<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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
Commission File No.: 0-26276
R.H. PHILLIPS, INC.
---------------------------
(Exact name of small business issuer in its charter)
California 68-0313739
---------------------------------------------------------------------
State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26836 County Road 12A, Esparto, California 95627
- --------------------------------------------------------------------------
(Address of principal executive offices)
(530) 662-3215
- ---------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
---- ----
Number of shares outstanding of each of the issuer's classes of common
equity as of April 30, 1998: 6,483,760
Transitional Small Business Disclosure Format: Yes No X
This document consists of 15 pages, excluding exhibits. The Exhibit
Index is on page 15.
<PAGE> 2
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..........8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............13
Signatures ............................................................14
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 4
<TABLE>
R.H. PHILLIPS, INC.
BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE INFORMATION AND REDEMPTION PROVISION)
(UNAUDITED)
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 137
Accounts receivable 2,448
Inventories 10,688
Deferred income taxes and prepaid expenses 743
---------
Total current assets 14,016
PROPERTY, PLANT, AND EQUIPMENT - net 29,428
OTHER ASSETS:
Note receivable from shareholders and other affiliates 228
Deferred loan fees and other, net 482
---------
Total other assets 710
---------
TOTAL ASSETS $44,154
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,332
Accounts payable 595
Accrued liabilities 1,083
---------
Total current liabilities 3,010
LONG-TERM DEBT 17,832
DEFERRED INCOME TAXES 1,410
DEFERRED GAIN AND VINEYARD
DEVELOPMENT COSTS 795
COMMITMENTS AND CONTINGENCIES --
REDEEMABLE PREFERRED STOCK,
redeemable at $5,000,000 4,521
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, 6,483,760 shares issued and outstanding 14,191
Additional paid-in capital 337
Retained earnings 2,058
---------
Total shareholders' equity 16,586
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,154
=========
</TABLE>
[FN]
See accompanying notes to financial statements
<PAGE> 5
<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED)
<CAPTION>
1997 1998
<S> <C> <C>
NET SALES $ 3,486 $ 3,988
COST OF SALES 2,112 2,000
-------- --------
GROSS PROFIT 1,374 1,988
SELLING EXPENSES 728 1,018
GENERAL AND ADMINISTRATIVE EXPENSES 223 262
-------- --------
OPERATING INCOME 423 708
INTEREST EXPENSE (223) (278)
OTHER INCOME (EXPENSE) - NET 40 48
-------- --------
INCOME BEFORE INCOME TAXES 240 478
PROVISION FOR INCOME TAXES (86) (192)
-------- --------
NET INCOME $ 154 $ 286
======== ========
NET INCOME $ 154 $ 286
DIVIDENDS AND ACCRETION ON
REDEEMABLE PREFERRED STOCK (84) (85)
--------- ---------
NET INCOME APPLICABLE TO COMMON STOCK $ 70 $ 201
====== ======
NET INCOME PER SHARE - BASIC AND DILUTED $ .01 $ .03
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 6,090,935 6,483,760
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE> 6
<TABLE>
R.H. PHILLIPS, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
1997 1998
<S>
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
Net income $ 154 $ 286
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 501 484
Gain on disposal of property, plant and equipment (8) (5)
Net changes in assets and liabilities:
Accounts receivable 1,173 65
Inventories 11 (759)
Prepaid expenses (22) 102
Other assets (11) (36)
Accounts payable and accrued liabilities (1,132) 10
-------- -------
Net cash provided by operating activities 666 147
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,569) (1,011)
Proceeds from property, plant and equipment sold 8 5
-------- -------
Net cash used in investing activities (1,561) (1,006)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 8 --
Payment of cash dividend (150) (150)
Proceeds from long-term debt and notes payable 4,446 3,434
Principal payments on long-term debt and notes payable (3,494) (2,297)
Payment for development of leased vineyards -- (96)
Other financing activities (5) (4)
-------- -------
Net cash provided by financing activities 805 887
-------- -------
INCREASE (DECREASE) IN CASH (90) 28
CASH AT BEGINNING OF PERIOD 309 109
------- -------
CASH AT END OF PERIOD $ 219 $ 137
======= =======
OTHER CASH FLOW INFORMATION:
Interest paid (including capitalized interest of
$179 and $121 in 1997 and 1998, respectively) $ 330 $ 300
Income tax paid $ 248 $ 69
NONCASH TRANSACTIONS:
Issuance of notes payable to finance inventory,
property, plant and equipment purchased $ 50 $ 4
Issuance of stock dividend $ -- $ 150
Accretion of redeemable preferred stock $ 8 $ 10
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE> 7
R.H. PHILLIPS, INC.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The interim financial statements as of March
31, 1998 and for the three month periods ended March
31, 1997 and 1998 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 three month periods
ended March 31, 1997 and 1998 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, 1997.
2. COMPUTATION OF NET INCOME PER
SHARE
The Company has adopted Statement of
Financial Accounting Standards No. 128, which
requires the presentation of basic and diluted net
income per share. Basic net income per share for the
three month periods ended March 31, 1997 and 1998
was computed using the weighted average number of
common shares outstanding during each period.
Diluted net income per share was computed using the
weighted average number of common shares and
dilutive potential common shares outstanding during
each period. Because all of the potential common
shares outstanding during each period were anti-
dilutive, basic and diluted net income per share are the
same. Potential common shares outstanding which
could have a dilutive effect in the future total
2,469,667.
Basic and diluted net income per share and
the weighted average number of common shares
outstanding for the three month period ended March
31, 1997 have been restated to reflect stock dividends
of 39,117 shares issued in September 1997 and 50,578
shares issued in March 1998.
3. RECENT PRONOUNCEMENTS
The Company has adopted Statement of Financial
Accounting Standards No. 130 (FASB 130), which
establishes standards for the reporting and display of
comprehensive income and its components.
Comprehensive income includes revenues, expenses,
gains and losses that are excluded from net income
under current accounting standards. Comprehensive income
and net income are the same for each of the three month periods
ending March 31, 1997 and 1998.
<PAGE> 8
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 R.H. Phillips, Inc. The
discussion of the results and trends does not necessarily
imply that these results and trends will continue. For the
following discussion, a "case" means a 9-liter case of
wine. All numbers are approximate.
Forward-Looking Statements
The Company provides in this report and
elsewhere from time to time forward-looking
statements regarding the Company, its products, the
wine business, and general business and economic
conditions. Examples of forward-looking statements
include projections regarding future expansion, trends
in the wine industry, sources of supply, costs of
production, profit margins, and availability and sources
of financing. The actual results of the Company may
vary due to a variety of factors, including 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
financing sources, and general economic conditions.
If 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
assumptions which it believes are reasonable.
However, there can be no assurance that the
Company's estimates will prove to be correct. If costs
are higher than anticipated, the Company may be
required to raise an even greater amount of financing
or reduce the rate of facility expansion.
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 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.
Other Factors. A variety of other factors could
affect the actual results of the Company. These include
changes in economic conditions, unexpected adverse
weather or growing conditions, reduction or increases in
consumer demand, changes in governmental regulation
concerning the production and sale of wine, and increased
competition from foreign or domestic wine producers.
<PAGE> 9
Seasonality
The Company usually experiences substantial
seasonal fluctuations in revenue and expenditures. Sales
volumes generally increase during the holiday season,
which causes a large percentage of sales to occur 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
and crush activities and expenditures to fund vineyard and
winery expansions.
Costs of Production
The Company realized above average yields
from its 1997 crop, primarily due to favorable growing
conditions and yields from new vineyards. The
increased 1997 grape tonnage reduced the cost per
gallon of wine produced from Company vineyards.
Consequently, management believes that the
Company's cost of goods will likely decline as the
1997 vintage is sold during 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
Company anticipates that the full benefit of the
vineyard expansion should continue to be realized over
the next several years as the vines mature.
Results of Operations
Net Sales
Net sales for the three month period ended
March 31, 1998 were $3,988,000, an increase of 14%
over net sales of $3,486,000 for the corresponding
period of the prior year. Excluding sales of bulk wines
and other items, net sales were $3,942,000 for the
quarter ended March 31, 1998, an increase of 19%
over net sales of $3,305,000 for the corresponding
period in 1997. The increase in net sales was primarily
due to higher prices. The average selling price per
case increased from $41.29 for the three month period
ended March 31, 1997 to $49.03 for the same period
in 1998. The Company sold 80,400 cases during the
three month period ended March 31, 1998,
substantially the same as the corresponding period of
the prior year.
Gross profit
Gross profit was $1,988,000 for the three
month period ended March 31, 1998, a 45% increase
over $1,374,000 for the same period in 1997.
Excluding the sales of bulk wines and other items,
gross profit was $1,948,000 in 1998, compared to
$1,306,000 in 1997. Gross margins were 50% for the
three month period ended March 31, 1998, compared
to 39% for the same period in 1997. The average cost
per case for the three month period ended March 31,
1998 was $24.80, substantially the same as 1997. The
increase in gross margins is attributable to the higher
average selling price discussed above.
