<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(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
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File No.: 0-26276
R.H. PHILLIPS, INC.
(Exact name of small business issuer in its charter)
California 68-0313739
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26836 County Road 12A, Esparto, California 95627
(Address of principal executive offices)
(916) 662-3215
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Number of shares outstanding of each of the issuer's classes of common equity
as of August 9, 1996: 5,869,540
Transitional Small Business Disclosure Format: Yes No X
This document consists of 14 pages.
<PAGE> 2
Item 1. Financial Statements
R.H. PHILLIPS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim financial statements as of June 30, 1996 and for each of the
six and three month periods ended June 30, 1995 and 1996 have been
prepared by R.H. Phillips, Inc. (the "Company") without audit. In the opinion
of management, the financial statements include all adjustments (which include
only normal recurring entries) necessary for a fair presentation. The operating
results for the six and three month periods ended June 30, 1995 and 1996 are
not necessarily indicative of the results which might be realized for the full
year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These statements should be read in
conjunction with the financial statements and notes included in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995.
Net income per share is computed using the weighted average number
shares of common outstanding and dilutive Common Stock equivalents. Net
income per share and common shares outstanding for the three and six month
periods ending June 30, 1995 have been restated to account for a cumulative
stock dividend estimated at 18,750 shares.
2. SUBSEQUENT EVENT
On July 29, 1996, the Company completed a public offering of
1,220,000 shares of Common Stock. The Company issued 1,220,000 shares
of common stock in connection with the offering at a price of $4.375 per share,
and the managing underwriter of the offering has a thirty day option to
purchase up to 183,000 additional shares at the same price. The managing
underwriter also received a warrant to purchase up to 122,000 shares of
Common Stock at a price of $5.25 per share in connection with the offering.
The Company anticipates that net proceeds from the offering, after payment of
all commissions and offering expenses, will total approximately $4,524,000
(assuming no exercise of the option to purchase additional shares described
above).
<PAGE> 3
R.H. PHILLIPS, INC., dba
THE R.H. PHILLIPS VINEYARD
(A California Corporation)
BALANCE SHEET
JUNE 30, 1996 (UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 24,685
Accounts receivable 2,478,400
Inventories 6,869,986
Deferred income taxes and prepaid expenses 352,567
Total current assets 9,725,638
PROPERTY, PLANT, AND EQUIPMENT - net 21,951,157
OTHER ASSETS:
Note receivable from shareholder 201,539
Deferred loan fees and other, net 807,406
Total other assets 1,008,945
TOTAL ASSETS $32,685,740
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 960,000
Notes payable 1,487,787
Accounts payable 1,575,617
Accrued liabilities 694,457
Total current liabilities 4,717,861
LONG-TERM DEBT 12,468,642
SUBORDINATED DEBT 1,500,000
DEFERRED INCOME TAXES 679,000
COMMITMENTS AND CONTINGENCIES --
REDEEMABLE PREFERRED STOCK 4,798,378
SHAREHOLDERS' EQUITY:
Non-redeemable preferred stock, no par, 4,500,000 shares
authorized, none outstanding --
Common stock, no par, 12,500,000 shares authorized,
4,639,135 shares issued and outstanding 7,646,845
Retained earnings 875,014
Total shareholders' equity 8,521,859
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,685,740
</TABLE>
<PAGE> 4
R.H. PHILLIPS, INC., dba
THE R.H. PHILLIPS VINEYARD
(A California Corporation)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
NET SALES $ 6,598,984 $ 6,991,029 $ 3,419,836 $ 3,805,207
COST OF SALES 4,302,864 3,955,919 2,249,595 2,046,845
GROSS PROFIT 2,296,120 3,035,110 1,170,241 1,758,362
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 1,750,109 1,715,270 918.895 914,154
OPERATING INCOME 546,011 1,319,840 251,346 844,208
INTEREST EXPENSE (479,115) (512,352) (211,627) (204,862)
OTHER INCOME (EXPENSE) - NET 8,144 31,568 19,717 18,222
INCOME BEFORE INCOME TAXES 75,040 839,056 59,436 657,568
PROVISION FOR INCOME TAXES (30,200) (306,100) (23,900) (240,100)
NET INCOME $ 44,840 $ 532,956 $ 35,536 $ 417,468
NET INCOME PER SHARE $ .01 $ .10 $ .01 $ .07
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,158,172 4,653,613 4,158,172 4,653,613
</TABLE>
<PAGE> 5
R.H. PHILLIPS, INC., dba
THE R.H. PHILLIPS VINEYARD
(A California Corporation)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 44,840 $ 532,956 $ 35,536 $ 417,468
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 433,524 709,312 212,605 361,595
Gain on sale of equipment (927) -- (20,336) --
Changes in assets and liabilities:
Accounts receivable (95,985) 388,288 (103,243) (402,497)
Inventories (375,022) (515,516) (275,263) (275,976)
Deferred income taxes and prepaid expenses (118,031) 64,368 355,339 6,879
Other assets (5,850) (48,438) 2,257 (9,813)
Accounts payable and accrued liabilities 611,466 38,348 1,001,836 (564,244)
Deferred revenue 27,500 -- -- --
Net cash provided (used) by
operating activities 521,515 1,169,318 1,208,731 (466,588)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,923,544) (5,944,577) (3,113,445) (4,445,223)
Proceeds from sale of property and equipment 20,310 -- 20,310 --
Net cash used in investing
activities (3,903,234) (5,944,577) (3,093,135) (4,445,223)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (costs of issuing)
redeemable preferred stock -- 4,798,378 -- (8,679)
Issuance of (costs of issuing) common stock 3,090,078 (158,739) 2,891 (158,739)
Proceeds from long-term borrowings and
notes payable 17,846,329 6,588,724 9,176,329 5,687,396
Principal payments on long-term borrowings
and notes payable (16,950,257) (6,731,820) (8,481,920) (584,130)
Payment of loan origination fees (579,718) (5,024) (199,983) (3,524)
Loans to shareholders (8,800) (9,199) (4,799) (5,047)
Net cash provided by financing activities 3,397,632 4,482,320 492,518 4,927,277
INCREASE (DECREASE) IN CASH 15,913 (292,939) (1,391,886) 15,466
CASH AT BEGINNING OF PERIOD 30,545 317,624 1,438,344 9,219
CASH AT END OF PERIOD $ 46,458 $ 24,685 $ 46,458 $ 24,685
OTHER CASH FLOW INFORMATION:
Interest paid $ 672,981 $ 596,776 $ 289,296 $ 324,508
NONCASH TRANSACTIONS:
Issuance of notes payable to finance
property and equipment $ -- $ 41,841 $ -- $ 41,841
Declaration of cash dividend $ -- $ 75,000 $ -- $ 75,000
</TABLE>
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
In reviewing the following management's discussion and analysis,
the reader should refer to the historical financial statements of the
Company. The discussion of the results and trends does not necessarily
imply that these results and trends will continue. For the purpose of the
following discussion, a "case" means a nine liter case of wine.
Seasonality
The Company has traditionally experienced substantial seasonal
fluctuations in revenues and expenditures. Sales volumes generally
increase during the Thanksgiving and Christmas holiday seasons or at
times when the Company markets its wines with special promotions or
other sales incentives. A large percentage of the Company's sales usually
occur in the last three months of the year.
The seasonality of the Company's sales affects its liquidity and
capital requirements. In the past, the Company has borrowed funds on a
short term basis each year beginning in late February or early March to
fund crop growing costs. Short-term borrowings increase substantially
from August through November due to additional costs from harvest,
wine production and increased bottling activity in preparation for higher
sales during the holiday season. Consequently, the Company's financial
results during the first six months of the year are not necessarily indicative
of the Company's financial performance for the entire year.
Costs of Production
The Company, as is typical of other California wineries of its size,
depends in part on the purchase of wines and grapes from outside sources
to satisfy its production requirements. The Company estimates that the
costs to the Company of producing wines from grapes grown in the
Company's vineyards and wines processed at the Company's winery are
substantially less than the costs of producing wines made from bulk wines
or grapes purchased from others. The Company's recent expansion of its
winery has substantially eliminated the Company's need to rely on outside
sources of processing for its wines, and the Company has recently
expanded the size of its vineyards. These factors have reduced, and are
likely to continue in the near future to reduce, the Company's costs of
production, thereby leading to higher gross margins on sales of the
Company's products. However, prices of bulk wines and grapes have
increased significantly during the last two years due primarily to reduced
harvests in California and greater demand for wines. The Company
believes that the increases in bulk wine and grape costs will continue for
the near future, thereby increasing production costs.
Results of Operations
Net sales for the six month period ended June 30, 1996 were
approximately $6,991,000, an increase from $6,599,000 during the
corresponding period in 1995. The average selling price per case
increased from approximately $35.24 during the first six months of 1995
to $37.85 per case for the same period in 1996. The increase in the
average selling price resulted primarily from price increases on the
Company's Night Harvest wines as well as on the Company's
Chardonnay and Cabernet Sauvignon classic varietals. The number of
cases sold during the first six months of 1996 was approximately 177,900,
a decrease of 5% from the 186,300 cases sold during the corresponding
period in 1995. The Company believes that the decrease in case sales is
primarily due to the price increases the Company implemented during the
third quarter of 1995 and the first three months of 1996, and to the
Company's decision to reduce sales program allowances. The Company
believes that the reduction in case sales will likely be temporary.
<PAGE> 7
Gross profit increased from 35% of sales for the six month period
ending June 30, 1995 to 43% of sales for the same period in 1996. Net
sales and cost of sales during both periods included the sales of bulk
wines. Excluding these sales, the gross margins were 36% during the first
six months of 1995 and 44% during the corresponding period in 1996.
The higher gross margin during the first six months of 1996 was primarily
due to the price increases discussed above, and to lower costs on the most
recent vintages sold in 1996 as compared to the vintages sold during the
first six months of 1995. The average cost per case sold during the first
six months of 1996 decreased by 8% from that sold in 1995, from
approximately $22.68 per case to $21.09 per case. The increase in gross
margins and reduction in costs per case is attributable primarily to the
increased production the Company derived from its vineyards and the
installation in 1995 of its expanded winery production facilities, which
eliminated the Company's use of more expensive storage and processing
of its wines at outside facilities.
Although selling, general and administrative expenses remained
substantially the same for the six month period ending June 30, 1996 as
compared to the corresponding period in 1995, these expenses decreased
as a percent of sales, from 27% in 1995 to 25% in 1996. The decrease in
these expenses as a percent of sales was primarily due to increased sales
during the first six months of 1996 as compared to 1995. Selling
expenses decreased from approximately $1,442,000 during the first six
months of 1995 to $1,314,000 during the corresponding period in 1996,
primarily due to lower sales programming expenses. General and
administrative expenses increased from $309,000 during the first six
months of 1995 to $401,000 during the corresponding period in 1996,
primarily due to an accounts receivable write off from an insolvent
customer in 1996.
