<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 September 30, 1997
[ ] 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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26836 County Road 12A, Esparto, California 95627
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(Address of principal executive offices)
(530) 662-3215
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(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 November 10, 1997: 6,433,182
Transitional Small Business Disclosure Format: Yes No X
This document consists of 16 pages, excluding exhibits. The Exhibit
Index is on page 16.
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R.H. PHILLIPS, INC.
INDEX
Part I. Financial Information (unaudited)
Item 1. Condensed Financial Statements ..............................3
Balance Sheet ...............................................4
Statements of Operations ....................................5
Statements of Cash Flows ....................................6
Notes to Condensed Financial Statements .....................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .........................9
Part II. Other Information
Item 3. Defaults Upon Senior Securities ............................14
Item 6. Exhibits and Reports on Form 8-K ...........................14
Signatures ................................................................15
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 4
<TABLE>
R.H. PHILLIPS, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 22
Accounts receivable 2,459
Inventories 10,050
Deferred income taxes and prepaid expenses 565
-------
Total current assets 13,096
PROPERTY, PLANT, AND EQUIPMENT - net 28,888
OTHER ASSETS:
Note receivable from shareholder 223
Deferred loan fees and other, net 350
-------
Total other assets 573
-------
TOTAL ASSETS $42,557
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,073
Notes payable 1,576
Accounts payable 2,619
Accrued liabilities 766
-------
Total current liabilities 6,034
=======
LONG-TERM DEBT 14,000
DEFERRED INCOME TAXES 935
COMMITMENTS AND CONTINGENCIES --
DEFERRED GAIN 1,065
REDEEMABLE PREFERRED STOCK, redeemable at $5,000,000 4,502
SHAREHOLDERS' EQUITY:
Non-redeemable preferred stock, no par value, 4,500,000
shares authorized, none issued and outstanding --
Common stock, no par value, 12,500,000 shares authorized, 14,041
6,433,182 shares issued and outstanding
Additional paid-in capital 337
Retained earnings 1,643
-------
Total shareholders' equity 16,021
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,557
=======
<FN>
See accompanying notes to financial statements
</TABLE>
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<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ ----------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 11,121 $ 12,002 $ 4,129 $ 4,333
COST OF SALES 6,212 7,080 2,256 2,625
-------- -------- -------- --------
GROSS PROFIT 4,909 4,922 1,873 1,708
SELLING, GENERAL
AND ADMINISTRATIVE EXPENSES 2,680 2,929 964 935
-------- -------- -------- --------
OPERATING INCOME 2,229 1,993 909 773
INTEREST EXPENSE (649) (682) (137) (209)
OTHER INCOME (EXPENSE) - NET 61 72 30 66
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,641 1,383 802 630
PROVISION FOR INCOME TAXES (599) (498) (293) (227)
-------- -------- -------- --------
NET INCOME $ 1,042 $ 885 $ 509 $ 403
======== ======== ======== ========
NET INCOME $ 1,042 $ 885 $ 509 $ 403
DIVIDENDS AND ACCRETION ON
REDEEMABLE PREFERRED STOCK (167) (252) (83) (85)
-------- -------- -------- --------
NET INCOME APPLICABLE TO
COMMON STOCK $ 875 $ 633 $ 426 $ 318
======== ======== ======== ========
NET INCOME PER SHARE $ .17 $ .10 $ .08 $ .05
======== ======== ======== ========
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,045,643 6,281,087 5,620,934 6,433,099
<FN>
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- ------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,042 $ 885 $ 509 $ 403
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,110 1,340 401 461
(Gain) loss on disposal of property, plant and equipment (6) 59 (6) 2
Net changes in:
Operating assets (771) (1,247) (660) (1,461)
Operating liabilities 1,058 271 1,019 1,248
-------- -------- -------- --------
Net cash provided by operating activities 2,433 1,308 1,263 653
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (10,758) (6,547) (4,814) (2,055)
Proceeds from sale of property and equipment 49 5,402 49 8
-------- -------- -------- --------
Net cash used in investing activities (10,709) (1,145) (4,765) (2,047)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (costs of issuing) redeemable preferred stock 4,798 (12) -- --
Issuance of common stock 4,639 23 4,797 4
Payment of cash dividend (150) (300) (150) (150)
Proceeds from long-term debt and notes payable 11,618 13,523 5,029 4,405
Principal payments on long-term debt and notes payable (12,740) (13,201) (6,008) (2,548)
Recognition of deferred gain -- (464) -- (464)
Other financing activities (19) (18) (4) (74)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 8,146 (449) 3,664 1,173
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH (130) (286) 162 (221)
CASH AT BEGINNING OF PERIOD 317 308 25 243
-------- -------- -------- --------
CASH AT END OF PERIOD $ 187 $ 22 $ 187 $ 22
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid (including capitalized interest) $ 832 $ 1,025 $ 235 $ 318
Income taxes paid $ 396 $ 551 $ 57 $ 2
NONCASH TRANSACTIONS:
Issuance of notes payable to finance inventory
and equipment purchased $ 70 $ 478 $ 28 $ 396
Dividends and accretion on redeemable preferred stock $ 150 $ 327 $ 150 $ 235
Conversion of subordinated debt into common stock $ -- $ 1,395 $ -- $ 1,395
<FN>
See accompanying notes to financial statements.
</TABLE>
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R.H. PHILLIPS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements as of September 30, 1997
and for each of the nine and three month periods ended September 30,
1996 and 1997 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 nine and three month periods ended September 30, 1996
and 1997 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, 1996.
Net income per share for the nine and three month periods
ended September 30, 1997 was computed using the weighted average
number of shares of Common Stock and dilutive Common Stock
equivalents outstanding during each period. Common shares issuable
from stock options and warrants have been excluded from the
computation of net income per share if their inclusion would be anti-
dilutive. Net income per share and common shares outstanding for the
nine and three month periods ended September 30, 1996 have been
restated to reflect stock dividends of 43,352 shares issued in April 1997
and 39,117 shares issued in September 1997.
2. ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share" ("SFAS 128"), which
is required to be adopted by the Company on December 31, 1997. At
that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods.
The impact of SFAS 128 on the calculation of earnings per share is not
expected to be material.
3. SALE AND LEASEBACK OF VINEYARDS
In May 1997, the Company sold 371 acres of land being
developed into vineyard to John Hancock Mutual Life Insurance
Company ("Hancock"). In connection with that transaction, the
Company now manages, operates and leases the land and vineyards
from a subtenant of Hancock, Farmland Management Services, for a
term that expires on December 31, 2012. The Company received
proceeds from the sale of $4,209,000 in May 1997 and $1,175,000 in
June 1997. The lease provides that the Company will pay rent of
$161,000 per calendar quarter beginning in 1999. At June 30, 1997,
the Company held an option to repurchase the land and vineyard at the
end of the lease term. The lease was accounted for as a long-term
capital lease.
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NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
3. SALE AND LEASEBACK OF VINEYARDS - CONTINUED
The Company recognized deferred gain of $1,529,000 at the
time of closing. The deferred gain consists of the difference between
the actual costs of the property sold and the funds received by the
Company. The Sale and Leaseback agreement with Hancock requires
that the Company complete the vineyards that are still under
development. The Company expended $464,000 between the date of
closing and September 30, 1997 on the development of the vineyards.
Management estimates that the remaining costs to complete the
development will be approximately $652,000 and will be offset against
the deferred gain as incurred. The remainder, of approximately
$413,000, will be amortized to income over the life of the lease.
Effective September 30, 1997, the Company renegotiated the
lease agreement with Hancock whereby the option to repurchase the
land and vineyard at the end of the lease was given up by the Company
in exchange for a right of first refusal. Consequently, at September 30,
1997, the lease is accounted for as an operating lease.
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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. All numbers are approximate.
Overview
During the first nine months of 1997, the Company
experienced an increase in its cost of goods due to adverse weather
conditions during the 1996 growing season, which caused below
average crop yields in 1996. Many other California vineyards suffered
similar or greater reductions of their grape crops. The reduction in the
Company's grape supply compelled the Company to increase its grape
and bulk wine purchases to meet consumer demand for the Company's
wines. At the same time, the market price of bulk wines and grapes
increased substantially during the past two years due to below average
California grape harvests.
The Company realized above average yields from the 1997
crop. The Company's vineyards produced 5,100 tons of grapes in
1997, compared with 2,400 in 1996, primarily due to above average
yields per acre due to favorable growing conditions and production
from new vineyards. The increased 1997 grape tonnage reduced the
percentage of wine produced from grapes purchased from outside
growers and reduced the cost per gallon of wine produced from
Company vineyards. In addition, the percentage of wines purchased
from other wineries was reduced in 1997. Consequently, management
believes that the Company's cost of goods will likely decline in 1998,
and that the Company will have more wine available for sale. The
Company has expanded the size of its vineyards to lessen its
dependence on outside sources of bulk wines and grapes and further
reduce its cost of goods. The full benefit of the vineyard expansion
will continue to be realized over the next several years as the vines
mature.
Results of Operations
Net Sales
Net sales for the nine month period ended September 30, 1997
were $12,002,000, an increase of 8% over net sales of $11,121,000
during the same period in 1996. Excluding the sales of bulk wines and
other items, net sales were $11,106,000 for the nine month period
ended September 30, 1997, an increase of 5% over sales of
$10,554,000 during the corresponding period in 1996. The average
selling price per case increased from $38.93 during the nine month
period ended September 30, 1996 to $43.16 for the corresponding
period in 1997. During the first nine months of 1997, 257,000 cases
were sold, a decrease of 5% from 271,000 cases sold in the
comparable period of the prior year.