Selling Expenses
Selling expenses were $1,018,000, or 26% of
net sales, for the three month period ended March 31,
1998, an increase from $728,000, or 21% of net sales,
for the same period in 1997. The $290,000 increase is
primarily due to increased sales promotion and labor
costs.
<PAGE> 10
General and Administrative Expenses
General and administrative expenses were
$262,000, or 7% of net sales, for the three month
period ended March 31, 1998, an increase from
$223,000, or 6% of net sales, for the same period in
1997. The $39,000 increase is primarily due to
increased labor costs.
Interest Expense
Interest expense for the three month period
ended March 31, 1998 was $278,000, compared to
$223,000 for the same period in 1997. The Company
capitalized $121,000 of additional interest pertaining to
vineyard and winery development during the three
month period ended March 31, 1998, and $179,000
during the same period in 1997. Total interest was
substantially the same during the two periods. The
Company had fewer vineyards under development
during the first three months of 1998 than during the
same period in 1997, causing capitalized interest to
decrease. The interest is attributable to the Company's
bank lines of credit and other debt obligations.
Other Income (Expense)
Other income was $48,000 for the three
month period ended March 31, 1998, compared to
$40,000 for the same period in 1997. The income was
primarily from vineyard management fees.
Net Income
The Company generated net income of
$286,000 for the three month period ended March 31,
1998, compared to $154,000 for the same period in
1997. The $132,000 increase was primarily due to
higher gross profit, which was partially offset by
increases in selling, general, and administrative
expenses.
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 Company has
depended upon debt, equity, and lease financing for its
working capital and capital expansion needs.
The Company had cash totaling $137,000 on
March 31, 1998, an increase from $109,000 on
December 31, 1997. Sources of cash during the three
month period ended March 31, 1998 included cash
from operations of $147,000 and proceeds from long-
term debt of $3,434,000. Cash used during that period
included $1,011,000 invested in plant and equipment,
$396,000 used to repay a note payable, and
$1,901,000 used to repay long-term debt.
Current assets increased by $620,000 during
the three month period ended March 31, 1998,
primarily due to an increase in inventories from
$9,928,000 on December 31, 1997 to $10,688,000 on
March 31, 1998. The increase is primarily due to
inventoried crop costs pertaining to the 1998 harvest.
Current liabilities decreased by $387,000 during the
three month period ended March 31, 1998,
<PAGE> 11
primarily due to the payment of a note payable. These factors
caused net working capital to increase $1,007,000,
from $9,999,000 on December 31, 1997 to
$11,006,000 on March 31, 1998.
The Company has several long-term loans,
the largest of which was obtained from Metropolitan
Life Insurance Company ("Metropolitan"). The
Company has borrowed $11,000,000 from
Metropolitan, of which $10,880,000 was outstanding
at March 31, 1998. The unpaid principal under the
loan accrues interest at an annual rate of 7.79%. The
Company is required to make monthly principal
payments of $60,000 plus accrued interest. The loan
matures in January 2013, at which time the Company
will be required to make a balloon payment of
$200,000.
The Company has a line of credit of
$10,000,000 with U.S. Bank of California ("U.S.
Bank") to finance its working capital requirements.
The line of credit is secured by accounts receivable,
inventory, unencumbered farm equipment, and crop,
and matures in April 2000. The annual interest
rate on the line is either U.S. Bank's prime rate
or IBOR plus 150 basis points, at the Company's
option. The balance on the line at March 31, 1998
was $5,003,000.
In addition to loans with Metropolitan and
U.S. Bank, the Company has several smaller loans,
which are generally secured by equipment, and capital
leases. The maturity dates range from April 1998 to
December 2003, and, excluding capital leases, the
interest rates range from 7.0% to 10.9%. The
balances due on these items totaled $3,281,000 at
March 31, 1998.
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 of $5,384,000
from the sale. The lease, which is accounted for as an
operating lease, provides that the Company will pay
rent of $161,000 per calendar quarter beginning in
1999.
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 average daily market price over a
period of 20 consecutive trading days before 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.
The Company has invested in substantial
improvements to its winery facility and vineyards over
the past several years, and plans to continue the
expansion. During 1998, the Company plans to add a
tasting room at an estimated cost of $600,000, and to
invest an estimated $3,200,000 in tanks, barrels,
presses and other equipment. Additional winery
expansion projects are anticipated for the future to
handle the increased production from the Company's
recently planted vineyards. The Company plans to
invest an estimated $1,800,000 to continue the
development of recently planted vineyards during
1998. The Company plans to fund 1998 capital
projects with internally generated funds and additional
debt.
<PAGE> 12
Phylloxera infestation may have a negative
impact on the Company's future grape production.
Phylloxera is a root louse which feeds on grape roots,
causing reduced production and eventual vine death.
Of the Company's 1,561 acres of vineyard, 187 acres
have root stock which is not resistant 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
vineyard useful life causes an increase in depreciation
and maintenance expense. The increased expenses are
added to the cost of grapes harvested, thus increasing
cost of sales. The Company is in the process of
replacing the majority of Phylloxera-infested and non-
resistant vines with rootstock believed to be resistant
to Phylloxera.
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.1 Loan Agreements between the Company and U.S. Bank,
dated May 1, 1998
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
<PAGE> 14
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: May 11, 1998
By //s// John E. Giguiere
----------------------------------------------
John E. Giguiere, Co-President
Co-Chief Executive Officer
By //s// Michael J. Motroni
----------------------------------------------
Michael J. Motroni, Chief Financial Officer
Principal Financial Officer
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
<S> <C>
10.1 Loan Agreements between the Company
and U.S. Bank, dated May 1, 1998.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
U.S. BANK
DISBURSEMENT REQUEST AND AUTHORIZATION
Principal Loan Date Maturity Loan No Call Collateral
$10,000,000.00 05-01-1998 04-30-2000 815-141 04368 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 NATIONAL
26836 County Road 12A ASSOCIATION
Esparto, CA 95627 California Corporate Banking
980 Ninth 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 OR CLASS OF BORROWERS), Revolving Line
of Credit Loan to a Corporation for $10,000,000.00 due on April
30, 2000. This is a secured renewal loan.
PRIMARY PURPOSE OF LOAN. The primary purpose of this
loan is for:
Personal, Family, or Household Purposes or Personal Investment.
X Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is:
Support short-term operations and cash flow, including 1998
crop production.
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 $10,000,000.00 as follows:
Undisbursed Funds: $10,000,000.00
------------------
Note Principal: $10,000,000.00
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 MAY 1, 1998.
BORROWER:
R.H. PHILLIPS, INC.
By://s// Mike Motroni
-----------------------------------------------
Title: Chief Financial Officer
------------------------------------------------
By://s// John Giguiere
------------------------------------------------
Title: Co-Chief Executive Officer
-----------------------------------------------
Variable Rate. Line of Credit. LASER PRO, Reg.
U.S. Pat. & T.M. Off., Ver. 3.24 (c) 1998 CFI ProServices, Inc.
All rights reserved. [CA-I20 RHPI.LN C3.OVL]
<PAGE> 2
U.S. BANK
LOAN AGREEMENT
Principal Loan Date Maturity Loan No Call Collateral
$10,000,000.00 05-01-1998 04-30-2000 815-141 04368 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 NATIONAL
26836 County Road 12A ASSOCIATION
Esparto, CA 95627 California Corporate Banking
980 Ninth Street, Suite 1100
Sacramento, CA 95814
THIS LOAN AGREEMENT between R.H. PHILLIPS, INC.
("Borrower") and U.S. BANK ("Lender") is made and
executed on the following terms and conditions.
Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or
loans and other financial accommodations, including
those which may be described on any exhibit or schedule
attached to this Agreement. All such loans and financial
accommodations, together with all future loans and
financial accommodations from Lender to Borrower, are
referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrower understands
and agrees that: (a) in granting, renewing, or extending
any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth
in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c)
all such Loans shall be and shall remain subject to the
following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of May 1, 1998,
and shall continue thereafter until all Indebtedness of
Borrower to Lender has been performed in full and the parties
terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not otherwise
defined in this Agreement shall have the meanings attributed
to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful
money of the United States of America.
Agreement. The word "Agreement" means this Loan
Agreement, as this Loan Agreement may be amended or
modified from time to time, together with all exhibits and
schedules attached to this Loan Agreement from time to time.
Account. The word "Account" means a trade account,
account receivable, or other right to payment for goods sold or
services rendered owing to Borrower (or to a third party
grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the
person or entity obligated upon an Account.
Advance. The word "Advance" means a disbursement of
Loan funds under this Agreement.
Borrower. The word "Borrower" means R.H. PHILLIPS, INC..
The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in
the paragraph titled "Subsidiaries and Affiliates."