Total interest expense for the first six months of 1996 was
$512,000, or 7% of net sales, compared to $479,000, also 7% of net
sales, in the corresponding period in 1995. The Company capitalized
approximately $220,000 of additional interest pertaining to vineyard and
winery development in the first six months of 1996 and $128,000 of
interest in the same period in 1995. The increase in total interest expense
during the first six months of 1996 as compared to the corresponding
period in 1995 was primarily due to increased levels of borrowing by the
Company to finance vineyard and winery expansion in 1996.
The Company had net income of $533,000 for the six month
period ending June 30, 1996, compared with net income of $45,000
during the same period in 1995. This increase was primarily due to
higher sales and lower product costs, which resulted in higher profit
margins for its products, and to the other factors described above.
Liquidity and Capital Resources
The Company has financed its working capital and capital
expansion needs through internally generated funds, outside credit
facilities and equity financing. The Company has made substantial capital
expenditures to expand its vineyards and winery facilities, and intends to
continue these expansions. The purpose of the expansion has been and
continues to be to increase the Company's production capabilities so that
the Company can lessen or eliminate its dependence on outside grape and
bulk wine purchases and processing. The Company's cash flows from
operations alone have not been sufficient to satisfy all of the working
capital and capital expenditure requirements needed to keep pace with its
growth. As a consequence, the Company has depended upon, and
continues to rely upon, debt and equity financing for its working capital
and expansion needs.
The Company's financial obligations consist of long-term debt,
short-term credit facilities and redeemable preferred stock. The Company
obtained in January 1995 a ten year term loan from Metropolitan Life
Insurance Company ("Metropolitan") with a principal amount of
$7,500,000. In October 1995, the Company entered into a loan
agreement with Heller Financial ("Heller") under which the Company may
<PAGE> 8
borrow a maximum of $1,000,000. Of this amount, approximately
$645,000 was advanced to the Company in October 1995, with the
balance of $355,000 to be advanced at the Company's option. The term
of the loan is five years, with principal payable in sixty equal monthly
payments. The Company also refinanced certain existing indebtedness
through the issuance of 5 year convertible promissory notes, with an
aggregate principal amount of $1,500,000. Amounts owing under these
promissory notes are automatically convertible into Common Stock of the
Company beginning in December 1996 under certain circumstances.
The Company has a credit facility with U.S. Bank to finance
working capital requirements. The Company may borrow a maximum of
$6,200,000 under the facility. The facility is comprised of an operating
line of credit and a non-revolving "crop" line of credit. The operating line
of credit has a maximum borrowing amount of $5,000,000, is secured by
accounts receivable and inventory and matures in April 1998. The crop
line of credit is in the amount of $1,200,000. The crop line of credit
bears interest at an annual rate of U.S. Bank's prime rate plus 100 basis
points, is secured by the 1996 grape crop, and matures in November
1996.
In addition to the credit facilities described above, the Company
obtained a short-term secured line of credit from U.S. Bank in June 1996
to finance the purchase of additional real estate and vineyard expansion.
The amount owing under this line of credit as of June 30, 1996 was
$1,334,000. The entire amount of the line of credit was repaid in July
1996 with proceeds the Company received from its recently completed
public offering.
John and Karl Giguiere personally guarantee the obligations of the
Company under the loan agreements with Metropolitan, U.S. Bank, and
Heller. The guarantees will be released at such time as the Company's
annual audited financial statements verify that the Company's tangible net
worth exceeds $8,500,000 and the Company's ratio of consolidated total
debt to consolidated total capitalization does not exceed 50%. All
principal and interest under each of these loans will be immediately due
and payable, at the option of the lender, if any person or group other than
John or Karl Giguiere or their immediate families constitutes a majority of
the Company's Board of Directors. The provisions in these loan
agreements concerning change of control will be eliminated if and when
the Company enters into employment agreements with John and Karl
Giguiere which obligate them to remain employed by the Company
through December 31, 1999. No such employment agreements are
currently in place.
In March 1996, the Company completed a sale of 500,000 shares
of Senior Redeemable Senior Preferred Stock (the "Senior Preferred
Stock") and warrants to purchase up to 1,346,000 shares of Common
Stock . The net proceeds the Company derived from the sale of the
Senior Preferred Stock and the warrants, after payment of offering
expenses, was approximately $4,798,000. The Senior Preferred Stock
bears a 12% cumulative annual dividend, payable semiannually. During
the first four years after issuance, 50% of the dividend will be paid in cash
and 50% of the dividend will be paid in shares of Common Stock at a
price equal to the lower of the market price at the dividend payment date
or $4.00 per share. As of June 30, 1996, cash dividends payable totaled
$75,000, and stock dividends payable totaled 18,750 shares of Common
Stock. The Company will be required to redeem one-third of the Senior
Preferred Stock eight years after issuance and one-third of the Senior
Preferred Stock in each of the succeeding years at a price of $10.00 per
share.
In 1995 and 1996, the Company also raised financing through the
sale of Common Stock in two public offerings. The Company completed
a sale of Common Stock and warrants to purchase Common Stock in its
initial public offering during 1995. Net proceeds from the offering, after
payment of commissions and expenses, totaled approximately
$2,873,000. The Company issued 493,563 units at a price of $7.25 per
unit, with each unit consisting of two shares of Common Stock and a
warrant to purchase one share of Common Stock. The warrants are
currently exercisable at a price of $3.875 per share and expire on April 1,
1997. As of June 30, 1996, warrants to purchase 6,150 shares of
Common Stock had been exercised, with net proceeds
<PAGE> 9
to the Company totaling approximately $24,000. If the warrants are
exercised in full, the Company estimates that it will receive net proceeds
of approximately $1,902,000.
The Company completed a second public offering of Common
Stock in July 1996. The Company issued 1,220,000 shares of Common
Stock in connection with the offering at a price of $4.375 per share, and
the managing underwriter of the offering, Van Kasper & Company, has a
thirty day option to purchase up to 183,000 additional shares of Common
Stock at the same price. The Company estimates that the net proceeds
from the offering, after payment of underwriting discounts and offering
expenses (and excluding funds which may be raised from the exercise of
the option described above) will be approximately $4,524,000.
The Company's net working capital as of June 30, 1996 was
$5,008,000, as compared to $5,369,000 as of December 31, 1995. The
major reason for the decline was a reduction in accounts receivable from
$2,866,000 as of December 31, 1995 to $2,478,000 as of June 30, 1996.
The decline in accounts receivable during this period reflects the
seasonality of the Company's business insofar as accounts receivable are
generally higher at year end than at the end of the first six months of the
year.
Net cash provided by operating activities for the six month period
ending June 30, 1996 totaled $1,169,000, compared to $522,000 for the
period ending June 30, 1995. The increase in net cash provided by
operating activities is primarily due to the increased net income derived
from the expanding margins caused by higher selling prices and lower
costs. Net income for the first six months of 1996 was $533,000,
compared to $45,000 for the same period in 1995.
In 1995, the Company began to implement its program of
substantially increasing the size of its winemaking facilities. The first
phase of the expansion was completed in September 1995 and included
two new barrel buildings, crush and tank pads, 60 wine tanks and other
equipment. This increased the Company's fermentation and storage tank
capacity from 123,000 to 1,000,000 gallons. The Company began the
current phase of its winery expansion in April 1996. This phase includes
the construction of an 18,000 square foot barrel building and tank pads.
The Company is in the process of purchasing various equipment,
including 26 stainless steel wine tanks with total storage capacity of
approximately 422,000 gallons, a refrigeration system, a grape press, a
grape crusher, a must pump, barrels, and other equipment.
The Company planted 447 acres of new vineyards during the first
six months of 1996, and currently intends to plant an additional 375 acres
in 1997, 285 acres in 1998, and 90-100 acres each in 1999 and 2000.
The additional acres are being planted on land the Company currently
owns or may purchase in the future, including approximately 900 acres
of land which the Company purchased in June 1996 and an additional
100 acres the Company has an option to purchase. By the year 2000, the
Company intends to have approximately 1,700 acres of vineyards under
cultivation on approximately 2,700 acres of land. However, there can be
no assurance that the Company will be able or expand the vineyards at
that rate.
The Company estimates that the total costs of the current phase of
the vineyard and winery expansion will be approximately $14,500,000
from 1996 through 1997. The Company plans to fund this phase of the
expansion primarily with the proceeds from the March 1996 sales of the
Senior Preferred Stock, the proceeds from its most recently completed
public offering and funds expected from the exercise of the Common
Stock warrants the Company issued in its initial public offering in 1995.
The Company intends to satisfy additional financing requirements for the
current phase of its expansion and for further expansion in the years 1998
through 2000 through internally generated funds and borrowings on
working capital lines of credit, although additional long-term debt or
equity financing may be necessary.
<PAGE> 10
Phylloxera infestation may have a negative impact on the
Company's future grape production. Phylloxera is a root louse which
feeds on the roots of grapes, causing reduced production and eventual
vine death. Of the 1,293 acres currently under cultivation by the
Company, 369 acres have rootstock which is susceptible to Phylloxera.
Management estimates that the commercially productive life of these
vineyards is ten years from January 1, 1994, as compared with the
twenty-five year life generally estimated for vineyards, and that the
reduction in the useful life of these vineyards will result in an increase in
depreciation of approximately $65,000 per year. The Company is
chemically treating all vineyards believed to be currently at risk for
Phylloxera and estimates that these treatments will cost approximately
$45,000 per year. Both the increased depreciation charges and the cost
of treatment are added to the cost of grapes harvested, thus increasing
cost of sales. In addition, the Company is planning to combat the effects
of Phylloxera through the use of innovative grafting methods whereby
existing vines are grafted onto resistant rootstock. The Company also
plans to remove and replant approximately 30 acres of Phylloxera-infested
or susceptible vines per year with vines bearing rootstock believed to be
resistant to Phylloxera.
The above discussion concerning future financing needs, vineyard
and winery expansion, the impact of Phylloxera and factors affecting
liquidity are forward looking statements. Although management believes
that these statements are reasonable in view of the facts available to it,
past experience, and trends in the industry, there can be no assurance that
any of these statements will prove to be true. There are many factors
which could have a material impact upon whether these projections will
be realized or whether these trends will continue. Among these factors
are the following:
Availability of Future Financing. The rate at which the Company
is able to expand its facilities is heavily dependent upon its ability to raise
additional debt or equity financing. The ability to raise financing is in turn
dependent upon a variety of factors, some of which are outside of the
control of the Company. These factors include, but are not limited to,
interest rates, the availability of sources of financing and the exercise of
warrants issued in the Company's initial public offering. If less than all of
the warrants are exercised, interest rates increase or other financing
becomes unavailable or more costly to obtain, the Company may need to
reduce its rate of expansion.
Costs of Expansion. Management has based its assumptions
concerning the costs of expansion on estimates which it believes are
reasonable. However, there can be no assurance that the Company's
estimates as to the costs of expansion will prove to be correct. If these
costs are higher than anticipated, the Company may be required to raise
an even greater amount of financing or reduce the rate of expansion of its
facilities.