Gross profit
Gross profit was substantially unchanged from the comparable
period of the prior year, totaling $4,922,000 for the nine month period
ended September 30, 1997. Excluding the sales of bulk wines and
other items, gross profit was $4,754,000 for the first nine months of
1997, compared to $4,766,000 in the corresponding period of 1996.
Gross margins were 41% during the first nine
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months of 1997, compared to 44% during the same period in 1996. The average
cost per case sold in the first nine months of 1997 increased by 16% over
the same period in 1996, from $21.34 per case to $24.69 per case.
The decrease in gross margin percentage and increase in cost per case
are attributable primarily to the higher prices of bulk wines and grapes
purchased from outside parties and to the below average harvest
experienced by the Company in 1996. The Company implemented
price increases during 1997 to help compensate.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,929,000,
or 24% of sales, for the nine month period ended September 30, 1997,
an increase from $2,680,000, or 24% of sales, for the same period in
1996. The $249,000 increase is primarily due to a $155,000 increase
in selling expenses, primarily due to higher sales labor expenses. In
addition, general and administrative expenses increased $94,000,
primarily due to increased public relations costs.
Interest Expense
Interest expense for the nine month period ended September
30, 1997 was $682,000, compared to $649,000 for the same period in
1996. The Company capitalized $450,000 of additional interest
pertaining to vineyard and winery development during the nine month
period ended September 30, 1997, and $434,000 during the
corresponding period in 1996. The interest is attributable to the
Company's borrowings on its bank lines of credit and other debt
obligations.
Net Income
The Company generated net income of $885,000 for the nine
month period ended September 30, 1997, compared to net income of
$1,042,000 for the nine month period ended September 30, 1996.
The $157,000 decrease was primarily due to increases in selling,
general, and administrative expenses, partially offset by a $101,000
decrease in income taxes.
Seasonality
The Company usually experiences substantial seasonal
fluctuations in revenues and expenditures. Sales volumes generally
increase during the holiday season, which causes a large percentage of
revenue to be recorded during the last three months of each year. The
Company's expenditures fluctuate throughout the year based on
vineyard and winery activities. Expenditures typically peak during the
summer and early autumn due to harvest activities and capital
expenditures. Consequently, the Company's financial results during
the first nine months of the year are not necessarily indicative of the
financial performance for the entire year.
Liquidity and Capital Resources
The Company has financed its working capital and capital
expansion needs through internally generated funds, outside credit
facilities, equity financing, and the sale and leaseback of certain assets.
The Company has made substantial capital expenditures to expand its
vineyards and winery facilities to obtain production efficiencies through
vertical integration and increased product sales. The Company's cash
flows from operations have not been sufficient to satisfy all of the
working capital and capital expenditure requirements needed to keep
pace with its growth. Consequently, the
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Company has depended upon debt, equity and lease financing for its working
capital and capitalexpansion needs.
As of September 30, 1997, the Company had cash totaling
$22,000, a decrease from $308,000 on December 31, 1996. Sources
of cash during the nine month period ended September 30, 1997
included cash from operations of $1,308,000, proceeds from notes
payable of $2,450,000, proceeds from long-term debt of $11,073,000,
and proceeds from the sale of property and vineyards of $5,402,000.
Cash used during that period included $6,547,000 invested in property,
plant and equipment, $1,713,000 used to repay notes payable, and
$11,488,000 used to repay long-term debt.
Current assets increased by $1,377,000 during the nine month
period ended September 30, 1997, primarily due to an increase in
inventories from $7,808,000 on December 31, 1996 to $10,050,000
on September 30, 1997. This increase in inventories is indicative of
the seasonality of the Company's business, as inventories typically
increase after harvest.
Current liabilities increased by $1,331,000 during the nine
month period ended September 30, 1997, primarily due to an increase
in notes payable used to fund harvest and expansion costs. Notes
payable increased from $440,000 on December 31, 1996 to
$1,576,000 on September 30, 1997.
Net working capital increased $46,000 from $7,016,000 on
December 31, 1996 to $7,062,000 on September 30, 1997, primarily
due to the changes in inventories and notes payable discussed above.
The Company has several long-term loans. The largest of these
loans was obtained from Metropolitan Life Insurance Company
("Metropolitan") in January 1995. This loan, pursuant to which the
Company borrowed $7,500,000, has a term of 10 years. Interest and
principal on the loan are paid in monthly installments, with eight
percent of the outstanding principal paid per annum and all remaining
principal after such monthly payments to be paid at the end of the
loan's term. At September 30, 1997, $6,500,000 was outstanding on
the loan. The annual interest rate on the loan is presently 9.05% as to
$3,987,000 of the principal amount, 8.1% as to $1,300,000 of the
principal amount, and 8.55% as to $1,213,000 of the principal amount.
The Company has three lines of credit totaling $8,900,000 with
U.S. Bank of California ("U.S. Bank") to finance its working capital
requirements. The credit facility consists of an operating line of credit
of $6,000,000, a crop line of $1,400,000, and a bridge line of
$1,500,000. The operating and bridge lines of credit are secured by
accounts receivable and inventory. The operating line matures in April
1999, and the bridge line matures in December 1997. The crop line is
secured by the grape crop and other farm assets, and matures in
December 1997. The annual interest rate on the credit facility is
either U.S. Bank's prime rate or IBOR plus 200 basis points, at the
Company's option. The balance on the credit facility as of September
30, 1997 was $7,180,000.
Both the Metropolitan loan and the U.S. Bank credit facility
contain various covenants, including requirements as to the Company's
working capital and current ratio. The Company was not in
compliance with these covenants as of September 30, 1997. The
Company has obtained waivers of these covenant requirements
through December 31, 1997 from Metropolitan and until December
31, 1997 from U.S. Bank. The Company is currently obtaining a new
term loan from Metropolitan. Proceeds from the loan will be used to
repay the existing Metropolitan loan and provide the Company with
additional cash resources. Management believes that the new loan
with Metropolitan will close before December 31, 1997, and that the
loan proceeds will bring the
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Company back into compliance with its financial covenants. However, there
can be no assurance that the loan will close, or that it will close before
December 31, 1997. If the loan is delayed it will be necessary to extend
the financial covenant waivers. There can be no assurance that the waivers
will be extended by Metropolitan and U.S. Bank.
In May 1997, the Company sold 371 acres of land being
developed into vineyard to John Hancock Mutual Life Insurance
Company ("Hancock"). In connection with that transaction, the
Company now manages, operates and leases the land and vineyards
from a subtenant of Hancock, Farmland Management Services, for a
term that expires on December 31, 2012. The Company received
proceeds from the sale of $4,209,000 in May 1997 and $1,175,000 in
June 1997. The lease provides that the Company will pay rent of
$161,000 per calendar quarter beginning in 1999. The lease is
accounted for as an operating lease.
In March 1996, the Company sold 500,000 shares of Senior
Redeemable Preferred Stock (the "Senior Preferred Stock") and
warrants to purchase up to 1,346,788 shares of Common Stock to
Hancock. The net proceeds the Company derived from the sale of the
Senior Preferred Stock and the warrants, after payment of offering
expenses, were $4,785,000. The Senior Preferred Stock bears a
cumulative annual dividend of $1.20 per share, payable semiannually.
During the first four years after issuance, 50% of the dividend is
payable in cash and 50% of the dividend is payable 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. The Company is required
to redeem one-third of the Senior Preferred Stock eight years after
issuance, and one-third in each of the succeeding years at a price of
$10.00 per share.
In April 1997, the Company converted subordinated
promissory notes in the aggregate amount of $1,500,000 into 387,077
shares of Common Stock. The notes became automatically convertible
into Common Stock at a price of $3.875 when the average of the
closing bid and ask price for the Common Stock exceeded $3.50 for
five consecutive trading days subsequent to December 6, 1996.
During the nine month period ended September 30, 1997, the
Company expanded its winery by enlarging its case goods warehouse,
increasing its stainless steel tank storage and fermentation capacity, and
purchasing barrels and other support equipment. The cost of the
winery expansion through September 30, 1997 was $2,396,000. The
Company currently plans to add a tasting room and conference facility
building in late 1997 or early 1998, and estimates the cost will be
$500,000. Additional winery expansion projects are expected in the
future as the Company's newly planted vineyards become productive.
The Company planted 347 acres of new vineyard in 1997, which
included 115 acres of vineyard sold to Hancock. Management
estimates that the cost of the 1997 vineyard expansion, including acres
previously planted but not yet fully productive, will be $3,400,000.
The Company financed 1997 capital projects with funds from the
recently completed sale of land and vineyards to Hancock. The
Company plans to fund future capital projects with internally generated
funds and long-term debt.
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 Company's 1,548 acres of vineyard, 289 acres
have root stock which is susceptible to Phylloxera. Management
estimates these vineyards will be commercially productive for ten years
(until 2004), as compared with twenty-five years generally estimated
for vineyards without Phylloxera. The reduction in the useful life of
vineyards causes an increase in depreciation and maintenance expense.