Borrowing Base. The words "Borrowing Base" mean as
determined by Lender from time to time, the lesser of (a)
$10,000,000.00; or (b) the sum of (i) 80.000% of the
aggregate amount of Eligible Accounts, plus (ii) 55.000% of
the aggregate amount of Eligible Inventory consisting of bulk
and bottled wine and 30.000% of the aggregate amount of
Eligible Inventory consisting of non-wine inventory used in
bottling (not to exceed in corresponding Loan amount based
on Eligible Inventory $8,000,000.00). (NOTE: Line availability
will not be reduced by Notes Payable from Mondavi.).
Business Day. The words "Business Day" mean a day on
which commercial banks are open for business in the State of
California.
CERCLA. The word "CERCLA" means the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after
taxes, and exclusive of extraordinary gains and income, plus
depreciation and amortization.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage,
deed of trust, assignment, pledge, chattel mortgage, chattel
trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract, or otherwise. The word "Collateral" includes without
limitation all collateral described below in the section titled
"COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities
excluding Subordinated Debt and Preferred Stock.
Eligible Accounts. The words "Eligible Accounts" mean, at
any time, all of Borrower's Accounts which contain selling
terms and conditions acceptable to Lender. The net amount
of any Eligible Account against which Borrower may borrow
shall exclude all returns, discounts, credits, and offsets of any
nature. Unless otherwise agreed to by Lender in writing,
Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of
which the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not
a resident of the United States, except to the extent such
Accounts are supported by insurance, bonds or other
assurances satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or
setoff.
(g) Accounts with respect to which the goods have not been
shipped or delivered, or the services have not been rendered,
to the Account Debtor.
(h) Accounts with respect to which Lender, in its sole
discretion, deems the creditworthiness or financial condition of
the Account Debtor to be unsatisfactory.
<PAGE> 3
(i) Accounts of any Account Debtor who has filed or has had
filed against it a petition in bankruptcy or an application for
relief under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed
a trustee, custodian, or receiver for the assets of such
Account Debtor; or who has made an assignment for the
benefit of creditors or has become insolvent or fails generally
to pay its debts (including its payrolls) as such debts become
due.
(j) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the
United States.
(k) Accounts which have not been paid in full within 60 days
past due from the invoice date. The entire balance of any
Account of any single Account debtor will be ineligible
whenever the portion of the Account which has not been paid
within 60 days past due from the invoice date is in excess of
10.000% of the total amount outstanding on the Account.
(l) Datings; Progress Billings; Retainages; Cash Sales;
C.O.D.; Service Charges; That portion of the Accounts of any
single Account Debtor which exceeds either a) 10.00% of all
Borrower's Accounts, or b) the sum of $250,000.00, excepting
that portion of the Accounts of the foregoing Account Debtors
which exceeds either a) 25.00% of all Borrower's accounts, or
b) $500,000.00: M.S. Walker, Lauber Imports, and Young's Market.
Eligible Inventory. The words "Eligible Inventory" mean, at
any time, all of Borrower's Inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of
all security interests, liens, encumbrances, and claims of third
parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
(c) Red and white wines aged over sixty (60) months and
thirty-six (36) months, respectively. In addition, Eligible
Inventory will be reduced by those having lien rights and
storage accounts payable.
ERISA. The word "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and
include without limitation any of the Events of Default set forth
below in the section titled "EVENTS OF DEFAULT."
Expiration Date. The words "Expiration Date" mean the date
of termination of Lender's commitment to lend under this
Agreement.
Grantor. The word "Grantor" means and includes without
limitation each and all of the persons or entities granting a
Security Interest in any Collateral for the Indebtedness,
including without limitation all Borrowers granting such a
Security Interest.
Guarantor. The word "Guarantor" means and includes
without limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and
includes without limitation all Loans, together with all other
obligations, debts and liabilities of Borrower to Lender, or any
one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others;
whether Borrower may be obligated as a guarantor, surety, or
otherwise; whether recovery upon such Indebtedness may be
or hereafter may become barred by any statute of limitations;
and whether such Indebtedness may be or hereafter may
become otherwise unenforceable.
Inventory. The word "Inventory" means all of Borrower's raw
materials, work in process, finished goods, merchandise, parts
and supplies, of every kind and description, and goods held
for sale or lease or furnished under contracts of service in
which Borrower now has or hereafter acquires any right,
whether held by Borrower or others, and all documents of title,
warehouse receipts, bills of lading, and all other documents of
every type covering all or any part of the foregoing. Inventory
includes inventory temporarily out of Borrower's custody or
possession and all returns on Accounts.
Lender. The word "Lender" means U.S. BANK, its
successors and assigns.
Line of Credit. The words "Line of Credit" mean the credit
facility described in the Section titled "LINE OF CREDIT"
below.
Liquid Assets. The words "Liquid Assets" mean Borrower's
cash on hand plus Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes
without limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or
hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations
described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing
Borrower's Loan obligations in favor of Lender, as well as any
substitute, replacement or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a)
liens and security interests securing Indebtedness owed by
Borrower to Lender; (b) liens for taxes, assessments, or
similar charges either not yet due or being contested in good
faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of
business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money
security interests upon or in any property acquired or held by
Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or
permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement,
have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary
amount with respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean
and include without limitation all promissory notes, credit
agreements, loan agreements, environmental agreements,
guaranties, security agreements, mortgages, deeds of trust,
and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with
the Indebtedness.
Security Agreement. The words "Security Agreement" mean
and include without limitation any agreements, promises,
covenants, arrangements, understandings or other
agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and
include without limitation any type of collateral security,
whether in the form of a lien, charge, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a
security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments
and Reauthorization Act of 1986 as now or hereafter
amended.
Subordinated Debt. The words "Subordinated Debt" mean
indebtedness and liabilities of Borrower which have been
subordinated by written agreement to indebtedness owed by
Borrower to Lender in form and substance acceptable to
Lender.
Tangible Net Worth. The words "Tangible Net Worth" mean
Borrower's total assets excluding all intangible assets (i.e.,
goodwill, trademarks,
<PAGE> 4
patents, copyrights, organizational
expenses, and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
Working Capital. The words "Working Capital" mean
Borrower's current assets, excluding prepaid expenses, less
Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to
Borrower from time to time from the date of this Agreement to
the Expiration Date, provided the aggregate amount of such
Advances outstanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may
borrow, partially or wholly prepay, and reborrow under this
Agreement as follows.
Conditions Precedent to Each Advance. Lender's
obligation to make any Advance to or for the account of
Borrower under this Agreement is subject to the following
conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this
Agreement to be in form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement
and all Related Documents have been duly authorized,
executed, and delivered by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may
request.
(c) The security interests in the Collateral shall have been
duly authorized, created, and perfected with first lien priority
and shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit
shall have been executed by each Guarantor, delivered to
Lender, and be in full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, Inventory, books,
records, and operations, and Lender shall be satisfied as to
their condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related
Documents as are then due and payable.
(g) There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under
this Agreement, and Borrower shall have delivered to Lender
the compliance certificate called for in the paragraph below
titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit
may be requested either orally or in writing by authorized
persons. Lender may, but need not, require that all oral
requests be confirmed in writing. Each Advance shall be
conclusively deemed to have been made at the request of and
for the benefit of Borrower (a) when credited to any deposit
account of Borrower maintained with Lender or (b) when
advanced in accordance with the instructions of an authorized
person. Lender, at its option, may set a cutoff time, after
which all requests for Advances will be treated as having been
requested on the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate
principal amount of the outstanding Advances shall exceed
the applicable Borrowing Base, Borrower, immediately upon
written or oral notice from Lender, shall pay to Lender an
amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base.
On the Expiration Date, Borrower shall pay to Lender in full
the aggregate unpaid principal amount of all Advances then
outstanding and all accrued unpaid interest, together with all
other applicable fees, costs and charges, if any, not yet paid.
Loan Account. Lender shall maintain on its books a record
of account in which Lender shall make entries for each
Advance and such other debits and credits as shall be
appropriate in connection with the credit facility. Lender shall
provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies
Lender to the contrary within thirty (30) days after Borrower's
receipt of any such statement which Borrower deems to be
incorrect.
COLLATERAL. To secure payment of the Line of Credit and
performance of all other Loans, obligations and duties owed
by Borrower to Lender, Borrower (and others, if required) shall
grant to Lender Security Interests in such property and assets
as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts, general
intangibles, and Inventory. Lender's Security Interests in the
Collateral shall be continuing liens and shall include the
proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to
Lender:
Perfection of Security Interests. Borrower agrees to
execute such financing statements and to take whatever other
actions are requested by Lender to perfect and continue
Lender's Security Interests in the Collateral. Upon request of
Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any and all chattel
paper if not delivered to Lender for possession by Lender.
Contemporaneous with the execution of this Agreement,
Borrower will execute one or more UCC financing statements
and any similar statements as may be required by applicable
law, and will file such financing statements and all such similar
statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect
or to continue any Security Interest. Lender may at any time,
and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing
statement for use as a financing statement. Borrower will
reimburse Lender for all expenses for the perfection,
termination, and the continuation of the perfection of Lender's
security interest in the Collateral. Borrower promptly will notify
Lender of any change in Borrower's name including any
change to the assumed business names of Borrower.