Costs of Production. Statements with respect to the general
decline in the Company's cost of production are based on management's
assumptions concerning the likely levels of sales by the Company during
1996, projected yields from the Company's vineyards and beliefs as to the
cost and availability of bulk wine and grapes from the spot market. If, for
example, the Company's sales increase at a faster rate than anticipated or
the Company's grape production is lower than projected, the Company
could be forced to make additional purchases of grapes and wine on the
spot market. In view of current prices and lack of availability of good
quality bulk wines and grapes, management believes that such events
could increase the Company's costs of production.
Market Conditions. Assumptions as to the desirability of
expansion are based to a great extent on the Company's belief concerning
the current status of and trends within the wine industry. Market
conditions in the wine industry have changed substantially from time to
time. To the extent that market conditions change substantially in the
future, the rate at which the Company deems it advisable to expand its
vineyard and winery facilities may be adjusted.
<PAGE> 11
Phylloxera Infestation. The discussion concerning Phylloxera
infestation and the costs associated with it are based on the Company's
examination of its vineyards and industry information concerning
Phylloxera. If this information changes or proves to be inaccurate, the
Company's costs in replacing vineyards and treating infested vines could
increase.
<PAGE> 12
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.1 Loan Agreement and Related Agreements between the Company and U.S.
Bank, dated April 30, 1996.
10.2 Description of Compensation Arrangement between the Company and
Victor L. Motto, a director of the Company.
27 Financial Data Schedules.
</TABLE>
<PAGE> 13
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to the signed on its behalf by the undersigned,
thereunto duly authorized.
R.H. PHILLIPS, INC.
(Registrant)
By: /s/ John E. Giguiere
-------------------------------------------
John E. Giguiere, Co-President
Co-Chief Executive Officer
By: /s/ Robert T. Moore
--------------------------------------------
Robert T. Moore, Chief Financial Officer
Principal Financial Officer
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
<S> <C>
10.1 Loan Agreement and Related
Agreements between the
Company and U.S. Bank,
dated April 30, 1996
10.2 Description of Compensation
Arrangement with Vic Motto,
director of the Company
27 Financial Data Schedules
</TABLE>
DISBURSEMENT REQUEST AND AUTHORIZATION
- --------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL
ACCOUNT OFFICER INITIATE
$5,000,000.00 04-30-1996 815-18 00012 365
7155425480 62186
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do
not limit the
applicability of this document to any particular loan or
item.
- --------------------------------------------------------------------------------
BORROWER: R.H. PHILLIPS, INC. LENDER: U.S. BANK OF
CALIFORNIA
26836 COUNTY ROAD 12A CORPORATE
BANKING TEAM
ESPARTO, CA 95627 980 9TH STREET,
SUITE 1100
SACRAMENTO, CA
95814
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LOAN TYPE. This is a Variable Rate (at LENDER'S PRIME RATE. THIS
IS THE RATE OF
INTEREST WHICH LENDER FROM TIME TO TIME ESTABLISHES AS ITS PRIME
RATE AND IS
NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST WHICH LENDER
COLLECTS FROM ANY
BORROWER OR CLASS OF BORROWERS, making an initial rate of
8.250%), Revolving
Line of Credit Loan to a Corporation for $5,000,000.00 due on
demand. This is a
secured renewal loan.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
/ / Personal, Family, or Household Purposes or Personal
Investment.
/x/ Business (including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is:
SHORT-TERM OPERATING
AND CASH FLOW NEEDS.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan
proceeds will be
disbursed until all of Lender's conditions for making the loan
have been
satisfied. Please disburse the loan proceeds of $5,000,000.00 as
follows:
UNDISBURSED FUNDS:
$2,778,756.11
AMOUNT PAID ON BORROWER'S ACCOUNT:
$2,221,243.89
$2,221,243.89 Payment on Loan #42/75 RENEWAL
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NOTE PRINCIPAL:
$5,000,000.00
TAX IDENTIFICATION CERTIFICATION. The Tax Identification Number
for R.H.
PHILLIPS, INC. is 62-0313739. I certify under penalties of
perjury the above
tax identification information is correct.
PERIODIC REVIEW. Lender will review the loan periodically. At the
time of the
review, Borrower will furnish Lender with any additional
information regarding
Borrower's financial condition and business operations that
Lender requests.
This information may include, but is not limited to, financial
statements, tax
returns, lists of assets and liabilities, agings of receivables
and payables;
inventory schedules, budgets and forecasts. If upon review,
Lender, in its sole
discretion, determines that there has been a material adverse
change in
Borrower's financial condition, Borrower will be in default. Upon
default,
Lender shall have all rights specified herein.
DEMAND NOTE. BORROWER ACKNOWLEDGES AND AGREES THAT (A) THIS NOTE
IS A DEMAND
NOTE, AND LENDER IS ENTITLED TO DEMAND BORROWER'S IMMEDIATE
PAYMENT IN FULL OF
ALL AMOUNTS OWING HEREUNDER, (B) NEITHER ANYTHING TO THE CONTRARY
CONTAINED
HEREIN OR IN ANY OTHER LOAN DOCUMENTS (INCLUDING BUT NOT LIMITED
TO, PROVISIONS
RELATING TO DEFAULTS, RIGHTS OF CURE, DEFAULT RATE OF INTEREST,
INSTALLMENT
PAYMENTS, LATE CHARGES, PERIODIC REVIEW OF BORROWER'S FINANCIAL
CONDITION, AND
COVENANTS) NOR ANY ACT OF LENDER PURSUANT TO ANY SUCH PROVISIONS
SHALL LIMIT OR
IMPAIR LENDER'S RIGHT OR ABILITY TO REQUIRE BORROWER'S PAYMENT IN
FULL OF ALL
AMOUNTS OWING HEREUNDER IMMEDIATELY UPON LENDER'S DEMAND, AND (C)
UPON LENDER
MAKING ANY SUCH DEMAND, LENDER SHALL HAVE NO OBLIGATION TO MAKE
ANY ADVANCE
UNDER THIS NOTE OR UNDER THE LOAN DOCUMENTS.
PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby authorizes Lender
to
automatically deduct the amount of all principal and/or interest
payments on
this Note from Borrower's account number 8110012690 with Lender
or such other
account as Borrower may designate in writing. If there are
insufficient funds
in the account to pay the automatic deduction in full, Lender may
allow the
account to become overdrawn, or Lender may reverse the automatic
deduction.
Borrower will pay all fees on the account which result from the
automatic
deductions, including any overdraft/NSF charges. If for any
reason Lender does
not charge the account for a payment, or if an automatic payment
is reversed,
the payment is still due according to this Note. If the account
is a Money
Market Account, the number of withdrawals from that account is
limited as set
out in the account agreement. Lender may cancel the automatic
deduction at any
time in its discretion.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER
REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE
AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S
FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL
STATEMENT TO LENDER.
THIS AUTHORIZATION IS DATED APRIL 30, 1996.
BORROWER:
R.H. PHILLIPS, INC.
By: /s/ JOHN BIGUIERE By: /s/ [signature]
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TITLE: LC-CFO TITLE: CFO
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LOAN AGREEMENT
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL
COLLATERAL ACCOUNT OFFICER INITIALS
$4,444,444.44 04-03-1996 815-18 00012 065
7155425480 62186
References in the shaded area are for Lender's use only and do
not limit the applicability of this document
to any particular loan or item.
BORROWER: R.H. PHILLIPS, INC. LENDER: U.S. BANK OF
CALIFORNIA
26636 COUNTY ROAD 12A Corporate
Banking Team
ESPARTO, CA 95827 980 9th
Street, Suite 1100
Sacramento,
CA 95814
===============================================================================
THIS LOAN AGREEMENT between R.H. PHILLIPS, INC. ("Borrower") and
U.S. BANK OF
CALIFORNIA ("Lender") is made and executed on the following terms
and
conditions. Borrower has received prior commercial loans from
Lender or has
applied to Lender for a commercial loan or loans and other
financial
accommodations, including those which may be described on any
exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial
accommodations
from Lender to Borrower, are referred to in this Agreement
individually as the
"Loan" and collectively as the "Loans." Borrower understands and
agrees that:
(a) in granting, renewing, or extending any Loan, Lender is
relying upon
Borrower's representations, warranties, and agreements, as set
forth in this
Agreement: (b) the granting, renewing, or extending of any Loan
by Lender at
all times shall be subject to Lender's sole judgment and
discretion; and (e)
all such Loans shall be and shall remain subject to the following
terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of April 30, 1996, and
shall
continue thereafter until all Indebtedness of Borrower to Lender
has been
performed in full and the parties terminate this Agreement in
writing.
DEFINITIONS. The following words shall have the following
meanings when used in
this Agreement. Terms not otherwise defined in this Agreement
shall have the
meanings attributed to such terms in the Uniform Commercial Code.
All
references to dollar amounts shall mean amounts in lawful money
of the United
States of America.
Agreement. The word "Agreement" means this Loan Agreement, as
this Loan
Agreement, may be amended or modified from time to time,
together with all
exhibits and schedules attached to this Loan Agreement from
time to time.
Account. The word "Account" means a trade account, account
receivable, or
other right to payment for goods sold or services rendered
owing to Borrower
(or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or
entity
obligated upon an Account.
Advance. The word "Advance" means a disbursement of Loan funds
under this
Agreement.
Borrower. The word "Borrower" means R.H. PHILLIPS, INC. The
word "Borrower"
also includes, as applicable, all subsidiaries and affiliates
of Borrower as
provided below in the paragraph titled "Subsidiaries and
Affiliates."
Borrowing Base. The words "Borrowing Base" mean, as determined
by Lender from
time to time, the lesser of (a) $5,000,000.00; or (b) the sum
of (i) 20.000%
of the aggregate amount of Eligible Accounts, plus (ii)
55.000% of the
aggregate amount of Eligible Inventory.
Business Day. The words "Business Day" mean a day on which
commercial banks
are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive
Environmental Response,
Compensation and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes,
and exclusive
of extraordinary gains and income, plus depreciation and
amortization.
Collateral. The word "Collateral" means and includes without
limitation all
property and assets granted as collateral security for a Loan,
whether real
or personal property, whether granted directly or indirectly,
whether granted
now or in the future, and whether granted in the form of a
security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust,
factor's lien, equipment trust, conditional sale, trust
receipt, lien,
charge, lien or title retention contract, lease or consignment
intended as a
security device, or any other security or lien interest
whatsoever, whether
created by law, contract, or otherwise. The word "Collateral"
includes
without limitation all collateral described below in the
section filed
"COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities
excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts" mean, at any
time, all of
Borrower's Accounts which contain selling terms and conditions
acceptable to
Lender. The net amount of any Eligible Account against which
Borrower may
borrow shall exclude all returns, discounts, credits, and
offsets of any
nature. Unless otherwise agreed to by Lender in writing,
Eligible Accounts
do not include:
(a) Accounts with respect to which the Account Debtor is
an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is
a subsidiary
of, or affiliated with or related to Borrower or its
shareholders,
officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment,
guaranteed sale, or other terms by reason of which the
payment by the
Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is
not a resident
of the United States, except to the extent such Accounts
are supported
by insurance, bonds or other assurances satisfactory to
Lender.
(e) Accounts with respect to which Borrower is or may
become liable to
the Account Debtor for goods sold or services rendered by
the Account
Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim,
or setoff.