The increased expenses are added to the cost of grapes harvested, thus
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increasing cost of sales. The Company plans to remove and replace
all Phylloxera-infested or susceptible vines with 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 them, the Company's past experience, and trends
in the wine 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 Company may continue
to heavily depend upon its ability to raise additional debt or equity
financing for its working capital and capital expansion needs. The
ability to raise financing is in turn dependent upon a variety of factors,
some of which are outside 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 all of the warrants are not exercised, interest
rates increase, or other financing becomes unavailable or more costly
to obtain, the Company may not be able to raise sufficient capital to
supply its needs.
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 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 future sales
by the Company, projected yields from the Company's vineyards and
the cost and availability of bulk wine and grapes from the spot market.
For example, if 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. 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 management's beliefs
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.
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PART II
Item 3. Defaults Upon Senior Securities
The Company has several long-term loans. The largest of
these loans was obtained from Metropolitan Life Insurance Company
("Metropolitan") in January 1995. This loan, pursuant to which the
Company borrowed $7,500,000, has a term of 10 years. As of
September 30, 1997, $6,500,000 was outstanding on the loan.
The Company has three lines of credit totaling $8,900,000 with
U.S. Bank of California ("U.S. Bank") to finance its working capital
requirements. The credit facility consists of an operating line of credit
of $6,000,000, a crop line of $1,400,000, and a bridge line of
$1,500,000. The operating line matures in April 1999, and the crop
and bridge lines mature in December 1997. The balance on the credit
facility as of September 30, 1997 was $7,180,000.
Both the Metropolitan loan and the U.S. Bank credit facility
contain various covenants, including requirements as to the Company's
working capital and current ratio. The Company was not in
compliance with these covenants as of September 30, 1997. The
Company has obtained waivers of these covenant requirements until
December 31, 1997 from Metropolitan and until December 31, 1997
from U.S. Bank. The Company is currently obtaining a new term loan
from Metropolitan. Proceeds from the loan will be used to repay the
existing Metropolitan loan and provide the Company with additional
cash resources. Management believes that the new loan with
Metropolitan will close before December 31, 1997, and that the loan
proceeds will bring the Company back into compliance with its
financial covenants. However, there can be no assurance that the loan
will close, or that it will close before December 31, 1997. If the loan
is delayed it will be necessary to extend the financial covenant waivers.
There can be no assurance that the waivers will be extended by
Metropolitan and U.S. Bank.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
10.1 Loan Agreements between the Company and U.S. Bank,
dated September 15,1997
10.2 Right of First Offer to Lease and Right of First Refusal
to Purchase and Termination of Option Agreement between
the Company and Hancock, dated September 30, 1997
27.1 Financial Data Schedules
(b) Reports on Form 8-K
None
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to the signed on its
behalf by the undersigned, thereunto duly authorized.
R.H.PHILLIPS, INC.
(Registrant)
Date: November 14, 1997
//s// John. E Giguiere
Co-President
Co-Chief Executive Officer
//s// Michael J. Motroni
Michael J. Motroni, Chief
Financial Officer
Principal Financial Officer
-15-
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description Page No.
10.1 Loan Agreements between the Company and U.S. Bank,
dated September 15, 1997.
10.2 Right of First Offer to Lease and Right of First Refusal
to Purchase and Termination of Option Agreement between
the Company and Hancock, dated September 30, 1997
27.1 Financial Data Schedules
-16-
<PAGE> 1
CORPORATE RESOLUTION TO BORROW
Principal Loan Date Maturity Loan No Call Collateral
$1,500,000.00 09-15-1997 12-31-1997 815-315 365
Account Officer Initials
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 California Corporate Banking
ESPARTO, CA 95627 980 9th Street, Suite 1100
Sacramento, CA 95814
I, the undersigned Secretary or Assistant Secretary of R.H. PHILLIPS,
INC. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of
California as a corporation for profit, with its principal office at 26836
COUNTY ROAD 12A, ESPARTO, CA 95627, and is duly authorized to
transact business in the State of California.
I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation, duly called and held on September 15, 1997, at which a
quorum was present and voting, or by other duly authorized corporate
action in lieu of a meeting, the following resolutions were adopted:
BE IT RESOLVED, that any two (2) of the following named officers,
employees, or agents of this Corporation, whose actual signature are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
JOHN E. GIGUIERE CO-PRESIDENT //S// JOHN E. GIGUIERE
KARL GIGUIERE CO-PRESIDENT //S// KARL GIGUIERE
MIKE MOTRONI C.F.O. //S// MIKE MOTRONI
LANE GIGUIERE VP, OPERATIONS //S// LANE GIGUIERE
acting for and on behalf of the Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from U.S. BANK
NATIONAL ASSOCIATION ("Lender"), on such terms as may be agreed
upon between the Corporation and Lender, such sum or sums of money as
in their judgment should be borrowed, without limitation.
Execute Notes. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accommodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any
indebtedness of the Corporation to Lender, and also to execute and deliver
to Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, any portion of
the notes, or any other evidence of credit accommodations.
Grant Security. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accommodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or
in which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or times,
and may be either in addition to or in lieu of any property theretofore
mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered.
Execute Security Documents. To execute and deliver to Lender the forms
of mortgage, deed of trust, pledge agreement, hypothecation agreement,
and other security agreements and financing statements which may be
required by Lender, and which shall evidence the terms and conditions
under and pursuant to which such liens and encumbrances, or any of them,
are given; and also to execute and deliver to Lender any other written
instruments, any chattel paper, or any other collateral, of any kind or nature,
which Lender may deem necessary or proper in connection with or
pertaining to the giving of the liens and encumbrances. Notwithstanding the
foregoing, any one of the above authorized persons may execute, deliver, or
record financing statements.
Negotiate Items. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or to
cause such other disposition of the proceeds derived therefrom as they may
deem advisable.
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions. The
following person or persons currently are authorized to request advances
and authorize payments under the line of credit until Lender receives
written notice of revocation of their authority: JOHN E. GIGUIERE CO-
PRESIDENT; KARL GIGUIERE, CO-PRESIDENT; MIKE MOTRONI,
C.F.O.; and BETH BRADY.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant
to there Resolutions and performed prior to the passage of the Resolutions
are hereby ratified and approved, that these Resolutions shall remain in full
force and effect and Lender may rely on these Resolutions until written
notice of their revocation shall have been delivered to and received by
Lender. Any such notice shall not affect any of the Corporation's
agreements or commitments in effect at the time notice is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in
writing at Lender's address shown above (or such other addresses as
Lender may designate from time to time) prior to any (a) change in the
name of the Corporation, (b) change in the assumed business name(s) of
the Corporation, (c) change in the management of the Corporation, (d)
change in the authorized signer(s), (e) conversion of the Corporation to a
new or different type of business entity, or (f) change in any other aspect of
the Corporation that directly or indirectly relates to any agreements between
the Corporation and Lender. No change in the name of the Corporation will
take effect until after Lender has been notified.
I FURTHER CERTIFY that the officers, employees, and agents named
above are duly elected, appointed, or employed by or for the Corporation,
as the case may be, and occupy the positions set opposite their respective
names; that the foregoing Resolutions now stand of record on the books of
the Corporation; and that the Resolutions are in full force and effect and
have not been modified or revoked in any manner whatsoever. The
Corporation has no corporate seal, and therefore, no seal is affixed to this
certificate.
<PAGE> 2
09-15-1997 CORPORATE RESOLUTION TO BORROW PAGE 2
Loan No 815-315 (Continued)
IN TESTIMONY WHEREOF, I have hereunto set my hand on September
15, 1997 and attest that the signatures set opposite the names listed above
are their genuine signatures.
CERTIFIED AND ATTESTED BY:
//S// LANE GIGUIERE
//S// MIKE MOTRONI
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
<PAGE> 3
ALTERNATE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$1,500,000 Dated as of
9/15/97
R.H. PHILLIPS, INC. ("Borrower")
U.S. BANK ("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
may 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 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 $1,500,000.00.
3. PROMISE TO PAY. For value received Borrower promises to pay to
Lender or order at 980 9th St. Ste. 1100, Sacramento, CA the Principal
Balance of this note, with interest at the rates) 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 be
irrevocable. The rate options are the Prime Borrowing Rate and the LIBOR
Borrowing Rate, each as defined herein.
(a) Definitions. 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 Sacramento, California, Portland, Oregon or
New York City are authorized or required by law to close; provided,
however that when used in connection with a LIBOR Rate, LIBOR
Amount or LIBOR Interest Period such term shall also exclude any day on
which dealings in U.S. dollar deposits are not carried on in the London
interbank market.
"LIBOR Amount" means each principal amount for which Borrower
chooses to have the LIBOR Borrowing Rate apply for any specified LIBOR
Interest Period.
"LIBOR Interest Period" means as to any LIBOR Amount, a period of
1,2,3 months commencing on the date the LIBOR Borrowing Rate
becomes applicable thereto; provided, however, that: (i) the first day of
each LIBOR Interest Period must be a Business Day; (ii) No LIBOR
Interest Period shall be selected which would extend beyond December 31,
1997; (iii) no LIBOR Interest Period shall extend beyond the date of any
principal payment required under Section 6 of this note, unless the sum of
the Prime Rate Amount, plus LIBOR Amounts with LIBOR Interest
Periods ending on or before the scheduled date of such principal payment,
plus principal amounts remaining unborrowed under a line of credit, equals
or exceeds the amount of such principal payment; (iv) any LIBOR 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 LIBOR Interest Period into another
calendar month, in which event the LIBOR Interest Period shall end on the
Immediately preceding Business Day; and (v) any LIBOR 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 LIBOR Interest Period) shall end on the last Business Day
of a calendar month.