Borrower also promptly will notify Lender of any change in
Borrower's Social Security Number or Employer Identification
Number. Borrower further agrees to notify Lender in writing
prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or
consolidate with any other entity.
Collateral Records. Borrower does now, and at all times
hereafter shall, keep correct and accurate records of the
Collateral, all of which records shall be available to Lender or
Lender's representative upon demand for inspection and
copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records
as Lender may require, including without limitation information
concerning Eligible Accounts and Account balances and
agings. With respect to the Inventory, Borrower agrees to
keep and maintain such records as Lender may require,
including without limitation information concerning Eligible
Inventory and records itemizing and describing the kind, type,
quality, and quantity of Inventory, Borrower's Inventory costs
and selling prices, and the daily withdrawals and additions to
Inventory.
Collateral Schedules. Concurrently with the execution and
delivery of this Agreement, Borrower shall execute and deliver
to Lender schedules of Accounts and Inventory and Eligible
Accounts and Eligible Inventory, in form and substance
satisfactory to the Lender. Thereafter Borrower shall execute
and deliver to Lender such supplemental schedules of Eligible
Accounts and Eligible Inventory and such other matters and
information relating to the Accounts and Inventory as Lender
may request. Supplemental schedules shall be delivered
according to the following schedule: Borrower to furnish
Lender with monthly Accounts Payable aging and
Accounts Receivable aging within twenty (20) days after
the end of each month. The format of aging will be sixty
(60) days past due. Borrower to update the value of
eligible wine inventory monthly, based on Market cost as
determined by then-current market prices published by
industry expert Joseph Ciatti (value not to exceed
100.00% of cost), submitted to Lender on a Certification
Worksheet. Fair Market Value adjustment to be made on
a quarterly basis. Private Label wine to be advanced
based on cost, not market value. Borrower to undergo
two collateral audits per year, to be performed by
Lender's staff or Lender approved external examiners.
Direct verifications shall be required. Borrower agrees to
pay all Lender's expenses incurred in connection with
each collateral audit. Borrower also to furnish Lender with
a complete Account debtor name and address list upon
<PAGE> 5
request and a Borrower's Certificate monthly.
Representations and Warranties Concerning Accounts.
With respect to the Accounts, Borrower represents and
warrants to Lender: (a) Each Account represented by
Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of
an Eligible Account; (b) All Account information listed on
schedules delivered to Lender will be true and correct, subject
to immaterial variance; and (c) Lender, its assigns, or agents
shall have the right at any time and at Borrower's expense to
inspect, examine, and audit Borrower's records and to confirm
with Account Debtors the accuracy of such Accounts.
Representations and Warranties Concerning Inventory.
With respect to the Inventory, Borrower represents and
warrants to Lender: (a) All Inventory represented by Borrower
to be Eligible Inventory for purposes of this Agreement
conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules
delivered to Lender will be true and correct, subject to
immaterial variance; (c) The value of the Inventory will be
determined on a consistent accounting basis; (d) Except as
agreed to the contrary by Lender in writing, all Eligible
Inventory is now and at all times hereafter will be in Borrower's
physical possession and shall not be held by others on
consignment, sale on approval, or sale or return; (e) Except
as reflected in the Inventory schedules delivered to Lender, all
Eligible Inventory is now and at all times hereafter will be of
good and merchantable quality, free from defects; (f) Eligible
Inventory is not now and will not at any time hereafter be
stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower
will concurrently at the time of bailment cause any such
bailee, warehouseman, or similar party to issue and deliver to
Lender, in form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of Inventory; and (g)
Lender, its assigns, or agents shall have the right at any time
and at Borrower's expense to inspect and examine the
Inventory and to check and test the same as to quality,
quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower
represents and warrants to Lender, as of the date of this
Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any Indebtedness
exists:
Organization. Borrower is a corporation which is duly
organized, validly existing, and in good standing under the
laws of the state of Borrower's incorporation and is validly
existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage.
Borrower also is duly qualified as a foreign corporation and is
in good standing in all states in which the failure to so qualify
would have a material adverse effect on its businesses or
financial condition.
Authorization. The execution, delivery, and performance of
this Agreement and all Related Documents by Borrower, to
the extent to be executed, delivered or performed by
Borrower, have been duly authorized by all necessary action
by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and
do not conflict with, result in a violation of, or constitute a
default under (a) any provision of its articles of incorporation
or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to
Borrower.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely disclosed Borrower's
financial condition as of the date of the statement, and there
has been no material adverse change in Borrower's financial
condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial
statements.
Legal Effect. This Agreement constitutes, and any
instrument or agreement required hereunder to be given by
Borrower when delivered will constitute, legal, valid and
binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and
has good title to all of Borrower's properties free and clear of
all Security Interests, and has not executed any security
documents or financing statements relating to such properties.
All of Borrower's properties are titled in Borrower's legal name,
and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste,"
"hazardous substance," "disposal," "release," and "threatened
release," as used in this Agreement, shall have the same
meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of
Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous
waste or substance by any person on, under, about or from
any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or
threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat,
dispose of, or release any hazardous waste or substance on,
under, about or from any of the properties; and any such
activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be
at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability
on the part of Lender to Borrower or to any other person. The
representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower
hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or
threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and
the termination or expiration of this Agreement and shall not
be affected by Lender's acquisition of any interest in any of
the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and
no other event has occurred which may materially adversely
affect Borrower's financial condition or properties, other than
litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns
and reports of Borrower that are or were required to be filed,
have been filed, and all taxes, assessments and other
governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate
reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to
Lender in writing, Borrower has not entered into or granted
any Security Agreements, or permitted the filing or attachment
of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrower's Loan
and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to
such Collateral.
<PAGE> 6
Binding Effect. This Agreement, the Note, all Security
Agreements directly or indirectly securing repayment of
Borrower's Loan and Note and all of the Related Documents
are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan
proceeds solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to
which Borrower may have any liability complies in all material
respects with all applicable requirements of law and
regulations, and (i) no Reportable Event nor Prohibited
Transaction (as defined in ERISA) has occurred with respect
to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been
taken to terminate any such plan, and (iv) there are no
unfunded liabilities other than those previously disclosed to
Lender in writing.
Location of Borrower's Offices and Records. Borrower's
place of business, or Borrower's Chief executive office, if
Borrower has more than one place of business, is located at
26836 County Road 12A, Esparto, CA 95627. Unless
Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records
concerning the Collateral.
Information. All information heretofore or
contemporaneously herewith furnished by Borrower to Lender
for the purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as
of which such information is dated or certified; and none of
such information is or will be incomplete by omitting to state
any material fact necessary to make such information not
misleading.
Survival of Representations and Warranties. Borrower
understands and agrees that Lender, without independent
investigation, is relying upon the above representations and
warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain
in full force and effect until such time as Borrower's
Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the
last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and
agrees with Lender that, while this Agreement is in effect,
Borrower will:
Litigation. Promptly inform Lender in writing of (a) all
material adverse changes in Borrower's financial condition,
and (b) all existing and all threatened litigation, claims,
investigations, administrative proceedings or similar actions
affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in
accordance with generally accepted accounting principles,
applied on a consistent basis, and permit Lender to examine
and audit Borrower's books and records at all reasonable
times.
Financial Statements. Furnish Lender with, as soon as
available, but in no event later than one hundred twenty (120)
days after the end of each fiscal year, Borrower's balance
sheet and income statement for the year ended, audited by a
certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty five (45)
days after the end of each fiscal quarter, Borrower's balance
sheet and profit and loss statement for the period ended,
prepared and certified as correct to the best knowledge and
belief by Borrower's chief financial officer or other officer or
person acceptable to Lender. All financial reports required to
be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles,
applied on a consistent basis, and certified by Borrower as
being true and correct.
Additional Information. Furnish such additional information
and statements, lists of assets and liabilities, agings of
receivables and payables, inventory schedules, budgets,
forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as
Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following
covenants and ratios:
Tangible Net Worth. Maintain a minimum Tangible Net
Worth of not less than $19,000,000.00.
Net Worth Ratio. Maintain a ratio of Total Liabilities to
Tangible Net Worth of less than 3.00 to 1.00.
Working Capital. Maintain Working Capital in excess of
$1,800,000.00.
Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities in excess of 1.15 to 1.00.
Cash Flow Requirements. Maintain Cash Flow at not less
than the following level: A minimum ratio of 1.10 to 1.00,
defined as: Net profit after taxes plus depreciation and
amortization plus interest expense plus additional paid in
capital, divided by current portion of long term debt plus
dividends and withdrawals plus internally funded fixed
assets. This ratio will be measured annually.