(g) Accounts with respect to which the goods have not
been shipped or
delivered, or the services have not been rendered, to the
Account
Debtor.
(h) Accounts with respect to which Lender, in its sole
discretion,
deems the creditworthiness of financial condition of the
Account
Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has
had filed
against it a petition in bankruptcy or an application for
relief under
any provision of any state or federal bankruptcy,
insolvency, or
debtor-in-relief acts; or who has had appointed a
trustee, custodian,
or receiver for the assets of such Account Debtor; or who
has made an
assignment for the benefit of creditors or has become
insolvent or
fails generally to pay its debts (including its payrolls)
as such
debts become due.
(j) Accounts with respect to which the Account Debtor is
the United
States government or any department or agency of the
United States.
(k) DATINGS; PROGRESS BILLINGS; RETAINAGES; CASH SALES;
COD; POTENTIAL
OFFSETS; SERVICE CHARGES; ACCOUNTS WHICH HAVE NOT BEEN
PAID IN FULL
WITHIN 60 DAYS OF THE DUE DATE; THE ENTIRE BALANCE OF ANY
ACCOUNT OF ANY
SINGLE ACCOUNT DEBTOR WILL BE INELIGIBLE WHENEVER THE
PORTION OF THE
ACCOUNT PAST DUE 60 DAYS IS IN EXCESS OF 10% OF THE TOTAL
AMOUNT
OUTSTANDING ON THE ACCOUNT; THAT PORTION OF THE ACCOUNTS
OF ANY SINGLE
ACCOUNT DEBTOR WHICH EXCEEDS 25.000% OF ALL OF BORROWER'S
ACCOUNTS UP TO
$250,000.00.
Eligible Inventory. The words "Eligible Inventory" mean,
at any time,
all of Borrower's inventory as defined below except:
(a) Inventory which is not owned by Borrower fees and
clear of all
security interests, liens, encumbrances, and claims of
third parties.
(b) Inventory which Lender, in its sole discretion, deems
to be
obsolete, unsalable, damaged, defective, or unfit for
further
processing.
(c) RED AND WHITE WINES AGED OVER 60 MONTHS AND 36
MONTHS, RESPECTIVELY.
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of
1974, as amended.
Event of Default. The words "Event of Default" mean and include
without
limitation any of the Events of Default set forth below in the
section titled
"EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date of
termination of
Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation
each and all
of the persons or entities granting a Security interest in any
Collateral for
the indebtedness, including without limitation all Borrowers
granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes without
limitation each and
all of the guarantors, sureties, and accommodation parties in
connection with
any indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation
all Loans, together with all other obligations, debts and
liabilities of
Borrower to Lender, or any one or more of them, as well as all
claims by Lender
against Borrower, or any one or more of them; whether now or
30-1996 LOAN AGREEMENT
PAGE 5
LOAN NO. 815-18 (Continued)
================================================================================
environment, unless such environmental activity is pursuant
to and in
compliance with the conditions of a permit issued by the
appropriate
federal, stated or local governmental authorities; shall
furnish to Lender
promptly and in any event within thirty (30) days after
receipt thereof a
copy of any notice, summons, lien, citation, directive,
letter or other
communication from any governmental agency or
instrumentality concerning
any intentional or unintentional action or omission on
Borrower's part in
connection with any environmental activity whether or not
there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender
such promissory
notes, mortgages, deeds of trust, security agreements,
financing
statements, instruments, documents and other agreements as
Lender or its
attorneys may reasonably request to evidence and secure the
Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change
in any law,
rule, regulation or guideline, or the interpretation or
application of any
thereof by any court or administrative or governmental authority
(including any
request or policy not having the force of law) shall impose,
modify or make
applicable any taxes (except U.S. federal, state or local income
or franchise
taxes imposed on Lender), reserve requirements, capital adequacy
requirements
or other obligations which would (a) increase the cost to Lender
for extending
or maintaining the credit facilities to which this Agreement
relates, (b)
reduce the amounts payable to Lender under this Agreement or the
Related
Documents, or (c) reduce the rate of return on Lender's capital
as a
consequence of Lender's obligations with respect to the credit
facilities to
which this Agreement relates, then Borrower agrees to pay Lender
such
additional amounts as will compensate Lender therefor, within
five (5) days
after Lender's written demand for such payment, which demand
shall be
accompanied by an explanation of such imposition or charge and a
calculation in
reasonable detail of the additional amounts payable by Borrower,
which
explanation and calculations shall be conclusive in the absence
of manifest
error.
NEGATIVE COVENANTS Borrower covenants and agrees with Lender that
while this
Agreement is in effect, Borrower shall not, without the prior
written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred
in the normal
course of business and indebtedness to Lender contemplated
by this
Agreement, create, incur or assume indebtedness for borrowed
money,
including capital leases, (b) except as allowed as a
Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security
interest in, or
encumber any of Borrower's assets, or (c) sell with recourse
any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business
activities
substantially different than those in which Borrower is
presently engage,
(b) cease operations, liquidate, merge, transfer, acquire or
consolidate
with any other entity, change ownership, change its name,
dissolve or
transfer or sell Collateral out of the ordinary course of
business, (c) pay
any dividends on Borrower's stock (other than dividends
payable in its
stock), provided, however that notwithstanding the
foregoing, but only so
long as no Event of Default has occurred and is continuing
or would result
from the payment of dividends, if Borrower is a "Subchapter
S Corporation"
(as defined in the Internal Revenue Code of 1986, as
amended). Borrower may
pay cash dividends on its stock to its shareholders from
time to time in
amounts necessary to enable the shareholders to pay income
taxes and make
estimated income tax payments to satisfy their liabilities
under federal
and state law which arise solely from their status as
Shareholders of a
Subchapter S Corporation because of their ownership of
shares of stock of
Borrower, or (d) purchase or retire any of Borrower's
outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or
advance money or
assets, (b) purchase, create or acquire any interest in any
other
enterprise or entity, or (c) incur any obligation as surety
or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make
any Loan to
Borrower, whether under this Agreement or under any other
agreement, Lender
shall have no obligation to make Loan Advances or to disburse
Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of
this Agreement
or any of the Related Documents or any other agreement that
Borrower or any
Guarantor has with Lender, (b) Borrower or any Guarantor becomes
insolvent,
files a petition in bankruptcy or similar proceedings, or is
adjudged a
bankrupt; (c) there occurs a material adverse change in
Borrower's financial
condition, in the financial condition of any Guarantor, or in the
value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or
otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of
the Loan or
any other loan with Lender, or (e) Lender in good faith deems
itself insecure,
even though no Event of Default shall have occurred.
ACCESS LAWS. Without limiting the generality of any provision of
this agreement
requiring Borrower to comply with applicable laws, rules, and
regulations,
Borrower agrees that it will at all times comply with applicable
laws relating
to disabled access including, but not limited to, all applicable
titles of the
Americans with Disabilities Act of 1990.
ADDITIONAL OPERATING PROVISIONS.
1. BORROWER AGREES TO SUBMIT TO LENDER MONTHLY ACCOUNTS PAYABLE
AGING,
ACCOUNTS RECEIVABLE AGING AND BORROWER CERTIFICATE NO LATER THAN
20 DAYS AFTER
EACH MONTH END.
2. BORROWER AGREES TO SUBMIT TO LENDER MONTHLY WINE INVENTORY
VALUATIONS ON A
COST BASIS AND QUARTERLY VALUATIONS ON A MARKET BASIS, INCLUDING
COPIES OF THE
THEN-CURRENT PRICES AS PUBLISHED BY SOURCES ACCEPTABLE TO LENDER.
3. BORROWER AGREES TO SUBMIT TO LENDER AN ANNUAL STATEMENT,
PREPARED BY A WINE
EXPERT ACCEPTABLE TO LENDER, CERTIFYING THE QUALITY AND CONDITION
OF THE
INVENTORY.
4. BORROWER AGREES TO SUBMIT TO LENDER ANY CAPITAL EXPENDITURE
PURCHASES ABOVE
$100,000.00 WHICH ARE NOT INCLUDED IN EXHIBIT "A."
5. BORROWER AGREES TO SUBMIT TO LENDER 10-K'S AND 10-Q'S WITHIN
30 DAYS OF
FILING WITH SECURITY EXCHANGE COMMISSION.
6. BORROWER'S MAXIMUM INVENTORY ADVANCE IN AGGREGATE SHALL BE
$4,000,000.00,
WITH A MAXIMUM ADVANCE OF $1,750,000.00 ON BOTTLED INVENTORY,
$100,000.00 ON
PRIVATE LABELS AND $200,000.00 ON SUPPLIES.
7. IN ADDITION TO AS DEFINED ABOVE, ELIGIBLE INVENTORY SHALL
INCLUDE BULK
WINE; BOTTLES/CASES; SUPPLIES, DEFINED AS NON-WINE INVENTORY USED
IN BOTTLING.
8. SUPPLY INVENTORY SHALL BE ADVANCED AT A 30% ADVANCE RATE.
9. ELIGIBLE INVENTORY WILL BE REDUCED BY STORAGE ACCOUNTS
PAYABLE.
10. LOCATIONS OF ALL INVENTORY ARE: ESPARTO, CA.
ADDITIONAL EVENT OF DEFAULT. IN ADDITION TO THE EVENTS OF DEFAULT
SPECIFIED IN
THE EVENTS OF DEFAULT PARAGRAPH OF THIS AGREEMENT, THE OCCURRENCE
OF ANY EVENT
OF DEFAULT UNDER ANY AGREEMENT BETWEEN METROPOLITAN LIFE
INSURANCE AND
BORROWER, INCLUDING WITHOUT LIMITATION THE LOAN AGREEMENT AND
PROMISSORY NOTE
DATED 4-30-96, SHALL BE AN EVENT OF DEFAULT HEREUNDER. UPON THE
OCCURRENCE OF
SUCH AN EVENT OF DEFAULT, LENDER MAY, AT ITS OPTION, EXERCISE ANY
ONE OR MORE
OF THE RIGHTS AND REMEDIES AVAILABLE UNDER THIS AGREEMENT OR
UNDER APPLICABLE
LAW.
ADDITIONAL FINANCIAL REQUIREMENTS.
1. BORROWER AGREES TO MAINTAIN A CASH FLOW COVER AT NOT LESS
THAN 1.25:1.00
DEFINED AS NET PROFIT AFTER TAXES PLUS DEPRECIATION/AMORTIZATION
PLUS INTEREST
EXPENSE PLUS ADDITIONAL CAPITAL DIVIDEND BY CURRENT PORTION OF
LONG-TERM DEBT
PLUS DIVIDENDS/WITHDRAWALS PLUS INTEREST EXPENSE PLUS INTERNALLY
FUNDED FIXED
ASSETS, TO BE MEASURED ANNUALLY.
2. BORROWER AGREES TO MAINTAIN A WORKING CAPITAL IN EXCESS OF
$1,800,000.00
WHICH IS TO INCLUDE THE REVOLVING LINE OF CREDIT IN THE
CALCULATIONS.