"LIBOR Rate" means, for any LIBOR Interest Period, the rate per
annum (computed on the basis of a 360-day year and the actual number of
days elapsed and rounded upward to the nearest 1/16 of 1%) established by
Lender as its LIBOR Rate, based on Lender's determination, on the basis
of such factors as Lender deems relevant, of the rate of interest at which
U.S. dollar deposits would be offered to U.S. Bank in the London
interbank market at approximately 11 a.m. London time on the date which
is two Business Days prior to the first day of such LIBOR Interest Period
for delivery on the first day of such LIBOR Interest Period for the number
of months therein; provided, however, that the LIBOR Rate shall be
adjusted to take into account the maximum reserves required to be
maintained for Eurocurrency liabilities by banks during each such LIBOR
Interest Period as specified in Regulation D of the Board of Governors of
the Federal Reserve System or any successor regulation.
"Prime Rate" means 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 the Prime Rate is applicable under Section 4(b) or 11(b), the interest
rate hereunder shall be adjusted without notice effective on the day the
Prime Rate changes, but in no event shall the rate of interest be higher than
allowed by law.
"Prime Rate Amount" means any portion of the Principal Balance
bearing interest at the Prime Borrowing Rate.
(b) The Prime Borrowing Rate.
(i) The Prime Borrowing Rate is a per annum rate equal to the Prime
Rate plus 0.00% 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
effective date (which must be a Business Day) and principal amount of the
Advance or increase in the Prime Rate Amount, and whether Borrower is
requesting a new Advance under a line of credit or conversion of a LIBOR
Amount to the Prime Borrowing Rate.
(iii) 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 LIBOR Borrowing Rate is in effect.
(c) The LIBOR Borrowing Rate.
(i) The LIBOR Borrowing Rate is the LIBOR Rate plus 2.00% per
annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender
between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business
Day. Borrower may request an Advance, conversion of any portion of the
Prime Rate Amount to a LIBOR Amount or a new LIBOR Interest Period
for an existing LIBOR Amount, at such rate only by giving Lender notice in
accordance with Section 4(c)(iii) before 10:00 a.m. (Portland, Oregon time)
on such day.
Page 1 of 4
<PAGE> 4
(iii) Whenever Borrower desires to use the LIBOR 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 10:00
a.m. (Portland, Oregon time) two (2) Business Days prior to 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, LIBOR Interest Period and LIBOR
Amount, and whether Borrower is requesting a new Advance at the LIBOR
Borrowing Rate under a line of credit, conversion of all or any portion of
the Prime Rate Amount to a LIBOR Amount, or a new LIBOR Interest
Period for an outstanding LIBOR Amount. Notwithstanding any other term
of this note. Borrower may elect the LIBOR Borrowing Rate in the
minimum principal amount of $500,000.00 and in multiples of $10,000.00
above such amount; provided, however that no more than 3 separate
LIBOR Interest Periods may be in effect at any one time.
(iv) If at any time the LIBOR Rate is unascertainable or unavailable to
Lender or if LIBOR Rate loans become unlawful, the option to select the
LIBOR Borrowing Rate shall terminate immediately, If the LIBOR
Borrowing Rate is then in effect, (A) it shall terminate automatically with
respect to all LIBOR Amounts (i) on the last day of each then applicable
LIBOR 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.
(v) 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 the
LIBOR Rate, or (ii) shall impose or modify any reserve, insurance, special
deposit, or similar requirements against assets of, deposits with or from 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(c)(v),
Borrower may upon three (3) Business Days' notice to Lender pay the
accrued interest on all LIBOR Amounts, together with any additional
amounts payable under Section 4(c)(vi), 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 LIBOR Amounts.
(vi) Borrower shall pay to Lender, on demand, such amount as Lender
reasonably determines (determined as though 100% of the applicable
LIBOR Amount had been funded in the London interbank market is
necessary to compensate Lender for any direct or indirect losses, expenses,
liabilities, costs, expenses or reductions in yield to Lender, whether incurred
in connection with liquidation or re-employment of funds or otherwise,
incurred or sustained by Lender as a result of: (A) Any payment or
prepayment of a LIBOR Amount, termination of the LIBOR Borrowing
Rate or conversion of LIBOR Amount to the Prime Borrowing Rate on a
day other than the last day of the applicable LIBOR Interest Period
(including as a result of acceleration or a notice pursuant to Section
4(c)(v)); or (B) Any failure of Borrower to borrow, continue or prepay any
LIBOR Amount or to convert any portion of the Prime Rate Amount to a
LIBOR Amount after Borrower has given a notice thereof to Lender.
(vii) If Borrower chooses the LIBOR 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 London interbank market. Lender's
determination of the LIBOR Borrowing Rate and any such taxes or charges
shall be conclusive in the absence of manifest error.
(viii) Notwithstanding any other term of this note, Borrower may not
select the LIBOR Borrowing Rate if an event of default hereunder has
occurred and is continuing.
(ix) Nothing contained in this note, including without limitation the
determination of any LIBOR Interest Period or Lender's quotation of any
LIBOR 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:
on demand.
X on demand, or if no demand, on December 31, 1997
subject to Section 8, in installments of
each, plus 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.
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.
(b) Interest.
(i) Interest on the Prime Rate Amount shall be paid:
X on the 15th day of October, 1997 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.
(ii) Interest on all LIBOR Amounts shall be paid:
on the last day of the applicable LIBOR Interest Period, and if such
LIBOR Interest Period is longer than three months, on the last
day of each three month period occurring during such LIBOR
Interest Period, and at maturity.
X on the 15th day of October, 1997 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.
7. PREPAYMENT
(a) Prepayments of all or any part of the Prime Rate Amount may be made
at any time without penalty.
(b) Except as otherwise specifically set forth herein, Borrower may not
prepay all or any part of any LIBOR Amount or terminate any LIBOR
Borrowing Rate, except on the last day of the applicable LIBOR Interest
Period.
(c) Principal prepayments will not postpone the date of or change the
amount of any regularly scheduled payment. At the time of any principal
prepayment, all accrued interest, fees, costs and expenses shall also be paid.
Page 2 of 4
<PAGE> 5
8. CHANGE IN PAYMENT AMOUNT. Each time the interest rate on
the note changes 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 such change in the
rate to an amount holder in its sole discretion deems necessary to
continue amortizing the Principal Balance at the same rate
established by the instalment amounts specified in Section 6(a),
whether or not a "balloon" payment, shall include the entire Principal
Balance and interest thereon then outstanding, and may be
substantially more tan the installment specified in Section 6.
9. 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 (c.g. February 32), such payment
shall be paid on the last banking day of that month.
10. PAYMENT BY AUTOMATIC DEBIT.
Borrower hereby authorizes Lender to automatically deduct
the amount of all principal and interest payments from account
number 8110-012690 at Lender's Sacramento Main Branch. 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 al
the fees on the account which result from the automatic deductions,
including any overdraft and non-sufficient funds 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.
Provided, however, if no account number is entered above, Borrower
does not want to make payments by automatic debit.
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 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 either now or at the time made
or furnished. (v) Borrower dies, becomes insolvent, liquidates or
dissolves, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors,
or any proceeding in 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 general partner in
Borrower or 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) There is any material adverse change in the
financial condition or management of Borrower or Lender in good
faith deems itself insecure with respect to the payment or
performance of Borrower's obligations to Lender. 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, 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 mounts owing hereunder
immediately upon Lender's demand.
15. REQUEST 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 tin subsection (b) of this Section 15, and any
person or persons otherwise authorized to execute and deliver
promissory notes to Lender on behalf or Borrower.
(b) Borrower hereby authorized any one of the following individuals
to request Advance and to select interest rate options:
John E. Giguiere; Karl Giguiere; Mike Motroni and Beth Brady
unless Lender is otherwise instructed in writing.
(c) All Advances shall be disbursed by deposit directly to Borrower's
account number 8110-012590 at the Sacramento 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 this 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 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.
17. NOTICES. Any notice hereunder may be given by ordinary mail,
postage paid and addressed to Borrower at the last know address of
Borrower as shown on holder's records. If Borrower consists of more than
one person, notification of any of said persons shall be complete
notification of all.
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 for collection or if suit or litigation i brought to enforce 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
LIBORCA (6/97) Page 3 of 4
<PAGE> 6
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. Holder's
rights and remedies under this note shall be cumulative.
21.SEVERABILITY. If any term or provision of this note is declared by a
court of competent jurisdiction to be illegal, invalid or unenforceable for
any reason whatsoever, such illegality, invalidity or unenforceability shall
not affect the balance of the terms and provisions, hereof, which terms and
provisions shall remain binding and enforceable and this note shall be
construed as if such illegal, invalid or unenforceable provision had not been
contained herein.
22.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 ap aprt (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, 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.
(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
mroe, 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 additions to all other
pwers, 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 deliver and replevin.
23. GOVERNING LAW. This note shall be governed by and construed
and inforced in accordance with the laws of the State of California wihtout
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, Signature of Individual Borrower
Partnership or other Entity)
//s//Mike Motroni Chief Financial Officer ------------------------------
- ------------------------------------------ Signature of Individual Borrower
By Title
//s//John Giguiere Co-Ceo -------------------------------
- ------------------------------------------ Signature of Individual Borrower
- ---------------------------------------------------------------------------
For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.