The following provisions shall apply for purposes of
determining compliance with the foregoing financial covenants
and ratios: Borrower's Tangible Net Worth to increase by
25.00% of the previous fiscal year's Consolidated Net
Income plus 100.000% of additional paid in capital.
Working Capital and Current Ratio to include line of credit
balances. Borrower's compliance will be tested quarterly.
Borrower agrees to furnish to Lender 10-K's and 10-Q's
within 30 days of filing with Security Exchange
Commission. Except as provided above, all computations
made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and
correct.
Insurance. Maintain fire and other risk insurance, public
liability insurance, and such other insurance as Lender may
require with respect to Borrower's properties and operations,
in form, amounts, coverages and with insurance companies
reasonably acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will
not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such
loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of
Lender, reports on each existing insurance policy showing
such information as Lender may reasonably request, including
without limitation the following: (a) the name of the insurer;
(b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner
of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more
often than annually), Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The
cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of
all other agreements, whether now or hereafter existing,
between Borrower and any other party and notify Lender
immediately in writing of any default in connection with any
other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's
business operations, unless specifically consented to the
contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all
of its indebtedness and obligations, including without limitation
all assessments, taxes, governmental charges, levies and
liens, of every kind and nature, imposed upon Borrower or its
properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid,
might become a lien or charge upon any of Borrower's
properties,
<PAGE> 7
income, or profits. Provided however, Borrower
will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to
such contested assessment, tax, charge, levy, lien, or claim in
accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender
evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions,
and provisions set forth in this Agreement and in the Related
Documents in a timely manner, and promptly notify Lender if
Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under
any of the Related Documents.
Operations. Maintain executive and management personnel
with substantially the same qualifications and experience as
the present executive and management personnel; provide
written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules
and regulations respecting its properties, charters, businesses
and operations, including without limitation, compliance with
the Americans With Disabilities Act and with all minimum
funding standards and other requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any
reasonable time to inspect any and all Collateral for the Loan
or Loans and Borrower's other properties and to examine or
audit Borrower's books, accounts, and records and to make
copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains
any records (including without limitation computer generated
records and computer software programs for the generation of
such records) in the possession of a third party, Borrower,
upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times
and to provide Lender with copies of any records it may
request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender,
provide Lender quarterly and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as
of the date of the certificate and further certifying that, as of
the date of the certificate, no Event of Default exists under this
Agreement.
Environmental Compliance and Reports. Borrower shall
comply in all respects with all environmental protection
federal, state and local laws, statutes, regulations and
ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on
the part of any third party, on property owned and/or occupied
by Borrower, any environmental activity where damage may
result to the environment, unless such environmental activity
is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and
in any event within thirty (30) days after receipt thereof a copy
of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or
instrumentality concerning any intentional or unintentional
action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to
Lender such promissory notes, mortgages, deeds of trust,
security agreements, financing statements, instruments,
documents and other agreements as Lender or its attorneys
may reasonably request to evidence and secure the Loans
and to perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or
any change in any law, rule, regulation or guideline, or the
interpretation or application of any thereof by any court or
administrative or governmental authority (including any
request or policy not having the force of law) shall impose,
modify or make applicable any taxes (except U.S. federal,
state or local income or franchise taxes imposed on Lender),
reserve requirements, capital adequacy requirements or other
obligations which would (a) increase the cost to Lender for
extending or maintaining the credit facilities to which this
Agreement relates, (b) reduce the amounts payable to Lender
under this Agreement or the Related Documents, or (c)
reduce the rate of return on Lender's capital as a
consequence of Lender's obligations with respect to the credit
facilities to which this Agreement relates, then Borrower
agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after
Lender's written demand for such payment, which demand
shall be accompanied by an explanation of such imposition or
charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and
calculations shall be conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees
with Lender that while this Agreement is in effect, Borrower
shall not, without the prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred
in the normal course of business and indebtedness to Lender
contemplated by this Agreement, create, incur or assume indebtedness
for borrowed money, including capital leases in the excess of
$3,000,000, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest
in, or encumber any of Borrower's assets, or (c) sell with recourse
any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business
activities substantially different than those in which Borrower
is presently engaged, (b) cease operations, liquidate, merge,
transfer, acquire or consolidate with any other entity, change
ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any
dividends on Borrower's stock (other than dividends payable
in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the Internal Revenue Code of 1986, as amended),
Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or
retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or
advance money or assets, (b) purchase, create or acquire
any interest in any other enterprise or entity, or (c) incur any
obligation as surety or guarantor other than in the ordinary
course of business.
CESSATION OF ADVANCES. If Lender has made any
commitment to make any Loan to Borrower, whether under
this Agreement or under any other agreement, Lender shall
have no obligation to make Loan Advances or to disburse
Loan proceeds if: (a) Borrower or any Guarantor is in default
under the terms of this Agreement or any of the Related
Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (c) there occurs a
material adverse change in Borrower's financial condition, in
the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with
Lender; or (e) Lender in good faith deems itself insecure,
even though no Event of Default shall have occurred.
ACCESS LAWS. Without limiting the generality of any
provision of this agreement requiring Borrower to comply with
applicable laws, rules, and regulations, Borrower agrees that
it will at all times comply with applicable laws relating to
disabled access including, but not limited to, all applicable
titles of the Americans with Disabilities Act of 1990.
ADDITIONAL EVENTS OF DEFAULT. In addition to the
Events of Default specified in the Events of Default paragraph
of this Agreement, the
<PAGE> 8
occurrence of any event of default
under any agreement between Metropolitan Life Insurance
and Borrower, including without limitation the Loan Agreement
and Promissory Note dated May 1, 1998, shall be an event of
default hereunder. Upon the occurrence of such an event of
default, Lender may, at its option, exercise any one or more of
the rights and remedies available under this agreement or
under applicable law.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else
and all accounts Borrower may open in the future, excluding
however all IRA and Keogh accounts, and all trust accounts
for which the grant of a security interest would be prohibited
by law. Borrower authorizes Lender, to the extent permitted
by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts to
allow Lender to protect Lender's charge and setoff rights
provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any
payment when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply
with or to perform when due any other term, obligation,
covenant or condition contained in this Agreement or in any of
the Related Documents, or failure of Borrower to comply with
or to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any
Grantor default 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 or
any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or
statement made or furnished to Lender by or on behalf of
Borrower or any Grantor under this Agreement or the Related
Documents is false or misleading in any material respect at
the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the
Related Documents ceases to be in full force and effect
(including failure of any Security Agreement to create a valid
and perfected Security Interest) at any time and for any
reason.
Insolvency. The dissolution or termination of Borrower's
existence as a going business, the insolvency of Borrower, the
appointment of a receiver for any part of Borrower's property,
any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against
Borrower.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by
any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment,
attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events
occurs with respect to any Guarantor of any of the
Indebtedness or any Guarantor dies or becomes incompetent,
or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of
twenty-five percent (25%) or more of the common stock of
Borrower.
Adverse Change. A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect
of payment or performance of the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of
Default shall occur, except where otherwise provided in this
Agreement or the Related Documents, all commitments and
obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate
(including any obligation to make Loan Advances or
disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection
above, such acceleration shall be automatic and not optional.
In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by
applicable law, all of Lender's rights and remedies shall be
cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of
Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related
Documents, constitutes the entire understanding and
agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the
alteration or amendment.
Applicable Law. This Agreement has been delivered to
Lender and accepted by Lender in the State of California.
If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of
Sacramento County, the State of California. Subject to
the provisions on arbitration, this Agreement shall be
governed by and construed in accordance with the laws
of the State of California.
Arbitration. Lender and Borrower agree that all disputes,
claims and controversies between them, whether
individual, joint, or class in nature, arising from this
Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to
the Rules of the American Arbitration Association, upon
request of either party. No act to take or dispose of any
Collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement.
This includes, without limitation, obtaining injunctive relief or a
temporary restraining order; invoking a power of sale under
any deed of trust or mortgage; obtaining a writ of attachment
or imposition of a receiver; or exercising any rights relating to
personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9
of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of
any act, or exercise of any right, concerning any Collateral,
including any claim to rescind, reform, or otherwise modify any
agreement relating to the Collateral, shall also be arbitrated,
provided however that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party. Lender and
Borrower agree that in the event of an action for judicial
foreclosure pursuant to California Code of Civil Procedure
Section 726, or any similar provision in any other state, the
commencement of such an action will not constitute a waiver
of the right to arbitrate and the court shall refer to arbitration
as much of such action, including counterclaims, as lawfully
may be referred to arbitration. Judgment upon any award
rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any
party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver,
laches, and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of
an action for these purposes. The Federal Arbitration Act
shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
Caption Headings. Caption headings in this Agreement are
for convenience purposes only and are not to be used to
interpret or define the
<PAGE> 9
provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of
Borrower under this Agreement shall be joint and several, and
all references to Borrower shall mean each and every
Borrower. This means that each of the persons signing below
is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and
consents to Lender's sale or transfer, whether now or later, of
one or more participation interests in the Loans to one or more
purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or
more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives
any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase
of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be
considered as the absolute owners of such interests in the
Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of
such participation interests. Borrower further waives all rights
of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans
irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its
interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand
all of Lender's expenses, including without limitation attorneys'
fees, incurred in connection with the preparation, execution,
enforcement, modification and collection of this Agreement or
in connection with the Loans made pursuant to this
Agreement. Lender may pay someone else to help collect the
Loans and to enforce this Agreement, and Borrower will pay
that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals,
and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other
sums provided by law.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile (unless otherwise required by law), and shall be
effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the
United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to
change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to
any Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as
to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending
provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall
remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the
context of any provisions of this Agreement makes it
appropriate, including without limitation any representation,
warranty or covenant, the word "Borrower" as used herein
shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require
Lender to make any Loan or other financial accommodation to
any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements
contained by or on behalf of Borrower shall bind its
successors and assigns and shall inure to the benefit of
Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written
consent of Lender.