3. BORROWER AGREES TO MAINTAIN A RATIO OF 1.30 TO 1.00 OF
CURRENT ASSETS TO
CURRENT LIABILITIES WHICH IS TO INCLUDE THE REVOLVING LINE OF
CREDIT IN THE
CALCULATIONS.
4. BORROWER AGREES WITH LENDER THAT TANGIBLE NET WORTH MUST
INCREASE BY 50% OF
THE PREVIOUS FISCAL YEAR'S CONSOLIDATED NET INCOME PLUS 100% OF
ADDITIONAL PAID
IN CAPITAL ACQUIRED IN 1995.
RESTRICTED PAYMENTS. NOTWITHSTANDING OTHER VERBIAGE IN THIS
AGREEMENT BORROWER
AGREES TO LENDER NOT TO PAY ANY DIVIDEND, MAKE ANY DISTRIBUTIONS,
OR PURCHASE
OR OTHERWISE ACQUIRE SHARES OF ANY CLASS OF ITS CAPITAL STOCK
(ANY SUCH
DIVIDEND, DISTRIBUTION, PURCHASE OR ACQUISITIONS WILL BE REFERRED
TO AS A
"PAYMENT") TO THE EXTENT THAT THE AGGREGATE TOTAL OF ALL SUCH
PAYMENTS MADE
AFTER THE DATE HEREOF WOULD EXCEED THE SUM OF:
1. 50% (OR MINUS 100% OF ANY DEFICIT) OF NET INCOME (AS
HEREAFTER DEFINED) FOR
THE PERIOD BEGINNING WITH THE FIRST DATE HEREOF AND ENDING WITH
THE LAST FULL
QUARTER PRIOR TO THE DATE OF SUCH PROPOSED PAYMENT, COMPUTED ON A
CUMULATIVE
BASIS; PLUS
2. THE NET CASH PROCEEDS RECEIVED AFTER THE DATE HEREOF FROM
BORROWER'S SALES
OF SHARES OF ITS CAPITAL STOCK, AS USED IN THE "RESTRICTED
PAYMENT SECTION,"
THE TERM "NET INCOME" MEANS THE NET INCOME OF BORROWER AS
DETERMINED IN
ACCORDANCE WITH GAAP.
AGRICULTURAL EXPENSE REPORT. BORROWER AGREES TO SUBMIT TO LENDER
BORROWER'S
MONTHLY AGRICULTURAL EXPENSE REPORTS WITH USE OF FUNDS.
MARGIN REQUIREMENT. NOTWITHSTANDING ANYTHING CONTAINED IN ANY
PROMISSORY NOTE
FROM BORROWER TO LENDER OR IN THIS AGREEMENT TO THE CONTRARY, THE
TOTAL OF ALL
ADVANCE FROM BORROWER'S LINE(S) OF CREDIT WITH LENDER SHALL NOT
EXCEED 80% OF
BORROWER'S BUDGETED OPERATING EXPENSES, APPROVED BY LENDER.
TOTAL ACREAGE. THE TOTAL ACREAGE BORROWER HAS COMMITTED TO
PRODUCTION FOR THE
CURRENT CROP YEAR IS 850.
CROP DESCRIPTION. THE CROPS TO BE PRODUCED DURING THE CURRENT
YEAR ARE WINE
GRAPES.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and
(vi) If at any time Lander's IBOR Rate is unascertainable
or unavailable
to Lender of if IBOR Rate loans become unlawful, the option to
select the IBOR
Borrowing Rate shall terminate immediately. If the IBOR Borrowing
Rate is then
in effect, (A) it shall terminate automatically with respect to
all IBOR Amounts
(i) on the last day of each then applicable IBOR Interest Period,
if Lender may
lawfully continue to maintain such loans, of (ii) immediately if
Lender may not
lawfully continue to maintain such loans through such day, and
(B) subject to
Section 11, the Prime Borrowing Rate automatically shall become
effective as to
such amounts upon such termination.
(vii) If at any time after the date hereof (A) any revision
in or adoption
of any applicable law, rule, or regulation or in the
interpretation or
administration thereof (i) shall subject Lender or its Eurodollar
lending office
to any tax, duty, or other charge, or change the basis of
taxation of payments
to Lender with respect to any loans bearing interest based on
Lender's IBOR
Rate, or (ii) shall impose or modify any reserve, insurance,
special deposit, or
similar requirements against assets of, deposits with or for the
account of, or
credit extended by Lender or its Eurodollar lending office, or
impose on Lender
or its Eurodollar lending office any other condition affecting
any such loans,
and (B) the result of any of the foregoing is (i) to increase the
cost to Lender
of making or maintaining any such loans or (ii) to reduce the
amount of any sum
receivable under this note by Lender or its Eurodollar lending
office, Borrower
shall pay Lender within 15 days after demand by Lender such
additional amount as
will compensate Lender for such increased cost or reduction. The
determination
hereunder by Lender of such additional amount shall be conclusive
in the absence
of manifest error. If Lender demands compensation under this
Section 4(b)(vii),
Borrower may upon three (3) Business Days' notice to Lender pay
the accrued
interest on all IBOR Amounts, together with any additional
amounts payable under
Section 4(b)(vii). Subject to Section 11, upon Borrower's paying
such accrued
interest and additional costs, the Prime Borrowing Rate
immediately shall be
effective with respect to the unpaid principal balance of such
IBOR Amounts.
(viii) Upon any termination of any IBOR Borrowing Rate
(including but not
limited to conversion to another rate) or payment of all or any
portion of any
IBOR Amount on a date other than the last day of the then
applicable IBOR
Interest Period, including without limitation (A) acceleration
under Section 11
or (B) repayment in response to a notice under Section 4(b)(vii),
Borrower shall
pay to Lender on demand such amount as Lender reasonably
determines (determined
as though 100% of the applicable IBOR Amount had been funded in
the applicable
Eurodollar market) is equivalent to all direct or indirect
losses, expenses,
liabilities, or reductions in yield to Lender resulting
therefrom, whether
incurred in connection with liquidation or reemployment of funds
or otherwise.
(ix) If Borrower chooses the IBOR Borrowing Rate, Borrower
shall pay
interest based on such rate, plus any other applicable taxes or
charges
hereunder, even though Lender may have obtained the funds loaned
to Borrower
from sources other than the applicable Eurodollar market.
Lender's determination
of the IBOR Borrowing Rate and any such taxes or charges shall be
conclusive in
the absence of manifest error.
(x) Notwithstanding any other term of this note, Borrower
may not select
the IBOR Borrowing Rate if an event of default hereunder has
occurred and is
continuing.
(xi) Nothing contained in this note, including without
limitation the
determination of any IBOR Interest Period or Lender's quotation
of any IBOR
Borrowing Rate, shall be construed to prejudice Lender's right,
if any, to
decline to make any requested Advance or to require payment on
demand.
5. COMPUTATION OF INTEREST. All interest under Section 4 and
Section 11 will
be computed at the applicable rate based on a 360-day year and
applied to the
actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) Principal. Principal shall be paid:
[X] on demand.
[ ] on demand, or if not demand, on .
[ ] on .
[ ] subject to Section 7, in installments of
[ ] each, plus accrued interest
[ ] each including accrued interest
beginning on and on the same day of each
thereafter
until when the entire Principal Balance plus
interest thereon
shall be due and payable.
[ ] (Other):
(b) Interest.
(i) Interest on all amounts bearing interest at the Prime
Borrowing Rate
shall be paid:
[X] on the 15TH day of MAY and on the same day of each
MONTH
thereafter prior to maturity and at maturity.
[ ] at maturity.
[ ] at the time each principal installment is due and
at maturity.
[ ] (Other):
(ii) Interest on all IBOR Borrowing Rate Amounts shall be
paid:
[X] on the last day of the applicable IBOR Interest
Period, and if
such IBOR Interest Period is longer than three
months, on the
last day of each three month period occurring
during such IBOR
Interest Period, and at maturity.
[ ] on the day of and on the same
day of each
thereafter prior to maturity and at maturity.
[ ] at maturity.
[ ] at the time each principal installment is due and
at maturity.
[ ] (Other):
7. CHANGE IN PAYMENT AMOUNT. If the interest rate on this note
is subject to
change in accordance with Section 4, the holder of this note may,
from time to
time, in holder's sole discretion, increase or decrease the
amount of each of
the installments remaining unpaid at the time of each change in
rate to an
amount holder in its sole discretion deems necessary to continue
amortizing the
Principal Balance at the same rate established by the installment
amounts
specified in Section 6(a), whether or not a "balloon" payment may
also be due
upon maturity of this note. Holder shall notify the undersigned
of each such
change in writing. Whether or not the installment amount is
increased under this
Section 7, Borrower understands that, as a result of increases in
the rate of
interest in accordance with Section 4, the final payment due,
whether or not a
"balloon" payment, shall include the entire Principal Balance and
interest
thereon then outstanding, and may be substantially more than the
installment
specified in Section 6.
8. ALTERNATE PAYMENT DATE. Notwithstanding any other term of
this note, if
in any month there is no day on which a scheduled payment would
otherwise be
due (e.g., February 31), such payment shall be paid on the last
banking day of
that month.
9. PAYMENT BY AUTOMATIC CHARGE.
[X] Please automatically deduct the amount of all principal and
interest
payments from account number 8110012690. If there are
insufficient funds in the
account to pay the automatic deduction in full, Lender may allow
the account to
become overdrawn, or Lender may reverse the automatic deduction.
Borrower will
pay all the fees on the account which result from the automatic
deductions,
including any overdraft/NSF charges. If for any reason Lender
does not charge
the account for a payment, or if an automatic payment is
reversed, the payment
is still due according to the note. If the account is a Money
Market Account,
the number of withdrawals from that account is limited as set out
in the
agreement. Lender may cancel the automatic deduction at any time
in its
discretion.
Provided, however, if no account number is entered above,
Borrower does not
want to make payments by automatic charge.
Page 2 of 4
10. LENDER'S PRIME RATE. Lender's prime rate is the rate of
interest which
Lender from time to time establishes as its prime rate and is
not, for example,
the lowest rate of interest which Lender collects from any
borrower or class of
borrowers. When Lender's prime rate is applicable under Section
4(a) or 11(b),
the interest rate hereunder shall be adjusted without notice
effective on the
day Lender's prime rate changes, but in no event shall the rate
of interest be
higher than allowed by law.
11. DEFAULT.
(a) Without prejudice to any right of Lender to require
payment on demand
or to decline to make any requested Advance, each of the
following shall be an
event of default: (i) Borrower fails to make any payment when
due. (ii)
Borrower fails to perform or comply with any form, covenant or
obligation in
this note or any agreement related to this note, or in any other
agreement or
loan Borrower has with Lender. (iii) Borrower defaults under any
loan,
extension of credit, security agreement, purchase or sales
agreement, or any
other agreement, in favor of any other creditor or person that
may materially
affect any of Borrower's property or Borrower's ability to repay
this note or
perform Borrower's obligations under this note or any related
documents. (iv)
Any representation or statement made or furnished to Lender by
Borrower or on
Borrower's behalf is false or misleading in any material respect.