Lender Name: U.S. Bank
By:_________________________
Title: _____________________
Date:_______________________
<PAGE> 7
U.S. BANK
DISBURSEMENT REQUEST AND AUTHORIZATION
Principal Loan Date Maturity Loan No Call Collateral
Account Officer Initials
$1,500,000.00 09-15-1997 12-31-1997 815-315 365
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 NATIONAL ASSOCIATION
26836 COUNTY ROAD 12A California Corporate
Banking ESPARTO, CA 95627 980 9th Street, Suite
1100 Sacramento, CA 95814
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 OF CLASS OF
BORROWERS), Revolving Line of Credit Loan to a Corporation for
$1,500,000.00 due on December 31, 1997.
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: 120-DAY
BULGE FACILITY TOP FINANCE A/R AND INVENTORY.
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
$1,500,000.00 as follows:
Undisbursed Funds: $1,500,000.00
-------------
Note Principal: $1,500,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as
agreed the following charges:
Prepaid Finance Charges Paid in Cash: $2,500
$2,500 LOAN FEES ------
Total Charges Paid in Cash: $2,500
TAX IDENTIFICATION CERTIFICATION. Borrower's Tax
Identification Number is 68-0313737. Borrower hereby certifies under
penalties of perjury the above tax identification information is correct.
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 8110-
012690 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
SEPTEMBER 15, 1997.
BORROWER:
R.H. PHILLIPS, INC.
//s//Mike Motroni
-----------------
TITLE: CHIEF FINANCIAL OFFICER
---------------------------------
//s//John Giguiere
-------------------
TITLE: CO-CEO
-------------------
==========================================================================
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off.,
Ver. 3.24 (c) 1997 CFI ProServices, Inc. All rights reserved. [CA-I20
RHPHILIP.LN C3.OVL]
<PAGE> 1
RIGHT OF FIRST OFFER TO LEASE AND RIGHT OF FIRST
REFUSAL TO PURCHASE
AND TERMINATION OF OPTION AGREEMENT
This Agreement is entered into as of September 30, 1997 by and
between John Hancock Mutual Life Insurance Company, on behalf of
itself and its affiliated entities (the "Owner"), and R.H. Phillips, Inc.
("R.H. Phillips") with respect to the following facts:
The Owner and R.H. Phillips are parties to a certain
sale and leaseback transaction pursuant to which R.H.
Phillips sold to the Owner, and a lessee of the Owner
leased back to R.H. Phillips, certain real estate located
in the County of Yolo, State of California which is
more particularly described in Exhibit A to this
Agreement (the "Property"). In connection with that
transaction, the Owner granted to R.H. Phillips an
option to repurchase that Property at the end of the
term of the agreement under which R.H. Phillips
leases the Property (the "Agricultural Sublease") at a
price and under terms and conditions set forth in an
Option Agreement, dated May 6, 1997 (the "Option
Agreement").
The parties now wish to terminate the Option
Agreement and R.H. Phillips' option to repurchase the
Property and, in place of that option, provide R.H.
Phillips with a right of first refusal to repurchase and a
right of first offer to re-lease the Property upon the
terms and conditions contained in this Agreement.
IN VIEW OF THE FOREGOING FACTS, and in exchange for
the mutual covenants and agreements set forth herein and other good
and valuable consideration, the parties hereby agree as follows:
1. Termination of Option Agreement. In exchange for the receipt
of the Right of First Offer to Lease and Right of First Refusal to
Purchase described herein, R.H. Phillips hereby remises, releases and
quitclaims to the Owner all right, title and interest R.H. Phillips may
have in the Property by virtue of the Option Agreement and
acknowledges that the Option Agreement is of no further force or effect.
2. Rights of First Offer and Refusal. The Owner hereby grants to
R.H. Phillips, and R.H. Phillips hereby accepts, the right of first offer to
re-lease the Property ("Right of First Offer") and the right of first refusal
to purchase the Property ("Right of First Refusal") under the
circumstances and subject to compliance with all of the conditions set
forth below (the Right of First Offer and Right of First Refusal are
hereafter referred to collectively as the "First Rights"):
a. Offer to Sell. If the Owner receives a bona fide good faith
offer from any person (other than an Affiliate [as defined below])
pursuant to which the Owner proposes to sell, assign or transfer all or a
portion of the Property, or any interest therein (other than to an
Affiliate), which offer the Owner intends to accept (the "Purchase
Offer"), the Owner shall first offer to sell, assign or transfer the Property
(or that portion thereof or interest therein specified in the Purchase
Offer) to R.H. Phillips under the same terms and conditions as
contained in the Purchase Offer, subject to the terms of Sections 5, 6
and 10 and in accordance with the procedures set forth in Section 3.
<PAGE> 2
b. Offer to Lease. If the Owner proposes to lease the Property
or any portion thereof prior to the expiration of the right to re-lease as
set forth in Section 5 or the termination of the First Rights pursuant to
Section 6, the Owner shall first compile the material terms upon which
Owner proposes such sale or transfer ("Lease Offer") and shall offer to
re-lease the Property (or that portion thereof specified in the Lease
Offer), to R.H. Phillips under the same terms and conditions as
contained in the Lease Offer. If the proposed lease described in the
Lease Offer is to be structured as a sublease of the Property, the Owner
shall cause the sublessor to offer to re-lease the Property to R.H.
Phillips in the manner described in this Agreement. The obligations
under this Section are limited by the terms of Section 10.
c. Definitions of Affiliate and Control. "Affiliate" shall mean
any person or entity: (i) which owns beneficially, directly or indirectly,
a controlling ownership interest in the Owner; (ii) of which the Owner
holds beneficially, directly or indirectly, ownership interests sufficient
to control such entity; (iii) which controls, is controlled by or is under
common control with the Owner; (iv) which is a successor to the Owner
by merger; or (v) which succeeds to the rights of the Owner by
operation of law or in connection with the sale by the Owner of
substantially all of its assets. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through the
ownership of voting securities, by contract or otherwise.
3. Procedures. The First Rights shall be exercised in accordance
with the following procedures:
a. Notices. When the Owner determines that it wishes (a) to
accept a Purchase Offer or (b) propose a Lease Offer, the Owner shall
(a) in the case of a Purchase Offer, deliver a notice to R.H. Phillips
setting forth the material terms and conditions of that offer as well as
any agreements or letters of intent stating the terms and conditions of
that offer (the "Purchase Offer Notice") and (b) in the case of a Lease
Offer, deliver a notice to R.H. Phillips setting forth the Lease Offer (the
"Lease Offer Notice"). The term "Offer Notice" shall be used in this
Agreement to subsume both the Purchase Offer Notice and the Lease
Offer Notice, if the context of the provision applies equally to notices of
the Right of First Refusal and the Right of First Offer.
If R.H. Phillips wishes to purchase or re-lease the Property (as
the case may be) under the terms set forth in the Offer Notice, R.H.
Phillips shall deliver a notice of acceptance of that offer (an
"Acceptance Notice") to the Owner no later than 7 days after the date
the Offer Notice was delivered to R.H. Phillips.
b. Date and Manner of Purchase. If R.H. Phillips delivers an
Acceptance Notice to the Owner, the purchase of the Property or the
commencement of the lease shall then take place in accordance with
terms and conditions set forth in the Offer Notice, except that regardless
of any due diligence periods, contingencies or representations and
warranties in the Offer Notice (including without limitation due
diligence periods, contingencies or representations and warranties for
financing, environmental matters, the state of title and survey, the
condition of the site, soil and water or financial status), R.H. Phillips
shall have no right to receive the benefit of such due diligence periods,
contingencies or representations and warranties. The foregoing sentence
notwithstanding, nothing in this Section 3b shall limit the obligation of
the Owner to deliver title to the Property to R.H. Phillips in accordance
with Section 8 of this Agreement.
<PAGE> 3
Upon delivery of a timely Acceptance Notice, such sale or lease
shall proceed without such due diligence periods, contingencies or
representations and warranties as if they had not appeared in the Offer
Notice. The closing of the purchase and sale of the Property, or the
commencement of the lease, shall take place at such date and time as
the parties mutually agree or, if the parties do not agree upon a date or
time, upon the later of: (i) thirty (30) days following the date the
Acceptance Notice was delivered to the Owner; or (ii) the date for the
closing of the transaction as set forth in the Offer Notice. In the event
of a sale or lease to R.H. Phillips, Owner shall deliver the Property in
the condition and as provided in Section 8. In the case of a sale of the
Property to R.H. Phillips, R.H. Phillips and Owner shall enter into a
purchase and sale agreement substantially in the form of the agreement
attached hereto as Exhibit B within fourteen (14) days of the
Acceptance Notice. In the case of a re-lease of the Property to R.H.
