. The Maker hereby authorized
the Lender to charge any account of the Maker for all sums due hereunder.
2. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST. Unless accelerated
pursuant to the terms hereof, the principal of this Note together with accrued
and unpaid interest on the principal balance of this Note shall be due and
payable as follows:
a. Interest shall be payable in arrears on the first day of
each month commencing on the first day of
June, 1996 and continuing on the first day of each month thereafter
until the full principal sum has been paid;
b. Commencing on the first day of June, 1996, and continuing on the
first day of each month thereafter for a period of eleven (11)
consecutive months, monthly payments of principal in the amount of
Eight Thousand Three Hundred Thirty-Five and No/100 Dollars
($8,335.00) each shall be payable; and
c. On May 1, 1997, a final payment of the principal balance, plus
all other sums hereunder, shall be payable.
3. EXPENSES AND CHARGES. Upon demand Maker agrees to pay all expenses
related to the loan evidenced hereby incurred or to be incurred in its making,
servicing, or collection, including, but not limited to, reasonable attorneys'
fees, filing and recording fees, insurance premiums, appraisal fees, and taxes.
Maker further agrees to pay to Lender, upon demand, all charges for services
rendered or to be rendered by its officers and employees or others with whom
the Lender shall contract or otherwise engage for such services directly for
inspecting, verifying, and servicing the collaterals securing the obligations
set forth herein and for the collection of said loan. At Lender's option,
Lender may pay such expenses or charges and may consider such payment as an
additional advance or obligation under the Note secured by the collaterals
hereunder, which Maker agrees to repay with interest from the date of the
advance at the rate provided in Note.
Initialed for Maker ____
Initialed for Lender ____
2
<PAGE> 3
4. LATE PAYMENT CHARGES. In the event that Maker is more
than fifteen (15) days late in the payment of any portion of
principal and interest hereunder as and when the same is or becomes
due, Maker shall pay a late payment charge in the amount of four
percent (4%) of the amount of any delinquency if such delinquency
is not paid in full as and when each payment of principal and
interest is due hereunder. Only one late payment charge may be
charged with respect to any specific monthly installment and no
such late payment charged may be collected on a partial payment
resulting solely from the deduction of a late payment charge from a
regularly scheduled monthly payment. In no event shall the late
payment charge exceed the maximum rate allowable by law.
5. COLLECTION FEE. In the event a default occurs in the
timely payment of any portion of principal and interest hereon as
and when the same is or becomes due and such payment is not made by
Maker within ten (10) calendar days after written demand is given
to Maker, and thereafter the same is placed in the hands of an
attorney or agent for collection, or suit is brought on the same,
or proceedings are had in bankruptcy, receivership, reorganization
or other judicial proceedings for establishment or collection of
any amount called for hereunder, or any amount payable or to be
payable is collected through any such proceedings, Maker hereby
agrees and promises to pay to Lender a reasonable amount for
attorneys' and/or collection fees.
6. SECURITY. Maker has pledged certain collateral, including
but not limited to real property located in Lee County,
Mississippi, as security for the obligations of Maker hereunder and
as security for any other present or future indebtedness or
liability of Maker to Lender, whether now due or hereafter to
become due, directly or indirectly (as principal, endorser, surety,
guarantor, or otherwise), including, without limitation, any and
all antecedent debt of Maker to Lender, whether or not identified
in this instrument and whether or not any or all of said
indebtedness is of the same nature or type as that secured by this
collateral. All other collateral which Lender has or may at any
time acquire from any other sources in connection with any
obligations of the Maker to Lender shall constitute collateral or
cross-collateral for all obligations, without apportionment or
designation as to particular obligations of the Maker owed to
Lender under this Note, and Lender shall have the right, in its
sole discretion, to determine the order in which the Lender's
rights in or remedies against all such collateral are to be
exercised and which types of the collateral or which portions of
the collateral are to be proceeded against and the order of
Initialed for Maker ____
Initialed for Lender ____
3
<PAGE> 4
application of proceeds of the collateral as against particular
obligations of the Maker.
7. PREPAYMENT. Maker shall have the privilege of prepaying
the whole amount due hereunder or any portion thereof at any time
before maturity without premium or penalty. All payments of
principal and interest hereunder shall be first applied to accrued
interest, if any, and then to principal.
8. DEFAULT. The occurrence of any one or more of the events
of default provided for in the Loan Agreement, this Note, or any
other loan, credit, or security agreement shall constitute a
default under this Note, whereupon Lender or any holder hereof may,
at its, his or her option, exercise any or all rights, powers and
remedies afforded under this Note, the Loan Agreement, or any loan,
credit or security agreement with Lender, or all other instruments
evidencing, securing or guaranteeing this Note, or by law,
including the right to declare the unpaid balance of principal and
accrued interest on this Note at once mature, due and payable and
to offset against the amounts then owing under this Note or any and
all monies, securities, notes and other properties of the Maker in
the possession, custody or control of, or on deposit with, or
otherwise pledged or owed to Lender or any other holder hereof,
including , without limitation, all such monies, securities, notes
and other properties held in general or special accounts or for
safekeeping or as collateral or otherwise by Lender.