(v) Borrower
becomes insolvent, a receiver is appointed for any part of
Borrower's
property, Borrower makes an assignment for the benefit of
creditors, or any
proceeding is commenced either by Borrower or against borrower
under any
bankruptcy or insolvency laws. (vi) Any creditor tries to take
any of
Borrower's property on or in which Lender has a lien or security
interest. This
includes a garnishment of any of Borrower's accounts with Lender.
(vii) Any of
the events described in this default section occurs with respect
to any
guarantor of this note or any guaranty of Borrower's indebtedness
to Lender
ceases to be, or is asserted not to be, in full force and effect.
(viii) Lender
in good faith deems itself insecure. If this note is payable on
demand, the
inclusion of specific events of default shall not prejudice
Lender's right to
require payment on demand or to decline to make any requested
Advance.
(b) Without prejudice to any right of Lender to require
payment on demand,
upon the occurrence of an event of default, Lender may declare
the entire
unpaid Principal Balance on this note and all accrued unpaid
interest
immediately due and payable, without notice. Upon default,
including failure to
pay upon final maturity, Lender, at its option, may also, if
permitted under
applicable law, increase the interest rate on this note to a rate
equal to the
Prime Borrowing Rate plus 5%. The interest rate will not exceed
the maximum
rate permitted by applicable law. In addition, if any payment of
principal or
interest is 15 or more days past due, Borrower will be charged a
late charge of
5% of the delinquent payment.
12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND.
Holder's records
shall, at any time, be conclusive evidence of the unpaid
Principal Balance and
interest owing on this note. Notwithstanding any other provisions
of this note,
in the event holder makes Advances hereunder which result in an
unpaid
Principal Balance on this note which at any time exceeds the
maximum amount
specified in Section 2, Borrower agrees that all such Advances,
with interest,
shall be payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit
indicated in Section
1 is a revolving line of credit or a non-revolving line of
credit, Borrower
agrees that Lender is under no obligation and has not committed
to make any
Advances hereunder. Each Advance hereunder shall be made at the
sole option of
Lender.
14. DEMAND NOTE. If this note is payable on demand, Borrower
acknowledges
and agrees that (a) Lender is entitled to demand Borrower's
immediate payment
in full of all amounts owing hereunder and (b) neither anything
to the contrary
contained herein or in any other loan documents (including but
not limited to,
provisions relating in defaults, rights of cure, default rate of
interest,
installment payments, late charges, periodic review of Borrower's
financial
condition, and covenants) nor any act of Lender pursuant to any
such provisions
shall limit or impair Lender's right or ability to require
Borrower's payment
in full of all amounts owing hereunder immediately upon Lender's
demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected
upon the
request of Borrower (if an individual), any of the undesigned (if
Borrower
consists of more than one individual), any person or persons
authorized in
subsection (b) of this Section 15, and any person or person
otherwise
authorized to execute and deliver promissory notes to Lender on
behalf of
Borrower.
(b) Borrower hereby authorizes any ONE of the following
individuals to
request Advances and to select interest rate options: LANE
GIGUIERE, JOHN REILY
RIENEREL, ROBERT MOORE, BETH BRADY, unless Lender be otherwise
instructed in
writing.
(c) All Advances made pursuant to this Section 15 shall be
disbursed by
deposit directly to Borrower's account number at the branch
of Lender,
or by cashier's check issued to Borrower.
(d) Borrower agrees that Lender shall have no obligation to
verify the
identity of any person making any request pursuant to Section 15,
and Borrower
assumes all risks of the validity and authorization of such
requests. In
consideration of Lender agreeing, at its sole discretion, to make
Advances upon
such requests, Borrower promises to pay holder, in accordance
with the
provisions of this note, the Principal Balance together with
interest theron
and other sums due hereunder, although any Advances may have been
requested
by a person or persons not authorized to do so.
16. PERIODIC REVIEW. Lender will review Borrower's credit
accommodations
periodically. At the time of the review, Borrower will furnish
Lender with any
additional information regarding Borrower's financial condition
and business
operations that Lender requests. This information may include but
is not
limited to, financial statements, tax returns, lists of assets
and liabilities,
pagings of receivables and payable, inventory schedules, budgets
and forecasts.
If upon review, Lender, in its sole discretion, determines that
there has been
a material adverse change in Borrower's Financial condition,
Borrower will be
in default. Upon default, Lender shall have all rights specified
herein.
17. NOTICES. Any notice hereunder may be given by ordinary
mail, postage
paid and addressed to Borrower at the last known address of
Borrower as shown
on holder's records. If Borrower consists of more than one
person,
notification of any said persons shall be complete notification
of all. Notice
may be given either before or reasonably soon after the effective
date of the
change.
18. ATTORNEY FEES. Whether or not litigation or arbitration
is commenced,
Borrower promises to pay all costs of collecting overdue amounts.
Without
limiting the foregoing, in the event that holder consults an
attorney regarding
the enforcement of any of its rights under this note or any
document securing
the same, or if this note is placed in the hands of an attorney
for collection
or if suit or litigation is brought to enforce this note or any
document
securing the same, Borrower promises to pay all costs thereof
including such
additional sums as the court or arbitrator(s) may adjudge
reasonable as
attorney fees, including without limitation, costs and attorney
fees incurred
in any appellate court, in any proceeding under the bankruptcy
code, or in any
receivership and post-judgment attorney fees incurred in
enforcing any
judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker,
co-maker,
guarantor or otherwise, waives diligence, demand, presentiment
for payment,
notice of non-payment, protest and notice of protest and waives
all defenses
based on suretyship or impairment of collateral. Without notice
to Borrower and
without diminishing or affecting Lender's rights or Borrower's
obligations
hereunder, Lender may deal in any manner with any person who at
any time is
liable for, or provides any real or personal property collateral
for, any
indebtedness of Borrower to Lender, including the indebtedness
evidenced by
this note. Without limiting the foregoing, Lender may, in its
sole discretion;
(a) make secured or unsecured loans to Borrower and agree to any
number of
waivers, modifications, extensions and renewals of any length of
such loans,
including the loan evidenced by this note; (b) impair, release
(with or without
substitution of new collateral), fail to perfect a security
interest in, fail
to preserve the value of, fail to dispose of in accordance with
applicable law,
any collateral provided by any person; (c) sue, fail to sue,
agree not to sue,
release, and settle or compromise with, any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the
undersigned
Borrowers are joint and several and are binding upon any marital
community of
which any of the undersigned are members. Holders rights and
remedies under
this note shall be cumulative.
21. ARBITRATION.
(a) Either Lender or Borrower may require that all disputes,
claims,
counterclaims and defenses, including those based on or arising
from any
alleged tort ("Claims") relating in any way to this note or any
transaction of
which this note is a part (the "Loan"), be settled by binding
arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitraiton
Association and Title 9 of the U.S. Code. All Claims will be
subject to the
statutes of limitation applicable if they were litigated. This
provision is
void if the Loan, at the time of the proposed submission to
arbitration,is
secured by real property located outside of Oregon or Washington,
or if the
effect of the arbitration procedure (as opposed to any Claims of
Borrower)
would be to materially impair Lender's ability to realize on any
collateral
securing the Loan.
Page 3 of 4
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, IBOR)
$5,000,000.00 Date:
APRIL 30, 1996
R.H. PHILLIPS, INC. ("Borrower")
U.S. BANK OF CALIFORNIA ("Lender")
1. TYPE OF CREDIT. This note is given to evidence Borrower's
obligation to
repay all sums which Lender may from time to time advance to
Borrower
("Advances") under a:
/ / single disbursement loan. Amounts loaned to Borrower
hereunder will be
disbursed in a single Advance in the amount shown in
Section 2.
/x/ revolving line of credit. No Advances shall be made which
create a
maximum amount outstanding at any one time which exceeds
the maximum
amount shown in Section 2. However, Advances hereunder may
be borrowed,
repaid and reborrowed, and the aggregate Advances loaned
hereunder from
time to time may exceed such maximum amount.
/ / non-revolving line of credit. Each Advance made from time
to time
hereunder shall reduce the maximum amount available shown
in Section 2.
Advances loaned hereunder which are repaid may not be
reborrowed.
2. PRINCIPAL BALANCE. The unpaid principal balance of all
Advances
outstanding under this note ("Principal Balance") at one time
shall not exceed
$5,000,000.00.
3. PROMISE TO PAY. For value received Borrower promises to
pay to Lender or
order at 980 9TH STREET, SUITE 1100, SACRAMENTO, CA 95814, the
Principal
Balance of this note, with interest thereon at the rate(s)
specified in Sections
4 and 11 below.
4. INTEREST RATE. The Interest rate on the Principal Balance
outstanding
may vary from time to time pursuant to the provisions of this
note. Subject to
the provisions of this note, Borrower shall have the option from
time to time
of choosing to pay interest at the rate or rates and for the
applicable periods
of time based on the rate options provided herein; provided,
however, that once
Borrower notifies Lender of the rate option chosen in accordance
with the
provisions of this note, such notice shall constitute Borrower's
irrevocable
request for an Advance hereunder at the rate option specified in
such notice.
The rate options are the Prime Borrowing Rate and the IBOR
Borrowing Rate, each
as defined herein.
(a) THE PRIME BORROWING RATE.
(i) The Prime Borrowing Rate is a par annum rate
equal to Lender's
prime rate plus 0.000.% per annum.
(ii) Whenever Borrower desires to use the Prime
Borrowing Rate
option, Borrower shall give Lender notice orally or in writing in
accordance
with Section 15 of this note, which notice shall specify the
requested
disbursement date and principal amount of the Advance, and that
Borrower has
chosen the Prime Borrowing Rate option.
(iii) Prepayments of all or any part of the Principal
Balance bearing
interest at the Prime Borrowing Rate may be made at any time
without penalty.
Upon prepayment of any such principal amount, Borrower also must
pay all
accrued interest thereon to the date of prepayment.
(iv) Subject to Section 11 of this note, interest
shall accrue on
the unpaid Principal Balance at the Prime Borrowing Rate unless
and except to
the extent that the IBOR Borrowing Rate is in effect.
(b) THE IBOR BORROWING RATE.
(i) The following terms shall have the following
meanings;
"Business Day" means any day other than a
Saturday, Sunday, or
other day that commercial banks in Portland, Oregon or New York
City are
authorized or required by law to close.
"IBOR Amount" means each principal amount for
which Borrower
chooses to have the IBOR Borrowing Rate apply for any specified
IBOR Interest
Period.
"IBOR Interest Period" means as to any IBOR
Amount, a period of
ONE, TWO OR THREE months commencing on the date the IBOR
Borrowing Rate becomes
applicable thereto; provided, however, that (A) no IBOR Interest
Period shall be
selected which would extend beyond ; (B) no IBOR
Interest Period shall
extend beyond the date of any principal payment required under
Section 6 of
this note, unless the sum of the principal amounts bearing
interest at the
Prime Borrowing Rate, plus IBOR Amounts with IBOR Interest
Periods ending on or
before the schedule date of such principal payment, plus
principal amounts
remaining unborrowed under a line of credit, equals or exceeds
the amount of
such principal payment; (C) any IBOR Interest Period which would
otherwise
expire on a day which is not a Business Day, shall be extended to
the next
succeeding Business Day, unless the result of such extension
would be to extend
such IBOR Interest Period into another calendar month, in which
event the IBOR
Interest Period shall end on the immediately preceding Business
Day; and (D) any
IBOR Interest Period that begins on the last Business Day of a
calendar month
(or on a day for which there is no numerically corresponding day
in the
calendar month at the end of such IBOR Interest Period) shall end
on the last
Business Day of a calendar month.