Phillips, R.H. Phillips and Owner shall enter into a lease or sublease
agreement substantially in the form of the Agricultural Sublease within
fourteen (14) days of the Acceptance Notice.
c. Failure to Accept Offer, New Offer. If R.H. Phillips chooses
not to purchase or re-lease the Property in accordance with the Offer
Notice, or does not deliver an Acceptance Notice in a timely manner to
the Owner, the Owner may proceed to sell or offer and re-lease the
Property to a third party in accordance with the applicable Purchase
Offer or Lease Offer. If the terms and conditions under which the
Owner intends to sell or re-lease the Property change in a manner which
(a) reduces the purchase price as stated in the Offer Notice by more
than five percent (5%) or the annual rent as set forth in the Offer Notice
by more than five percent (5%) or (b) is materially more favorable to
the proposed purchaser or lessee of the Property that change will be
deemed to be a new offer requiring Owner to reoffer the Property to
R.H. Phillips in accordance with this Agreement. If the Owner wishes
to accept that new Purchase Offer or Lease Offer, the Owner must again
offer to sell or re-lease the Property to R.H. Phillips under that new
Purchase Offer or Lease Offer in the manner described in this Section 3.
4. Effect of Failure to Exercise. Except as expressly provided
herein, the sale, assignment or transfer of the Property by the Owner
shall not cause a termination of the First Rights. If the Owner sells,
assigns or transfers the Property, the person purchasing the Property
shall assume all of the Owner's obligations under this Agreement,
regardless of the fact that R.H. Phillips may not have exercised its rights
to purchase the Property in connection with that sale. The First Rights
shall be deemed covenant which run with the Property and any
purchaser of the Property shall have the rights of and be subject to the
obligations of the Owner under this Agreement.
5. Duration. The First Rights shall remain in full force and effect
for the following period:
a. Duration of Right of First Refusal. Subject to earlier
termination pursuant to Section 6 of this Agreement and the terms of
Section 10, the Right of First Refusal to purchase the Property shall
remain in effect with respect to all Purchase Offers (other than those
made to an Affiliate) made on or prior to December 31, 2012, after
which date the Right of First Refusal to purchase the Property shall
expire.
b. Duration of Right of First Offer. Subject to earlier
termination pursuant to Section 6 and the terms of Section 10, the Right
of First Offer shall apply with respect to any Lease Offer (other than to
an Affiliate) made on or prior to December 31, 2015; after which date
the Right of First Offer to re-lease the Property shall expire; provided,
however, that the Right of First Offer to re-lease shall not apply if the
Agricultural Sublease is terminated or expires and Owner operates the
Property itself or through an Affiliate.
<PAGE> 4
6. Termination of First Rights. The First Rights upon both sale and
re-lease will terminate immediately upon the occurrence of any of the
following events, regardless of whether the applicable periods described
in Section 5 have expired:
a. If the Agricultural Sublease, as it may be amended from time
to time, or any successor agreement concerning the lease and operation
of the Property between R.H. Phillips and the lessor of the Property at
that time, has been terminated by the lessor due to a breach of such
agreement by R.H. Phillips, which breach has not been cured by R.H.
Phillips within the time specified in the Agricultural Sublease;
b. If R.H. Phillips commits a material breach of this Agreement,
which breach has not been cured within applicable cure periods, if any,
including without limitation failure to purchase or re-lease the Property
as provided herein upon delivery of an Acceptance Notice to Owner; or
c. Upon the sale, assignment or transfer of any of the First
Rights by R.H. Phillips in violation of this Agreement.
7. No Default. R.H. Phillips may only exercise the First Rights if it
is not in default of any obligation under the Agricultural Sublease, or
any successor agreement, as of the date that R.H. Phillips is required to
deliver the Acceptance Notice to the Owner or as of the date that R.H.
Phillips is to purchase or re-lease the Property.
8. No Liens or Encumbrances. As of the date that R.H. Phillips is
to purchase or re-lease the Property, the Owner shall convey the
Property free and clear of all liens and encumbrances with the
exception of: (i) liens and encumbrances set forth in the policy of title
insurance issued to the Owner at the time the Property was conveyed to
the Owner by R.H. Phillips in connection with the sale and leaseback
transaction; (ii) liens and encumbrances resulting from actions or
omissions of R.H. Phillips in the operation of the Property; (iii) liens
and encumbrances resulting from the failure of R.H. Phillips to pay
property taxes in accordance with the Agricultural Sublease or from
other violations of the Agricultural Sublease by R.H. Phillips; (iv)
easements, covenants and encumbrances of a non-monetary nature
created in good faith by the Owner which do not materially and
adversely impair R.H. Phillips intended use of the Property; and (v)
such liens and encumbrances consented to by R.H. Phillips in writing.
9. Assignment by R.H. Phillips. R.H. Phillips may not sell, assign
or otherwise transfer any of the First Rights without the prior written
consent of the Owner, which consent may be withheld in the Owner's
sole discretion. R.H. Phillips may not hypothecate, pledge or encumber
the any of the First Rights without the prior written consent of the
Owner, which consent shall not be unreasonably withheld. Nothing in
this Section 9 shall prohibit any transfer of rights by operation of law or
in connection with the sale by R.H. Phillips of substantially all of its
assets, provided that the transferee, by operation of law or by express
agreement, assumes all of the liabilities and obligations of R.H. Phillips
under this Agreement and the Agricultural Sublease.
10. Transfers Not Included.
a. Transfers to Affiliated Entities. For the purpose of this
Agreement, the First Rights shall not apply to any sale, transfer or
assignment of the Property to an Affiliate.
<PAGE> 5
b. Lease to Management Company. The Right of First Offer
shall not apply to a lease of the Property by the Owner if the lessee
(including without limitation Farmland Management Services, its
successor and assigns) is to act solely as the Owner's representative in
(a) operating the Property or (b) supervising the performance of a
sublessee in the operation and management of the Property.
11. Exercise at Discretion of R.H. Phillips. R.H. Phillips shall have
the sole and exclusive right to determine whether to exercise the First
Rights. Nothing in this Agreement shall limit in any way the right of
R.H. Phillips to make the decision as to whether it will or will not
exercise the First Rights in its sole discretion. However, if R.H. Phillips
does submit an Acceptance Notice to the Owner, R.H. Phillips will be
legally obligated to purchase or re-lease the Property in accordance
with and subject to the provisions of the Purchase Offer or Lease Offer.
12. Recordation of Memorandum of Agreement. Upon the
execution of this Agreement, the parties shall execute, acknowledge and
cause to be recorded in the Official Records of Yolo County a
Memorandum of Agreement, substantially in the form of Exhibit C to
this Agreement, sufficient to give notice of the First Rights, the term of
the First Rights and the rights of R.H. Phillips and Owner hereunder.
Upon expiration or termination of the First Rights, R.H. Phillips shall
execute, acknowledge and deliver to the Owner, no later than three
days after the termination or expiration of the First Rights, a quitclaim
deed or other reasonable documentation in recordable form to verify the
termination or expiration of the First Rights.
13. Notices. All notices under this Agreement shall be in writing
and delivered personally, by nationally recognized overnight courier
service (delivery charges paid by sender) or by first class mail, postage
prepaid, to the following addresses:
If to the Owner: If to R.H. Phillips
Hancock Agricultural Investment Group R.H. Phillips, Inc.
99 High Street, 26th Floor 26836 County Road 12A
Boston, MA 02110 Esparto, California 95627
Attention: Managing Director Attention: Chief Financial
Officer
With a copy to:
Farmland Management Services
138 Regis Street, Suite A
Turlock, CA 95382
Attention: President
For the purposes of this Agreement, notices will be deemed
delivered upon receipt if delivered personally, on the next business day
following deposit with an overnight courier if delivered by overnight
courier or on the third business day following deposit with the U.S.
Postal Service if sent via first class mail.
14. Successors and Assigns. This Agreement shall inure to and be
binding upon the successors and permitted assigns of the parties hereto.
15. Effective Date. This Agreement shall be deemed effective as of
September 30, 1997.
<PAGE> 6
16. Miscellaneous. This Agreement shall be governed by and
construed in accordance with the laws of the State of California,
excluding that state's conflicts of laws principles. This Agreement,
together with the Agricultural Sublease, the Real Estate Purchase
Contract and all attachments and exhibits hereto and thereto, constitute
the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior or contemporaneous agreements,
whether oral or written, of the parties pertaining to that subject matter.
Specifically and without limiting the foregoing, this Agreement
supersedes and amends in its entirety the Option Agreement and a
Memorandum of Option Agreement which R.H. Phillips filed with the
Yolo County Recorder with respect to that Option. Time is of the
essence under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
JOHN HANCOCK MUTUAL LIFE R.H. PHILLIPS, INC.
INSURANCE COMPANY
By: Hancock Natural Resource Group, Inc.
By://s//Julie A. Koeninger By://s//Mike Motroni
Title Portfolio Manager Title CHIEF FINANCIAL OFFICER
----------------- -----------------------
AGYP4.DOC
<PAGE> 7
EXHIBIT "A"
DESCRIPTION
Page 1 Order No. 1007484 DS
A PORTION OF THE NORTH HALF OF SECTION 17 AND A PORTION OF THE N.W. 1/4
OF
SECTION 16, ALL IN T. 11 N., R. 1 WEST M.D.B. &M., YOLO COUNTY CALIFORNIA,
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A 2" DIA, BOILER TUBE MONUMENT, MARKING THE NORTHWEST
CORNER OF
SAID SECTION 17, AS SAID MONUMENT IS SHOWN ON THAT CERTAIN MAP FILED
FOR
RECORD IN BOOK 12 OF MAPS AND SURVEY AT PAGES 99 AND 100, YOLO
COUNTY
RECORDS, AND THENCE FROM SAID POINT OF BEGINNING ALONG THE NORTH
LINE OF
SAID SECTION 17, S. 89 24' 14" E. 2689.90 FEET; THENCE S. 89 18'03" E.