9. NO WAIVER BY LENDER. No delay or omission on the part of
Lender, or any other holder, in exercising any right hereunder or
related to the obligations evidenced hereby shall operate as a
waiver of such right or of any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any such
right and/or remedy on any future occasion.
10. RIGHT OF SETOFF. Maker agrees that any monies or other
property at any time in the possession of Lender belonging to Maker
and any deposits, balance of deposits or other sums at any time
credited by or due from Lender to Maker, may at all times, at the
option of Lender, be held and treated as collateral security for
the payment of any liability of Maker to Lender, whether due or not
due, and Lender may, at its sole option and at anytime before or
after default, setoff the amount due or to become due hereon
against any claim of Maker against Lender.
Initialed for Maker ____
Initialed for Lender ____
4
<PAGE> 5
11. WAIVER. Maker hereby waives presentment, demand, notice,
protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or endorsement of this
Note.
12. PARAGRAPH HEADINGS. Paragraph headings appearing in this
Note are for convenience of reference only and shall not be used to
interpret, expand or limit the meaning of any provision of this
Note.
13. GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of Mississippi
and the United States of America. Mississippi shall be proper
place of venue for suit hereon. Maker irrevocably agrees that any
legal proceedings in respect of this Note shall be brought in the
appropriate courts of Mississippi or the United States District
Court for that district.
14. SUCCESSORS AND ASSIGNS. This Note and all the covenants
and agreements contained herein shall be binding upon, and shall
inure to the benefit of, the respective legal representatives,
heirs, successors and assigns of the Maker and Lender.
15. SEVERABILITY. If any provision of this Note or the
application thereof to any person or circumstance shall be invalid
or unenforceable to any extent, the remainder of this Note and the
application of such provisions to other persons or circumstances
shall not be affected thereby and shall be enforced to the greatest
extent permitted by law.
16. WAIVER OF JURY TRIAL. MAKER HEREBY EXPRESSLY WAIVES THE
RIGHT TO TRIAL BY JURY.
17. NOTICES
a. Any notice required to be given or furnished under this
Note shall be in writing and shall be deemed to have
been duly served, given, or delivered:
(i) if to Lender, when actually received and
signed for by the particular division or person
specified herein after having been sent
Initialed for Maker ____
Initialed for Lender ____
5
<PAGE> 6
certified United States mail (return receipt requested)
and addressed as specified herein; or
(ii) if to Maker, either (1) when delivered at the
address appearing on the books and records of Lender as
that of Maker or (2) when deposited in the United
States mail, postage prepaid (or sent certified United
States mail) and addressed to Maker at the address
appearing on the books and records of Lender as that of
Maker or (3) when sent by fax machine to the fax number
of Maker appearing on the books and records of Lender
as that of Maker.
Maker's present address: River Oaks Furniture, Inc.
P. O. Box 480
Belden, MS 38826
Attention: Johnny Walker
Lender's present address: Bank of Mississippi
One Mississippi Plaza
Post Office Drawer 789
Tupelo, Mississippi 38802-0789
Attention: Corporate Banking Division
b. Either party may change the address to which such notice is to
be provided by furnishing written notice of such change to the other
party in the manner authorized above, but no such notice of change shall
be effective unless and until received by such other party.
Initialed for Maker ____
Initialed for Lender ____
6
<PAGE> 7
IN WITNESS WHEREOF, this Promissory Note has been executed by the
undersigned as of the day and year first hereinabove written.
MAKER: River Oaks Furniture, Inc.
BY: /s/ Johnny Walker
-----------------------------
Johnny Walker, Vice President
BY: /s/ Kim Long
-----------------------------
Kim Long, Assistant Secretary
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 403
<SECURITIES> 0
<RECEIVABLES> 11,253
<ALLOWANCES> (706)
<INVENTORY> 20,552
<CURRENT-ASSETS> 33,388
<PP&E> 33,930
<DEPRECIATION> (3,856)
<TOTAL-ASSETS> 70,166
<CURRENT-LIABILITIES> 14,373
<BONDS> 0
0
0
<COMMON> 561
<OTHER-SE> 33,622
<TOTAL-LIABILITY-AND-EQUITY> 70,166
<SALES> 61,571
<TOTAL-REVENUES> 61,571
<CGS> 53,328
<TOTAL-COSTS> 60,490
<OTHER-EXPENSES> 7,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,033
<INCOME-PRETAX> (952)
<INCOME-TAX> (338)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (614)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