(ii) the IBOR Borrowing Rate is Lender's IBOR Rate
plus 2.000% per
annum. Lender's IBOR Rate for any IBOR Interest Period is the
rate per annum
(computed on the basis of a 360-day year and the actual number of
days elapsed)
equal to the arithmetic average (rounded upward to the nearest
1/16 of 1%) of
the rates per annum determined by Lender as of the times
specified in Section
4(b)(iii) on the date two (2) Business Days prior to the first
day of such IBOR
Interest Period as the rates offered to Lender by three
Eurodollar money
market dealers in such Eurodollar market as may be selected by
Lender for U.S.
dollar deposits to be delivered on the first day of such IBOR
Interest Period
for the number of months therein; provided, however, that
Lender's IBOR Rate
shall be adjusted to take into account the maximum reserves
required to be
maintained for Eurocurrency liabilities by banks during each such
IBOR Interest
Period as specified in Regulation D of the Board of Governors of
the Federal
Reserve System or any successor regulation.
(iii) Borrower may obtain IBOR Borrowing Rate quotes
from Lender
between 6:00 a.m. and 12:00 noon (Portland, Oregon time) on any
Business Day.
Any IBOR Borrowing Rate quoted (A) before 10:00 a.m., shall be
based on
Lender's IBOR Rate determined as of approximately 8:00 a.m. on
such day, and
Borrower may request in Advance at such rate only by giving
Lender notice in
accordance with Section 4(b)(iv) before 10:00 a.m. on such day;
and (B) between
10:00 a.m. and 12:00 noon shall be based on Lender's IBOR Rate
determined as of
approximately 10:00 a.m. on such day, and Borrower may request an
Advance at
such rate only by giving Lender notice in accordance with Section
4(b)(iv) not
later than 12:00 noon on such day.
(iv) Whenever Borrower desires to use the IBOR
Borrowing Rate
option, Borrower shall give Lender irrevocable notice (either in
writing or
orally and promptly confirmed in writing) between 8:00 a.m. and
12:00 noon
(Portland, Oregon time) two (2) Business Days in advance of the
desired
effective date of such rate. Any oral notice shall be given by,
and any written
notice or confirmation of an oral notice shall be signed by, the
person(s)
authorized in Section 15 of this note, and shall specify the
requested
effective date of the rate, IBOR Interest Period and IBOR Amount,
and whether
Borrower is requesting a new Advance at the IBOR Borrowing Rate
under a line of
credit, conversion of any portion of the Principal Balance
bearing interest at
the Prime Borrowing Rate to an IBOR Amount, or a new IBOR
Interest Period for
an outstanding IBOR Amount. Notwithstanding any other term of
this note,
Borrower may elect the IBOR Borrowing Rate in the minimum
principal amount of
$500,000.00 and in integral multiples of $100,000.00; provided,
however, that
no more than TEN separate IBOR Interest Periods may be in effect
at any one
time.
(v) Borrower may not prepay all or any part of any
IBOR Amount(s).
Pae 1 of 4
(vi) If at any time Lender's IBOR Rate is
unascertainable or
unavailable to Lender of if IBOR Rate loans become unlawful, the
option to
select the IBOR Borrowing Rate shall terminate immediately. If
the IBOR
Borrowing Rate is then in effect, (A) it shall terminate
automatically with
respect to all IBOR Amounts (i) on the last day of each then
applicable IBOR
Interest Period, if Lender may lawfully continue to maintain such
loans, or (ii)
immediately if Lender may not lawfully continue to maintain such
loans through
such day, and (B) subject to Section 11, the Prime Borrowing Rate
automatically
shall become effective as to such amounts upon such termination.
(vii) If at any time after the date hereof (A) any
revision in or
adoption of any applicable law, rule, or regulation or in the
interpretation or
administration thereof (i) shall subject Lender or its Eurodollar
lending
office to any tax, duty, or other charge, or change the basis of
taxation of
payments to Lender with respect to any loans bearing interest
based on
Lender's IBOR Rate, or (ii) shall impose or modify any reserve,
insurance,
special deposit, or similar requirements against assets of,
deposits with or
for the account of, or credit extended by Lender or its
Eurodollar lending
office, or impose on Lender or its Eurodollar lending office any
other
condition affecting any such loans, and (B) the result of any of
the foregoing
is (i) to increase the cost to Lender of making or maintaining
any such loans
or (ii) to reduce the amount of any sum receivable under this
note by Lender or
its Eurodollar lending office, Borrower shall pay Lender within
15 days after
demand by Lender such additional amount as will compensate Lender
for such
increased cost or reduction. The determination hereunder by
Lender of such
additional amount shall be conclusive in the absence of manifest
error. If
Lender demands compensation under this Section 4(b)(vii),
Borrower may upon
three (3) Business Days' notice to Lender pay the accrued
interest on all IBOR
Amounts, together with any additional amounts payable under
Section 4(b)(viii).
Subject to Section 11, upon Borrower's paying such accrued
interest and
additional costs, the Prime Borrowing Rate immediately shall be
effective with
respect to the unpaid principal balance of such IBOR Amounts.
(viii) Upon any termination of any IBOR Borrowing Rate
(including but
not limited to conversion to another rate) or payment of all or
any portion of
any IBOR Amount on a date other than the last day of the then
applicable IBOR
Interest Period, including without limitation (A) acceleration
under Section 11
or (B) repayment in response to a notice under Section 4(b)(vii),
Borrower
shall pay to Lender on demand such amount as Lender reasonably
determines
(determined as though 100% of the applicable IBOR Amount had been
funded in the
applicable Eurodollar market) is equivalent to all direct or
indirect losses,
expenses, liabilities, or reductions in yield to Lender resulting
therefrom,
whether incurred in connection with liquidation or reemployment
of funds or
otherwise.
(ix) If Borrower chooses the IBOR Borrowing Rate,
Borrower shall pay
interest based on such rate, plus any other applicable taxes or
charges
hereunder, even though Lender may have obtained the funds loaned
to Borrower
from sources other than the applicable Eurodollar market.
Lender's
determination of the IBOR Borrowing Rate and any such taxes or
charges shall be
conclusive in the absence of manifest error.
(x) Notwithstanding any other term of this note,
Borrower may not
select the IBOR Borrowing Rate if an event of default hereunder
has occurred
and is continuing.
(xi) Nothing contained in this note, including without
limitation
the determination of any IBOR Interest Period or Lender's
quotation of any IBOR
Borrowing Rate, shall be construed to prejudice Lender's right,
if any, to
decline to make any requested Advance or to require payment on
demand.
5. COMPUTATION OF INTEREST. All interest under Section 4 and
Section 11
will be computed at the applicable rate based on a 360-day year
and applied to
the actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) Principal. Principal shall be paid:
/X/ on demand.
/ / on demand, or if no demand, on
/ / on
/ / subject to Section 7, in installments of
/ / each, plus accrued interest
/ / each including accrued interest
beginning on and on the same day of
each
thereafter until when the entire
Principal Balance
plus interest thereon shall be due and payable.
/ / (Other):
(b) Interest.
(i) Interest on all amounts bearing interest at the
Prime Borrowing
Rate shall be paid:
/X/ on the 15TH day of MAY and on the same
day of each MONTH
thereafter prior to maturity and at
maturity.
/ / at maturity.
/ / at the time each principal installment is
due and at
maturity.
/ / (Other):
(ii) Interest on all IBOR Borrowing Rate Amounts shall
be paid:
/X/ on the last day of the applicable IBOR
Interest Period,
and if such IBOR Interest Period is
longer than three
months, on the last day of each three
month period
occurring during such IBOR Interest
Period, and at
maturity.
/ / on the day of and on the
same day of each
thereafter prior to maturity and at
maturity.
/ / at maturity.
/ / at the time each principal installment is
due and at
maturity.
/ / (Other):
7. CHANGE IN PAYMENT AMOUNT. If the interest rate on this
note is subject
to change in accordance with Section 4, the holder of this note
may, from time
to time, in holder's sole discretion, increase or decrease the
amount of each
of the installments remaining unpaid at the time of each change
in rate to an
amount holder in its sole discretion deems necessary to continue
amortizing the
Principal Balance at the same rate established by the installment
amounts
specified in Section 8(a), whether or not a "balloon" payment may
also be due
upon maturity of this note. Holder shall notify the undersigned
of each such
change in writing. Whether or not the installment amount is
increased under
this Section 7, Borrower understands that, as a result of
increases in the rate
of interest in accordance with Section 4, the final payment due,
whether or not
a "balloon" payment, shall include the entire Principal Balance
and interest
thereon then outstanding, and may be substantially more than the
installment
specified in Section 8.
8. ALTERNATE PAYMENT DATE. Notwithstanding any other term of
this note, if
in any month there is no day on which a scheduled payment would
otherwise be
due (e.g. February 31), such payment shall be paid on the last
banking day of
that month.
9. PAYMENT BY AUTOMATIC CHARGE.
/X/ Please automatically deduct the amount of all principal
and interest
payments from account number 8110012690. If there are
insufficient funds in the
account to pay the automatic deduction in full, Lender may allow
the account to
become overdrawn, or Lender may reverse the automatic deduction.
Borrower will
pay all the fees on the account which result from the automatic
deductions,
including any overdraft/NSF charges. If for any reason Lender
does not charge
the account for a payment, or if an automatic payment is
reversed, the payment
is still due according to this note. If the account is a Money
Market Account,
the number of withdrawals from that account is limited as set out
in the
agreement. Lender may cancel the automatic deduction at any time
in its
discretion.
Provided, however, if no account number is entered above,
Borrower does not
want to make payments by automatic charge.
Page 2 of 4
10. LENDER'S PRIME RATE. Lender's prime rate is the rate of
interest of
which Lender from time to time establishes as its prime rate and
is not, for
example, the lowest rate of interest which Lender collects from
any borrower or
class of borrowers. When Lender's prime rate is applicable under
Section 4(a) or
11(b), the interest rate hereunder shall be adjusted without
notice effective on
the day Lender's prime rate changes, but in no event shall the
rate of interest
be higher than allowed by law.
11. DEFAULT.
(a) Without prejudice to any right of Lender to require
payment on demand
or to decline to make any requested Advance, each of the
following shall be an
event of default; (i) Borrower fails to make any payment when
due. (ii)
Borrower fails to perform or comply with any term, covenant or
obligation in
this note or any agreement related to this note, or in any other
agreement of
loan Borrower has with Lender. (iii) Borrower defaults under any
loan,
extension of credit, security agreement, purchase or sales
agreement, or any
other agreement, in favor of any other creditor or person that
may materially
affect any of Borrower's property or Borrower's ability to repay
this note or
perform Borrower's obligations under this note or any related
documents. (iv)
Any representation or statement made or furnished to Lender by
Borrower or on
Borrower's behalf is false or misleading in any material respect.