Survival. All warranties, representations, and covenants
made by Borrower in this Agreement or in any certificate or
other instrument delivered by Borrower to Lender under this
Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any
investigation made by Lender or on Lender's behalf.
Time Is of the Essence. Time is of the essence in the
performance of this Agreement.
Waiver. Lender shall not be deemed to have waived any
rights under this Agreement unless such waiver is given in
writing and signed by Lender. No delay or omission on the
part of Lender in exercising any right shall operate as a waiver
of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance
with that provision or any other provision of this Agreement.
No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor,
shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future
transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent in
subsequent instances where such consent is required, and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF MAY 1, 1998.
BORROWER:
R.H. PHILLIPS, INC.
By://s// Mike Motroni
-----------------------------------------------
Title: Chief Financial Officer
------------------------------------------------
By://s// John Giguiere
------------------------------------------------
Title: Co-Chief Executive Officer
-----------------------------------------------
<PAGE> 10
LENDER:
U.S. BANK NATIONAL ASSOCIATION
By://s// Karen Howe
-----------------------------------------------
Authorized Officer
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.24 (c) 1998
CFI ProServices, Inc. All rights reserved. [CA-C40 RHPI.LN
C3.OVL]
<PAGE> 11
U.S. BANK
AGRICULTURAL SECURITY AGREEMENT
Principal Loan Date Maturity Loan No Call Collateral
$10,000,000.00 05-01-1998 04-30-2000 815-141 04368 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 NATIONAL
26836 County Road 12A ASSOCIATION
Esparto, CA 95627 California Corporate Banking
980 Ninth Street, Suite 1100
Sacramento, CA 95814
=======================================================================
THIS AGRICULTURAL SECURITY AGREEMENT is
entered into between R.H. PHILLIPS, INC. (referred to
below as "Grantor"); and U.S. BANK (referred to below
as "Lender"). For valuable consideration, Grantor grants
to Lender a security interest in the Collateral to secure
the Indebtedness and agrees that Lender shall have the
rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender
may have by law.
DEFINITIONS. The following words shall have the following
meanings when used in this Agreement. Terms not
otherwise defined in this Agreement shall have the meanings
attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful
money of the United States of America.
Agreement. The word "Agreement" means this Agricultural
Security Agreement, as this Agricultural Security Agreement
may be amended or modified from time to time, together with
all exhibits and schedules attached to this Agricultural
Security Agreement from time to time.
Collateral. The word "Collateral" means the following
described property of Grantor, whether now owned or
hereafter acquired, whether now existing or hereafter arising,
and wherever located:
All inventory, chattel paper, accounts, unencumbered farm
equipment, general intangibles and crops
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now
existing or hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described in
this Collateral section or appurtenant to any of the lands or
operations of Grantor, or held in gross, whether in cash, farm
products, or otherwise, and whether from or through any
federal or state government agency or program or otherwise,
including without limitation, all easements, profits, rights of
storage, trailing and grazing, and irrigation and water rights;
all entitlements, rights to payment, and payments, in
whatever form received, including but not limited to,
payments under any governmental agricultural diversion
programs, governmental agricultural assistance programs,
the Farm Services Agency Wheat Feed Grain Program, and
any other such program of the United States Department of
Agriculture, warehouse receipts, chemicals and fertilizers,
documents, letters of entitlement, and storage payments.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this Collateral section, up to outstanding
principal and interest.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and interest in
and to all computer software required to utilize, create,
maintain, and process any such records or data on electronic
media.
(f) All crops and crop products, whether stored, planted,
growing or to be grown by Grantor or to be acquired from
third parties, including crops hereafter grown, owned or
acquired, and all supplies, including without limitation all
seed, fertilizer, fungicides, and pesticides.
Crops growing or to be grown are and will be located on the
following described real estate:
Approximately 1,540 acres located 8.5 miles
southwest of Dunnigan on County Road 12A and County
Road 87, Yolo County, State of California.
Event of Default. The words "Event of Default" mean and
include without limitation any of the Events of Default set
forth below in the section titled "Events of Default."
Grantor. The word "Grantor" means R.H. PHILLIPS, INC.,
its successors and assigns
Guarantor. The word "Guarantor" means and includes
without limitation each and all of the guarantors, sureties,
and accommodation parties in connection with the
Indebtedness.
Indebtedness. The word "Indebtedness" means the
indebtedness evidenced by the Note, including all principal
and interest, together with all other indebtedness and costs
and expenses for which Grantor is responsible under this
Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" includes all other
obligations, debts and liabilities, plus interest thereon, of
Grantor, or any one or more of them, to Lender, as well as all
claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are
voluntary or involuntary, due or not due, direct or indirect,
absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others;
whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon
such indebtedness may be or hereafter may become barred
by any statute of limitations; and whether such indebtedness
may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means U.S. BANK, its
successors and assigns.
Note. The word "Note" means the note or credit agreement
dated May 1, 1998, in the principal amount of
$10,000,000.00 from R.H. PHILLIPS, INC. to Lender,
together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the
note or credit agreement.
<PAGE> 12
Related Documents. The words "Related Documents"
mean and include without limitation all promissory notes,
credit agreements, loan agreements, environmental
agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in
connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a
contractual possessory security interest in and hereby
assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts
with Lender (whether checking, savings, or some other
account), including all accounts held jointly with someone
else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would
be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts
to allow Lender to protect Lender's charge and setoff rights
provided in this paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and
covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute
such financing statements and to take whatever other actions
are requested by Lender to perfect and continue Lender's
security interest in the Collateral. Upon request of Lender,
Grantor will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Grantor will
note Lender's interest upon any and all chattel paper if not
delivered to Lender for possession by Lender. Grantor
hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further
authorization from Grantor, file a carbon, photographic or
other reproduction of any financing statement or of this
Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in
the Collateral. Grantor promptly will notify Lender before any
change in Grantor's name including any change to the
assumed business names of Grantor. This is a continuing
Security Agreement and will continue in effect even
though all or any part of the Indebtedness is paid in full
and even though for a period of time Grantor may not be
indebted to Lender.
No Violation. The execution and delivery of this Agreement
will not violate any law or agreement governing Grantor or to
which Grantor is a party, and its certificate or articles of
incorporation and bylaws do not prohibit any term or
condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral
consists of accounts, chattel paper, or general intangibles,
the Collateral is enforceable in accordance with its terms, is
genuine, and complies with applicable laws concerning form,
content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as
they appear to be on the Collateral. At the time any account
becomes subject to a security interest in favor of Lender, the
account shall be a good and valid account representing an
undisputed, bona fide indebtedness incurred by the account
debtor, for merchandise held subject to delivery instructions
or theretofore shipped or delivered pursuant to a contract of
sale, or for services theretofore performed by Grantor with or
for the account debtor; there shall be no setoffs or
counterclaims against any such account; and no agreement
under which any deductions or discounts may be claimed
shall have been made with the account debtor except those
disclosed to Lender in writing.
Location of the Collateral. Grantor, upon request of
Lender, will deliver to Lender in form satisfactory to Lender a
schedule of real properties and Collateral locations relating
to Grantor's operations, including without limitation the
following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by
Grantor; (c) all storage facilities owned, rented, leased, or
being used by Grantor; and (d) all other properties where
Collateral is or may be located. Grantor promptly shall
procure the execution, acknowledgment, and delivery by
holders of any encumbrances upon or by owners of such
lands where Collateral is or will be located and Grantor
consents to Lender's rights of access for cultivation of crops
or care of livestock upon such terms as Lender may deem
satisfactory. Except in the ordinary course of its business,
Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
Collateral consisting of crops now or hereafter harvested or
removed from the real property shall not be stored with a
bailee, warehouseman, or similar party without Lender's prior
written consent and shall be kept only at locations approved
by Lender.