2689.89 FEET TO THE NORTHEAST CORNER OF SAID SECTION 17, THENCE, ALONG
THE NORTH LINE OF SAID SECTION 16, S. 89 57' 23" E. 1823.02 FEET; THENCE
LEAVING SAID SECTION LINE, S. 00 58'43" EAST 2656.24 FEET TO THE SOUTH
LINE OF SAID N.W. 1/4 OF SECTION 16, SAID POINT ALSO BEING THE CENTERLINE
OF COUNTY ROAD 12-A; THENCE ALONG THE SOUTH LINE OF SAID N.W. 1/4, N.
89 59'38" W. 1823.02 FEET TO THE SOUTHWEST CORNER OF SAID N.W. 1/4
OF SECTION 16; THENCE N. 00 58'41" W. 83.70 FEET TO A POINT IN THE
CENTERLINE
OF SAID COUNTY ROAD 12-A; THENCE FOLLOWING THE CENTERLINE OF SAID
COUNTY
ROAD 12-A, THE FOLLOWING COURSES AND DISTANCES; N. 75 15'01" W. 1008.10
FEET;
N. 84 20'18" W. 446.03 FEET; n 81 15'21" W. 1430.41 FEET; N. 76 57'56" W.
615.55 FEET TO A TANGENT POINT; THENCE ALONG A CURVE TO THE LEFT
HAVING
A CENTRAL ANGLE OF 75 08'09", A RADIUS OF 97.63 FEET, AND SUBTENDED BY
A CHORD BEARING S. 65 27'59" W. 119.06 FEET TO A POINT INTERSECTING THE
CENTERLINE OF OAT CREEK; THENCE UPSTREAM ALONG THE CENTERLINE OF
SAID
OAK CREEK THE FOLLOWING CORSES AND DISTANCES: S. 81 51'25" WEST. 538.48
FEET; N. 54 14'49" W. 183.11 FEET; S. 79 54'52" W. 156.86 FEET; N. 41 59'42"
W. 153.61 FEET; N. 56 18'12" W. 278.32 FEET; N. 28 24'06" W. 146.31 FEET;
N. 65 07'25" W. 258.99 FEET; S. 63 29'42" W. 158.62 FEET; N. 70 25'01"
W. 129.03; S. 88 42'53" W. 89.69 FEET AND N 79 59'59" W. 15.99 FEET TO A
POINT ON THE WEST LINE OF SAID SECTION 17; THENCE ALONG SAID WEST LINE;
N. 01 26'41" W. 1544.43 FEET TO THE POINT OF BEGINNING AS SET FORTH
AND DESCRIBED AS PARCEL 5 IN THAT CERTAIN CERTIFICATE OF COMPLIANCE
RECORDED MAY 2, 1997 SERIES NO. 97-0010480 OFFICIAL RECORDS.
A PORTION OF THE FOLLOWING ASSESSOR'S PARCEL NOS.:
54-110-01; 54-120-02; 54-120-03
<PAGE> 8
EXHIBIT B
RIGHT OF FIRST OFFER TO LEASE AND RIGHT OF FIRST
REFUSAL TO PURCHASE
AND TERMINATION OF OPTION AGREEMENT
PURCHASE AGREEMENT
REAL ESTATE
This Purchase Agreement, dated _____________, < >, is entered
into by and between R.H. Phillips, Inc. (the "Purchaser") and
__________________ (the "Seller") with respect to the following facts.
The Seller is the owner of certain real property,
including certain improvements and equipment
located on that real property, located in the County
of Yolo, State of California and which is more
particularly described in Exhibit A to this
Agreement (the "Property"). The Purchaser and the
Seller are parties to a Right of First Offer to Lease
and Right of First Refusal to Purchase and
Termination of Option Agreement, dated as of
September 30, 1997, (the "First Rights
Agreement") pursuant to which the Purchaser has a
right of first refusal to purchase the Property from
the Seller. The Purchaser has occupied and
managed, and continues to occupy and manage, the
Property pursuant to the terms of an Agricultural
Sublease, dated January 24, 1997 (the "Agricultural
Sublease").
The Purchaser has delivered notice to the Seller that
it is exercising its right of first refusal to purchase
the Property, and the Seller will sell the Property to
the Purchaser, subject to the terms and conditions
set forth below.
IN VIEW OF THE FOREGOING FACTS, the parties agree as follows:
1. Purchase and Sale. Subject to the terms and conditions set forth in
this Agreement, the Seller shall sell to the Purchaser, and the Purchaser
shall buy from the Seller, all right, title and interest of the Seller in and
to the Property upon the payment by the Purchaser to the Seller of
$____________ (the "Purchase Price"). For the purposes of this
Agreement, the consummation of the conveyance of the Property to the
Purchaser, the payment of the Purchase Price to the Seller and the
completion of the other transactions described in this Agreement shall be
called the "Closing".
2. Creation of Escrow. Within three business days of the execution and
delivery of this Agreement by the parties to each other, the parties shall
establish an escrow for the purposes of consummating the purchase and
sale of the Property with ________________ (the "Escrow Holder").
The parties agree to execute and deliver to the Escrow Holder such
additional agreements, instructions and documents which the Escrow
Holder shall reasonably request as a condition to establishing the escrow
and allowing the Escrow Holder to perform its duties hereunder.
<PAGE> 9
3. Deposit. Upon the opening of escrow, the Purchaser shall deposit
with the Escrow Holder an amount in cash equal to 10% of the Purchase
Price (the "Deposit"). If the Closing does not take place on or prior to
the Closing Date (as specified in Section 11), other than due to the
breach of this Agreement by the Purchaser, the Deposit (plus any interest
thereon) shall be returned to the Purchaser less any charges assessed by
the Escrow Holder for the performance of its services. EXCEPT AS
SPECIFICALLY PROVIDED IN SECTION 4, IF THE PURCHASE
AND SALE OF THE PROPERTY DOES NOT OCCUR FOR ANY
REASON OTHER THAN THE BREACH OF THIS AGREEMENT BY
THE SELLER, THE ESCROW HOLDER SHALL PAY THE DEPOSIT
AND ANY INTEREST THEREON TO THE SELLER. IT IS
UNDERSTOOD AND AGREED THAT IT WOULD OTHERWISE BE
IMPOSSIBLE OR IMPRACTICAL TO MEASURE THE ACTUAL
DAMAGES CAUSED TO OR SUFFERED BY THE SELLER DUE TO
THE FAILURE OF THE PURCHASE AND SALE OF THE PROPERTY
TO OCCUR AND THAT THE FOREGOING AMOUNT IS
REASONABLE AS AN ESTIMATE OF THE DAMAGES THE
SELLER WOULD LIKELY SUFFER AS A RESULT THEREOF. BY
SEPARATELY INITIALING BELOW, THE PARTIES HEREBY
ACKNOWLEDGE THEIR AGREEMENT TO THIS PROVISION
CONCERNING LIQUIDATED DAMAGES.
(PURCHASER:___________) (SELLER:___________).
4. Condition of Title -- Inspection. The Seller shall convey full title to
the Property, free and clear of all liens, encumbrances and other rights of
others, other than: (i) liens and encumbrances set forth in the policy of
title insurance issued to the Seller at the time the Property was conveyed
to the Seller or the Seller's agent by the Purchaser in 1997; (ii) liens and
encumbrances resulting from actions or omissions of the Purchaser in the
operation of the Property; (iii) liens and encumbrances resulting from the
failure of the Purchaser to pay property taxes in accordance with the
Agricultural Sublease from other violations of the Agricultural Sublease;
(iv) easements, covenants and encumbrances of a non-monetary nature
created in good faith by the Seller which do not materially and adversely
impair the Purchaser's intended use of the Property; and (v) such liens
and encumbrances consented to by the Purchaser in writing (the
"Permitted Exceptions"). The Purchaser shall have a period of 15 days
following the establishment of escrow to examine the title to the Property
and to notify the Seller of any liens, encumbrances or other defects in
title other than the Permitted Exceptions which the Purchaser determines
are unacceptable. Any exceptions to title not objected to during such
period shall be deemed to be Permitted Exceptions. The Seller shall
have a period of 30 days after receipt of such notice from the Purchaser
within which to cure any such defects. If the Seller does not do so within
that period, or notifies the Purchaser that it will not do so, the Purchaser
may elect in its sole discretion: (i) not to purchase the Property and have
the Deposit returned to it, in which event this Agreement shall be
terminated without liability to either party; or (ii) to proceed with the
Closing without having the Seller cure such defects. If the Purchaser
decides to proceed with the Closing, any defect to which Purchaser
objects and which results from a monetary obligation will be paid out of
the proceeds from the purchase of the Property.
5. Title Insurance. At the Closing and as a condition to the Purchaser's
obligation to purchase the Property, the Escrow Holder shall commit to
issue a CLTA Owner's Policy of Title Insurance, with liability in the
amount of the Purchase Price, showing title to the Property vested in the
Purchaser upon the Closing, subject only to the Permitted Exceptions
(the "Title Insurance Policy").