(v) Borrower
becomes insolvent, a receiver is appointed for any part of
Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any
proceeding is
commenced either by Borrower or against borrower under any
bankruptcy or
insolvency laws. (vi) Any creditor tries to take any of
Borrower's property on
or in which Lender has a lien or security interest. This includes
a garnishment
of any of Borrower's accounts with Lender. (vii) Any of the
events described in
this default section occurs with respect to any guarantor of this
note or any
guaranty of Borrower's indebtedness to Lender ceases to be, or is
asserted not
to be, in full force and effect. (viii) Lender in good faith
deems itself
insecure. If this note is payable on demand, the inclusion of
specific events
of default shall not prejudice Lender's right to require payment
on demand or
to decline to make any requested Advance.
(b) Without prejudice to any right of Lender to require
payment on demand,
upon the occurrence of an event of default, Lender may declare
the entire
unpaid Principal Balance on this note and all accrued unpaid
interest
immediately due and payable, without notice. Upon default,
including failure to
pay upon final maturity, Lender, at its option, may also, if
permitted under
applicable law, increase the interest rate on this note to a rate
equal to the
Prime Borrowing Rate plus 5%. The interest rate will not exceed
the maximum
rate permitted by applicable law. In addition, if any payment of
principal or
interest is 15 or more days past due, Borrower will be charged a
late charge of
5% of the delinquent payment.
12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND.
Holder's records
shall, at any time, be conclusive evidence of the unpaid
Principal Balance and
Interest owing on this note. Notwithstanding any other provisions
of this
note, in the event holder makes Advances hereunder which result
in an unpaid
Principal Balance on this note which at any time exceeds the
maximum amount
specified in Section 2, Borrower agrees that all such Advances,
with interest,
shall be payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit
indicated in Section 1
is a revolving line of credit or a non-revolving line of credit,
Borrower
agrees that Lender is under no obligation and has not committed
to make any
Advances hereunder. Each Advance hereunder shall be made at the
sole option of
Lender.
14. DEMAND NOTE. If this note is payable on demand, Borrower
acknowledges
and agrees that (a) Lender is entitled to demand Borrower's
immediate payment
in full of all amounts owing hereunder and (b) neither anything
to the contrary
contained herein or in any other loan documents (including but
not limited to,
provisions relating to defaults, rights of cure, default rate of
interest,
installment payments, late charges, period review of Borrower's
financial
condition, and covenants) nor any act of Lender pursuant to any
such provisions
shall limit or impair Lender's right or ability to require
Borrower's payment
in full of all amounts owing hereunder immediately upon Lender's
demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected
upon the
request of Borrower (if an individual), any of the undersigned
(if Borrower
consists of more than one individual), any person or persons
authorized in
subsection (b) of this Section 15, and any person or persons
otherwise
authorized to execute and deliver promissory notes to Lender on
behalf of
Borrower.
(b) Borrower hereby authorizes any ONE of the following
individuals to
request Advances and to select interest rate options:
LANE GIGUIERE, VICTORIA GIGUIERE, ROBERT MOORE, BETH BRADY,
unless Lender is
otherwise instructed in writing.
(c) All Advances made pursuant to this Section 15 shall be
disbursed by
deposit directly to Borrower's account number at the
branch
of Lender, or by cashier's check issued to Borrower.
(d) Borrower agrees that Lender shall have no obligation to
verify the
identity of any person making any request pursuant to Section 15,
and Borrower
assumes all risks of the validity and authorization of such
requests. In
consideration of Lender agreeing, at its sole discretion, to make
Advances upon
such requests. Borrower promises to pay holder, in accordance
with the
provisions of this note, the Principal Balance together with
interest thereon
and other sums due hereunder, although any Advances may have been
requested by a
person or persons not authorized to do so.
16. PERIODIC REVIEW. Lender will review Borrower's credit
accommodations
periodically. At the time of the review, Borrower will furnish
Lender with any
additional information regarding Borrower's financial condition
and business
operations that Lender requests. This information may include but
is not
limited to, financial statements, tax returns, lists of assets
and liabilities,
agings of receivables and payable, inventory schedules, budgets
and forecasts.
If upon review, Lender, in its sole discretion, determines that
there has been
a material adverse change in Borrower's financial condition,
Borrower will be
in default. Upon default, Lender shall have all rights specified
herein.
17. NOTICES. Any notice hereunder may be given by ordinary
mail, postage
paid and addressed to Borrower at the last known address of
Borrower as shown
on holder's records. If Borrower consists of more than one
person, notification
of any said persons shall be complete notification of all. Notice
may be given
either before or reasonably soon after the effective date of the
change.
18. ATTORNEY FEES. Whether or not litigation or arbitration
is commenced,
Borrower promises to pay all costs of collecting overdue amounts.
Without
limiting the foregoing, in the event that holder consults an
attorney regarding
the enforcement of any of its rights under this note or any
document securing
the same, or if this note is placed in the hands of an attorney
for collection
or if suit or litigation is brought to enforce this note or any
document
securing the same. Borrower promises to pay all costs thereof
including such
additional sums as the court or arbitrator(s) may adjudge
reasonable as
attorney fees, including without limitation, costs and attorney
fees incurred
in any appellate court, in any proceeding under the bankruptcy
code, or in any
receivership and post-judgment attorney fees incurred in
enforcing any judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker,
co-maker, guarantor
or otherwise, waives diligence, demand, presentment for payment,
notice of
non-payment, protest and notice of protest and waives all
defenses based on
suretyship or impairment of collateral. Without notice to
Borrower and without
diminishing or affecting Lender's rights or Borrower's
obligations hereunder.
Lender may deal in any manner with any person who at any time is
liable for, or
provides any real or personal property collateral for, any
indebtedness of
Borrower to Lender, including the indebtedness evidenced by this
note. Without
limiting the foregoing, Lender may, in its sole discretion: (a)
make secured or
unsecured loans to Borrower and agree to any number of waivers,
modifications,
extensions and renewals of any length of such loans, including
the loan
evidenced by this note; (b) impair, release (with or without
substitution of
new collateral), fail to perfect a security interest in, fail to
preserve the
value of, fail to dispose of in accordance with applicable law,
any collateral
provided by any person; (c) sue, fail to sue, agree not to sue,
release, and
settle or compromise with, any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the
undersigned
Borrowers are joint and several are binding upon any marital
community of which
any of the undersigned are members. Holder's rights and remedies
under this
note shall be cumulative.
21. ARBITRATION.
(a) Either Lender or Borrower may require that all disputes,
claims,
counterclaims and defenses, including those based on or arising
from any alleged
tort ("Claims") relating in any way to this note or any
transaction of which
this note is a part (the "Loan"), be settled by binding
arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration
Association and Title 9 of the U.S. Code. All Claims will be
subject to the
statutes of limitation applicable if they were litigated. This
provision is void
if the Loan, at the time of the proposed submission to
arbitration, is secured
by real property located outside of Oregon or Washington, of if
the effect of
the arbitration procedure (as opposed to any Claims of Borrower)
would be to
materially impair Lender's ability to realize on any collateral
securing the
Loan.
Page 3 of 4
(b) If arbitration occurs and each party's Claim is less than
$100,000, one
neutral arbitrator will decide all issues; if any party's Claim
is $100,000 or
more, three neutral arbitrators will decide all issues. All
arbitrators will be
active California State Bar members in good standing. All
arbitration hearings
will be held in Sacramento, California. In addition to all other
powers, the
arbitrator(s) shall have the exclusive right to determine all
issues of
arbitrability. Judgment on any arbitration award may be entered
in any court
with jurisdiction.
(c) If either party institutes any judicial proceeding relating
to the Loan,
such action shall not be a waiver of the right to submit any
Claim to
arbitration. In addition, each has the right before, during and
after any
arbitration to exercise any number of the following remedies, in
any order or
concurrently: (i) setoff; (ii) self-help repossession; (iii)
judicial or
non-judicial foreclosure against real or personal property
collateral; and (iv)
provisional remedies, including injunction, appointment of
receiver,
attachment, claim and delivery and replevin.
22. GOVERNING LAW.
This note shall be governed by and construed and enforced in
accordance with
the laws of the State of California without regard to conflicts
of law
principles; provided, however, that to the extent that Lender has
greater
rights or remedies under Federal law, this provision shall not be
deemed to
deprive Lender of such rights and remedies as may be available
under Federal
law.
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A
COMPLETED COPY OF
THIS DOCUMENT.
R.H. PHILLIPS, INC.
Borrower Name (Corporation, Partnership or other Entity)
/s/ John Giguiere
- ---------------------------------
- -------------------------------------
By Signature of Individual
Borrower
Title CO - CEO
-----------------
/s/ R.D. Moore
- ---------------------------------
- -------------------------------------
By Signature of Individual
Borrower
Title CEO
- ---------------------------------
- -------------------------------------
By Signature of Individual
Borrower
Title
- ---------------------------------
- -------------------------------------
By Signature of Individual
Borrower
Title
- -----------------------------------------------------------------------------
For valuable consideration, Lender agrees to the terms of the
arbitration
provision set forth in this note.
Lender Name, U.S. Bank of
California
By: Loren T. Havens
- ---------------------------------
Title: Vice President
- ------------------------------
Date: 5/13/96
- -----------------------------
Page 4 of 4
EXHIBIT 10.2
DESCRIPTION OF COMPENSATION ARRANGEMENT
BETWEEN R.H. PHILLIPS, INC. AND VICTOR L. MOTTO
In exchange for his agreement to serve on the Board of Directors
of R.H. Phillips, Inc. (The "Company"), Victor L. Motto is to receive a
one-time retainer of $5,000, plus a fee of $1,000 per Board of Directors
meeting he attends. Mr. Motto is also to receive an option to purchase a
maximum of 20,000 shares of Common Stock at a price equal to the fair
market value of the Company's Common Stock as of the date the option
is granted, subject to approval of a final stock option agreement by Mr.
Motto and the Board of Directors of the Company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE JUNE 30, 1996 BALANCE SHEET, STATEMENT OF OPERATIONS
AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 24685
<SECURITIES> 0
<RECEIVABLES> 2528870
<ALLOWANCES> 50470
<INVENTORY> 6869986
<CURRENT-ASSETS> 9725638
<PP&E> 26433025
<DEPRECIATION> 4481868
<TOTAL-ASSETS> 32685740
<CURRENT-LIABILITIES> 4717861
<BONDS> 14647642
<COMMON> 7646845
4798378
0
<OTHER-SE> 875014
<TOTAL-LIABILITY-AND-EQUITY> 32685740
<SALES> 6991029
<TOTAL-REVENUES> 6991029
<CGS> 3955919
<TOTAL-COSTS> 3955919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34227
<INTEREST-EXPENSE> 512352
<INCOME-PRETAX> 839056
<INCOME-TAX> 306100
<INCOME-CONTINUING> 532956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 532956
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