6. Condition of Property. The Purchaser agrees that it has inspected and
is thoroughly familiar with the Property and is acquiring the Property in
its "as is" condition. The Purchaser understands and agrees that the
Seller makes no representations or warranties of any kind with respect to
the condition of the Property or its fitness, suitability or acceptability for
any particular use or purpose; and the Seller shall not be liable for any
latent or patent defects therein. The Seller shall have no obligation to
repair or make improvements to the condition of the Property prior to the
Closing. The Purchaser hereby releases
<PAGE> 10
the Seller and its agents, representatives and employees form any and all
claims the Purchaser may discover that relate to the Agricultural Sublease
or to the physical condition of the Property at any time, before or after
the Closing, including without limitation, the presence of any hazardous
substance and/or environmental defect.
7. Termination of Lease. The Agricultural Sublease will remain in full
force and effect until the Closing, at which time it will terminate. If the
Closing occurs prior to the expiration of the Agricultural Sublease, the
Purchaser shall make a final prorated rental payment to the lessor under
that lease no later than 10 days following the Closing.
8. Brokers. Each party represents to the other that it has not retained the
services of a real estate broker, agent or finder in connection with the
purchase and sale of the Property other than _____________, who has
been retained by the _______________. If either party has retained a
broker, agent or finder to whom a commission or finder's fee is owing,
the party through whom such broker, agent or finder makes such claim
shall be responsible for the payment in full of that commission or fee and
shall indemnify and hold the other party and the Property harmless from
all costs, claims, liabilities and damages incurred by the other party as a
result of that claim.
9. Representations and Warranties of Seller. The Seller represents and
warrants to the Purchaser as follows:
a. The Seller has the power and authority to sell, convey and
transfer the Property to the Purchaser in accordance with this Agreement.
b. The Seller's execution and full performance of this Agreement
will not violate any agreement, option, covenant, condition, obligation
or undertaking of the Seller nor will it violate any law or order of any
court or administrative body.
c. The Seller is not a "foreign person" as defined in Section
1445(f) of the Internal Revenue Code of 1986 or any successor provision
of federal income taxation law currently in effect.
10. Representations of Purchaser. The Purchaser represents and
warrants to the Seller as follows:
a. The Purchaser has the power and authority to purchase the
Property in accordance with this Agreement.
b. The Purchaser's execution and full performance of this
Agreement will not violate any agreement, option, covenant, condition,
obligation or undertaking of the Purchaser, nor will it violate any law or
order of any court or administrative body.
c. The Purchaser has made its own independent inspection and
evaluation of the Property and has not relied on any statement or
representations of the Seller except for those set forth herein.
11. Closing Date. Unless the parties specify a different time and date for
the Closing to occur, the Closing shall take place on < > at 9:00 am at the
office of the Escrow Holder or, if that day falls on a weekend or a
holiday, on the next business day thereafter (the "Closing Date").
12. Deposits into Escrow. The parties shall deposit the following with
the Escrow Holder prior to the Closing Date:
<PAGE> 11
a. The Seller shall deposit a grant deed conveying all right,
title and interest in the Property to the Purchaser (the "Grant Deed") and an
Affidavit of Non-Foreign Status, executed by the Seller.
b. In addition to the Deposit described in Section 3, the Purchaser
shall deposit the balance of the Purchase Price in immediately available
funds, plus an additional amount equal to the Closing Costs as defined
below.
13. Closing Costs. The Purchaser shall be responsible for the payment
of recordation and filing fees, transfer taxes, fees and charges of the
Escrow Holder and all premiums on the Title Insurance Policy (the
"Closing Costs"). Each party shall be responsible for its own attorney's
fees and expenses incurred in connection with the conveyance of the
Property under this Agreement.
14. Procedure for Closing. On the Closing Date, on the condition that
all of the deposits have been made and all of the other conditions to
Closing have been satisfied, the Escrow Holder shall:
a. Record the Grant Deed in the Official Records of Yolo County
and, following the recordation of the Grant Deed, deliver the recorded
Grant Deed to the Purchaser;
b. Deliver the Affidavit of Non-Foreign Status to the Purchaser;
c. Issue the Title Insurance Policy to the Purchaser;
d. Pay the Closing Costs out of funds deposited by the Purchaser;
e. After payment of the Closing Costs, pay all amounts owing
under those monetary liens to which the Seller has objected pursuant to
Section 4 to the holders of such liens;
f. After payment of the Closing Costs and liens as described above,
pay the Purchase Price to the Seller (less the amount of the monetary
liens paid under the previous paragraph) in accordance with the
instructions given by the Seller to the Escrow Holder; and
g. After payment of the Purchase Price to the Seller, pay all funds
remaining in escrow, if any, to the Purchaser.
15. Notices. All notices under this Agreement shall be in writing and
delivered personally, by nationally recognized overnight courier service
(delivery charges paid by sender) or by first class mail, postage prepaid,
to the following addresses:
If the Seller: If to the Purchaser:
________________________ R.H. Phillips, Inc.
________________________ 26836 County Road 12A
________________________ Esparto, California 95627
Attention:______________ Attention: Chief Financial Officer
16. Miscellaneous. This Agreement shall be governed by and construed
in accordance with the laws of the State of California excluding its
conflicts of laws principles. This Agreement, together with the First
Rights Agreement and all attachments and exhibits hereto and thereto,
constitutes the entire agreement
<PAGE> 12
between the parties with respect to the subject matter hereof and supersedes
all prior or contemporaneous agreements, whether oral or written, of
the parties pertaining to thatsubject matter. This Agreement may not be
amended except in the formof a writing signed by both parties to this
Agreement. No right of eitherparty under this Agreement shall be waived
unless that waiver is in awritten document signed by the party who has
waived that right. No waiver of any right in any specific instance will be
deemed a waiver ofthat right in any subsequent instance or any other right.
This Agreementmay be executed in one or more counterparts, which together
shall constitute one original.
17. Time of Essence. Time is of the essence in the performance of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
[THE SELLER] R.H. PHILLIPS, INC.
By:______________________________ By:_____________________________
Title:___________________________ Title:__________________________
SAC0421.DOC
<PAGE> 13
EXHIBIT C
When Recorded Mail to:
Frederick K. Koenen,
EVERS & ANDELIN, LLP
155 Montgomery Street,
Suite 1200
San Francisco, CA 94104
- --------------------------------------------------------------------------
Reserved for Recorder's Use
MEMORANDUM OF RIGHT OF FIRST OFFER TO LEASE AND RIGHT OF FIRST
REFUSAL TO PURCHASE AGREEMENT
This Memorandum is executed in connection and concurrently
with a certain Right of First Offer to Lease and Right of First Refusal
to Purchase Agreement and Termination of Option Agreement, effective
September 30, 1997, (the "Agreement") between John Hancock
Mutual Life Insurance Company (the "Owner") and R.H. Phillips, Inc.
("R.H. Phillips") relating to certain real property located in the County
of Yolo, State of California, a legal description of which is set forth in
Exhibit A to this Memorandum (the "Property").
1. Right of First Refusal to Purchase. If the Owner receives a bona
fide good faith offer from any person pursuant to which the Owner
proposes to sell, assign or transfer all of a portion of the Property or
any of the Owner's interest therein, which offer the Owner intends to
accept, (the "Purchase Offer"), the Owner shall first offer to sell,
assign or transfer the Property (or that portion thereof or interest
therein specified in the Purchase Offer) to R.H. Phillips under the
same terms and conditions as contained in the Purchase Offer. The
right of R.H. Phillips to purchase the Property as described in this
paragraph is hereafter referred to as the "Right of First Refusal."
2.Right of First Offer to Lease. If the Owner proposes to lease the
Property or any portion thereof to any person ("Lease Offer"), the
Owner shall offer to re-lease the Property (or that portion thereof
which the Owner proposes to lease) to R.H. Phillips under the same
terms and conditions as are contained in the Lease Offer. The right of
R.H. Phillips to re-lease the Property as described in this paragraph is
hereafter referred to as the "Right of First Offer."
3. Term. The Right of First Refusal will apply to all Purchase Offers
made on or prior to December 31, 2012, regardless of whether the
purchase of the Property takes place before, at or after that date. The
Right of First Offer will apply to all Lease Offers made on or prior to
December 31, 2015, regardless of whether a lease agreement for the
Property pursuant to a Lease Offer is executed before, on or after that
date.
<PAGE> 14
4. Price, Manner of Exercise. The manner in which the Right of First
Refusal or the Right of First Offer may be exercised and the other
terms and conditions governing the Right of First Refusal and Right of
First Offer are set forth in the Agreement. In the event there is any
conflict between the terms of this memorandum and the Agreement,
the provisions of the Agreement shall control.
Date: November ___, 1997 JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By: ________________________
Title: ______________________
ACKNOWLEDGMENT
State of ______________ )
County of _____________ )
)
On _________________, 1997, before me,_____________________, personally
appeared ____________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature
on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
Signature: ________________________
(Seal)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SEPTEMBER 30, 1997 BALANCE SHEET, STATEMENT OF OPERATIONS
AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 2490
<ALLOWANCES> 31
<INVENTORY> 10050
<CURRENT-ASSETS> 13096
<PP&E> 34586
<DEPRECIATION> 5698
<TOTAL-ASSETS> 42557
<CURRENT-LIABILITIES> 6034
<BONDS> 14935
<COMMON> 14041
4502
0
<OTHER-SE> 1980
<TOTAL-LIABILITY-AND-EQUITY> 42557
<SALES> 12002
<TOTAL-REVENUES> 12002
<CGS> 7080
<TOTAL-COSTS> 7080
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 682
<INCOME-PRETAX> 1383
<INCOME-TAX> 498
<INCOME-CONTINUING> 885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 885
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