Transactions Involving Collateral. Except for inventory
sold or accounts collected in the ordinary course of Grantor's
business, Grantor shall not sell, offer to sell, or otherwise
transfer or dispose of the Collateral. While Grantor is not in
default under this Agreement, Grantor may sell inventory, but
only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A
sale in the ordinary course of Grantor's business does not
include a transfer in partial or total satisfaction of a debt or
any bulk sale. Grantor shall not pledge, mortgage, encumber
or otherwise permit the Collateral to be subject to any lien,
security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the
prior written consent of Lender. This includes security
interests even if junior in right to the security interests
granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any
sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
Sale of Collateral. The following provisions relate to any
sale, consignment or transfer of crops, livestock, or other
farm products included as all or a part of the Collateral:
(a) To induce Lender to extend the credit or other financial
accommodations secured by this Agreement, Grantor
represents and warrants to Lender that it will sell, consign or
transfer the Collateral only to those persons whose names
and addresses have been set forth on sales schedules
delivered to Lender. Each schedule shall be in such form as
Lender may require, including identification of each type of
Collateral. Grantor also shall notify Lender of the name and
address of each additional person to whom or through whom
the Collateral may be sold, consigned or transferred. All
such schedules and notifications shall be in writing and shall
be delivered to Lender not less than seven (7) days prior to
any such sale, consignment or transfer of the Collateral.
(b) Grantor acknowledges that if the Collateral is sold,
consigned, or transferred to any person not listed on a
schedule delivered to Lender as provided above, and if
Lender has not received an accounting (including the
proceeds) of such sale, consignment or transfer within ten
(10) days of the sale, consignment or transfer, then UNDER
FEDERAL LAW, GRANTOR SHALL BE SUBJECT TO A
FINE WHICH IS THE GREATER OF $5,000 OR 15% OF
THE VALUE OR BENEFIT RECEIVED FROM THE SALE,
CONSIGNMENT OF TRANSFER TO AN UNLISTED
BUYER, CONSIGNEE OR TRANSFEREE.
(c) All proceeds of any sale, consignment or transfer shall be
made immediately available to Lender in a form jointly
payable to Grantor and Lender. All chattel paper, contracts,
warehouse receipts, documents of title, or other evidences of
ownership or obligations, whether issued by a co-op, grain
elevator, or other warehouse or marketing entity, and all
accounts receivable and other non-cash proceeds shall be
endorsed, assigned and delivered immediately to Lender as
security for the Indebtedness. All the proceeds of any such
disposition of the Collateral, when and if received by Lender,
may at Lender's option be applied to the Indebtedness. In
addition, Lender may collect at any time the proceeds of any
or all such accounts or other non-cash proceeds of any sale
without notice to Grantor.
Care and Preservation of the Crops. Grantor shall (a) At
seasonable and proper times and in accordance with the
best practices of good husbandry attend to and care for the
crops and the tillage of the land and do, or cause to be done,
any and all acts that may at any time be appropriate or
necessary to grow, farm, cultivate, irrigate, fertilize, fumigate,
prune, harvest, pick, clean, preserve, and protect the crops;
(b) Not commit or suffer to be committed any damage to,
destruction of, or waste of the crops; (c) Permit Lender and
any of its employees and agents to enter upon the premises
where the crops are located at any reasonable time and from
time to time for the purpose of examining and inspecting the
crops and the premises; (d) Harvest and prepare the crops
for market and promptly notify Lender when any of the crops are
<PAGE> 13
ready for market; (e) Keep the crops separate and
always capable of being identified; and (f) Promptly give
Lender written notice of any disease to, any destruction of,
any depreciation in the value of, or any damage to the crops.
Title. Grantor represents and warrants to Lender that it
holds good and marketable title to the Collateral, free and
clear of all liens and encumbrances except for the lien of this
Agreement and any other liens or encumbrances approved by lender
in writing. No financing statement covering any of the
Collateral is on file in any public office other than those which
reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims
and demands of all other persons.
Collateral Schedules and Locations. As often as Lender
shall require, and insofar as the Collateral consists of
accounts and general intangibles, Grantor shall deliver to
Lender schedules of such Collateral, including such
information as Lender may require, including without
limitation names and addresses of account debtors and
agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory and equipment, Grantor shall
deliver to Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender
may require to identify the nature, extent, and location of
such Collateral. Such information shall be submitted for
Grantor and each of its subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall
maintain all tangible Collateral in good condition and repair.
Grantor will not commit or permit damage to or destruction of
the Collateral or any part of the Collateral. Lender and its
designated representatives and agents shall have the right at
all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify
Lender of all cases involving the return, rejection,
repossession, loss or damage of or to any material portion of
Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value
or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when
due all taxes, assessments and liens upon the Collateral, its
use or operation, upon this Agreement, upon any promissory
note or notes evidencing the Indebtedness, or upon any of
the other Related Documents. Grantor may withhold any
such payment or may elect to contest any lien if Grantor is in
good faith conducting an appropriate proceeding to contest
the obligation to pay and so long as Lender's interest in the
Collateral is not jeopardized in Lender's sole opinion. If the
Collateral is subjected to a lien which is not discharged within
fifteen (15) days, Grantor shall deposit with Lender cash, a
sufficient corporate surety bond or other security satisfactory
to Lender in an amount adequate to provide for the discharge
of the lien plus any interest, costs, attorneys' fees or other
charges that could accrue as a result of foreclosure or sale of
the Collateral. In any contest Grantor shall defend itself and
Lender and shall satisfy any final adverse judgment before
enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond
furnished in the contest proceedings.
Compliance With Governmental Requirements. Grantor
shall comply promptly with all laws, ordinances, rules and
regulations of all governmental authorities, now or hereafter
in effect, applicable to the ownership, production, disposition,
or use of the Collateral. Grantor may contest in good faith
any such law, ordinance or regulation and withhold
compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in
Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants
that the Collateral never has been, and never will be so long
as this Agreement remains a lien on the Collateral, used for
the generation, manufacture, storage, transportation,
treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in
the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No.
99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California
Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based
on Grantor's due diligence in investigating the Collateral for
hazardous wastes and substances. Grantor hereby (a)
releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable
for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this
provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the
satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure
and maintain all risks insurance, including without limitation
fire, hail, theft and liability coverage together with such other
insurance as Lender may require with respect to the
Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company
or companies reasonably acceptable to Lender. In addition,
Grantor shall obtain at its expense any federal or state crop
insurance required by Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice
to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that
coverage in favor of Lender will not be impaired in any way
by any act, omission or default of Grantor or any other
person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor
will provide Lender with such loss payable or other
endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly
notify Lender of any material loss or damage to the Collateral.
Lender may make proof of loss if Grantor fails to do so within
fifteen (15) days of the casualty. All proceeds of any insurance
on the Collateral, including accrued proceeds thereon, shall be
held by Lender as part of the Collateral. If Lender consents
to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of
expenditure, pay or reimburse Grantor from the proceeds for
the reasonable cost of repair or restoration. If Lender does
not consent to repair or replacement of the Collateral, Lender
shall retain a sufficient amount of the proceeds to pay all of
the Indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6)
months after their receipt and which Grantor has not
committed to the repair or restoration of the Collateral shall
be used to prepay the Indebtedness.
Insurance Reports. Grantor, upon request of Lender, shall
furnish to Lender reports on each existing policy of insurance
showing such information as Lender may reasonably request
including the following: (a) the name of the insurer; (b) the
risks insured; (c) the amount of the policy; (d) the property
insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining
that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not
more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash
value or replacement cost of the Collateral.
<PAGE> 14
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT
ACCOUNTS. Until default and except as otherwise provided
below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial
use of all the Collateral and may use it in any lawful manner
not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and
beneficial use shall not apply to any Collateral where
possession of the Collateral by Lender is required by law to
perfect Lender's security interest in such Collateral. Until
otherwise notified by Lender, Grantor may collect any of the
Collateral consisting of accounts. At any time and even
though no Event of Default exists, Lender may exercise its
rights to collect the accounts and to notify account debtors to
make payments directly to Lender for application to the
Indebtedness. If Lender at any time has possession of any
Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request
or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any
request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be
required to take any steps necessary to preserve any rights
in the Collateral against prior parties, nor to protect, preserve
or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid
when due, Lender may (but shall not be obligated to)
discharge or pay any amounts required to be discharged or
paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances,
and other claims, at any time levied or placed on the
Collateral. Lender also may (but shall not be obligated to)
pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged
under the Note from the date incurred or paid by Lender to
the date of repayment by Grantor. All such expenses shall
become a part of the Indebtedness and, at Lender's option,
will (a) be payable on demand, (b) be added to the balance
of the Note and be apportioned among and be payable with
any installment payments to become due during either (i) the
term of any applicable insurance policy or (ii) the remaining
term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This
Agreement also will secure payment of these amounts. Such
right shall be in addition to all other rights and remedies to
which Lender may be entitled upon the occurrence of an
Event of Default.
EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
Default on Indebtedness. Failure of Grantor to make any
payment when due on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to
perform any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related
Documents or in any other note, security agreement, lease
agreement or lease schedule, loan agreement or other
agreement, whether now existing or hereafter made, between
Grantor and U.S. Bancorp or any direct or indirect subsidiary
of U.S. Bancorp.
Default in Favor of Third Parties. Should Borrower or any
Grantor default 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 or
any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation or
statement made or furnished to Lender by or on behalf of
Grantor under this Agreement, the Note or the Related
Documents is false or misleading in any material respect,
either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the
Related Documents ceases to be in full force and effect
(including failure of any collateral documents to create a valid
and perfected security interest or lien) at any time and for any
reason.
Insolvency. The dissolution or termination of Grantor's
existence as a going business, the insolvency of Grantor, the
appointment of a receiver for any part of Grantor's property,
any assignment for the benefit of creditors, any type of
creditor workout, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against
Grantor.
Creditor or Forfeiture Proceedings. Commencement of
foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by
any creditor of Grantor or by any governmental agency
against the Collateral or any other collateral securing the
Indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events
occurs with respect to any Guarantor of any of the
Indebtedness or such Guarantor dies or becomes
incompetent.
Insecurity. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of
Default occurs under this Agreement, at any time thereafter,
Lender shall have all the rights of a secured party under the
California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the
following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire
Indebtedness, including any prepayment penalty which
Grantor would be required to pay, immediately due and
payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver
to Lender all or any portion of the Collateral and any and all
certificates of title and other documents relating to the
Collateral. Lender may require Grantor to assemble the
Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to
enter upon the property of Grantor to take possession of and
remove the Collateral. If the Collateral contains other goods
not covered by this Agreement at the time of repossession,
Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to
Grantor after repossession.
Care and Possession of the Crops. Lender may enter
upon the premises where any Collateral consisting of crops
is located and, using any and all of Grantor's equipment,
machinery, tools, farming implements, and supplies, and
improvements located on the premises: (a) Farm, cultivate,
irrigate, fertilize, fumigate, prune, and perform any other act
or acts appropriate or necessary to grow, care for, maintain,
preserve and protect the crops (using any water located in,
on or adjacent to the premises); (b) Harvest, pick, clean, and
remove the crops from the premises; and (c) To the extent
then permitted under California law, appraise, store, prepare
for public or private sale, exhibit, market and sell the crops
and any products of the crops; provided that Grantor hereby
agrees that if Grantor is the owner of record of the premises
upon which the crops and any products of the crops are
located, Lender shall not be responsible or liable for
returning the premises to their condition immediately
preceding the use of the premises as provided herein or for
doing such acts as may be necessary to permit future crops
to be maintained on the premises.
Sell the Collateral. Lender shall have full power to sell,
lease, transfer, or otherwise deal with the Collateral or
proceeds thereof in its own name or that of Grantor. Lender
may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Lender
will give Grantor reasonable notice of the time after which
any private sale or any other intended disposition of the
Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10)
days, or such lesser time as required by state law, before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date
of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable
law, Lender shall have the following rights and remedies
regarding the appointment of
<PAGE> 15
a receiver: (a) Lender may
have a receiver appointed as a matter of right, (b) the
receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her
attorney shall become part of the Indebtedness secured by
this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or
through a receiver, may collect the payments, rents, income,
and revenues from the Collateral. Lender may at any time in
its discretion transfer any Collateral into its own name or that
of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar
as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in
action, or similar property, Lender may demand, collect,
receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether
or not Indebtedness or Collateral is then due. For these
purposes, Lender may, on behalf of and in the name of
Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining
to payment, shipment, or storage of any Collateral. To
facilitate collection, Lender may notify account debtors and
obligors on any Collateral to make payments directly to
Lender.
Obtain Deficiency. If Lender chooses to sell any or all of
the Collateral, Lender may obtain a judgment against Grantor
for any deficiency remaining on the Indebtedness due to
Lender after application of all amounts received from the
exercise of the rights provided in this Agreement. Grantor
shall be liable for a deficiency even if the transaction
described in this subsection is a sale of accounts or chattel
paper.
Other Rights and Remedies. Lender shall have all the
rights and remedies of a secured creditor under the
provisions of the Uniform Commercial Code, as may be
amended from time to time. In addition, Lender shall have
and may exercise any or all other rights and remedies it may
have available at law, in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies,
whether evidenced by this Agreement or the Related
Documents or by any other writing, shall be cumulative and
may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any
other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this
Agreement, after Grantor's failure to perform, shall not affect
Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following
miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related
Documents, constitutes the entire understanding and
agreement of the parties as to the matters set forth in this
Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and
signed by the party or parties sought to be charged or bound
by the alteration or amendment.
Applicable Law. This Agreement has been delivered to
Lender and accepted by Lender in the State of California. If
there is a lawsuit, Grantor agrees upon Lender's request to
submit to the jurisdiction of the courts of Sacramento County,
the State of California. Subject to the provisions on
arbitration, this Agreement shall be governed by and
construed in accordance with the laws of the State of
California.
Arbitration. Lender and Grantor agree that all disputes,
claims and controversies between them, whether
individual, joint, or class in nature, arising from this
Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant
to the Rules of the American Arbitration Association,
upon request of either party. No act to take or dispose of
any Collateral shall constitute a waiver of this arbitration
agreement or be prohibited by this arbitration agreement.
This includes, without limitation, obtaining injunctive relief or
a temporary restraining order; invoking a power of sale under
any deed of trust or mortgage; obtaining a writ of attachment
or imposition of a receiver; or exercising any rights relating to
personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9
of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness
of any act, or exercise of any right, concerning any Collateral,
including any claim to rescind, reform, or otherwise modify
any agreement relating to the Collateral, shall also be
arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party.
Lender and Grantor agree that in the event of an action for
judicial foreclosure pursuant to California Code of Civil
Procedure Section 726, or any similar provision in any other
state, the commencement of such an action will not constitute
a waiver of the right to arbitrate and the court shall refer to
arbitration as much of such action, including counterclaims,
as lawfully may be referred to arbitration. Judgment upon
any award rendered by any arbitrator may be entered in any
court having jurisdiction. Nothing in this Agreement shall
preclude any party from seeking equitable relief from a court
of competent jurisdiction. The statute of limitations, estoppel,
waiver, laches, and similar doctrines which would otherwise
be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be
deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
Attorneys' Fees; Expenses. In any legal action, arbitration,
or other proceeding brought to enforce or interpret the terms
of this Agreement or the Related Documents, the prevailing
party shall be entitled to reasonable attorneys' fees and any
other costs incurred in that proceeding in addition to any other
relief to which it is entitled. The provisions of this section
constitute a distinct and severable agreement from the contractual
rights created by this Agreement and the Related Documents. In
the event of a judgment against one party concerning any aspect
of this Agreement and the Related documents, the right to recover
post-judgment attorneys' fees incurred in enforcing the judgment
shall not be merged into and extinguished by any money judgment.
The Grantor will reimburse the Lender for all reasonable
attorneys' fees and expenses incurred in the representation
of the Lender in any aspect of any bankruptcy or insolvency
proceeding initiated by or on behalf of the Grantor that concerns
any of its obligations to the Lender under this Agreement or the
Related Documents or otherwise in connection with the Loan or any
security given therefore.
Caption Headings. Caption headings in this Agreement are
for convenience purposes only and are not to be used to
interpret or define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of
Grantor under this Agreement shall be joint and several, and
all references to Grantor shall mean each and every Grantor.
This means that each of the persons signing below is
responsible for all obligations in this Agreement.
Notices. All notices required to be given under this
Agreement shall be given in writing, may be sent by
telefacsimile (unless otherwise required by law), and shall be
effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the
United States mail, first class, postage prepaid, addressed to
the party to whom the notice is to be given at the address
shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to
change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to
any Grantor will constitute notice to all Grantors. For notice
purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its
true and lawful attorney-in-fact, irrevocably, with full power of
substitution to do the following: (a) to demand, collect,
receive, receipt for, sue and recover all sums of money or
other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign
and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the
Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for
the claim; and (d) to file any claim or claims or to take any
action or institute or take part in any proceedings, either in its
own name or in the name of Grantor, or otherwise, which in
the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and
shall be irrevocable and shall remain in full force and effect
until renounced by Lender.
Preference Payments. Any monies Lender pays because of
an asserted preference claim in Borrower's bankruptcy will
become a part of the
<PAGE> 16
Indebtedness and, at Lender's option,
shall be payable by Borrower as provided above in the
"EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as
to any person or circumstance, such finding shall not render
that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending
provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall
remain valid and enforceable.
Successor Interests. Subject to the limitations set forth
above on transfer of the Collateral, this Agreement shall be
binding upon and inure to the benefit of the parties, their
successors and assigns.
Waiver. Lender shall not be deemed to have waived any
rights under this Agreement unless such waiver is given in
writing and signed by Lender. No delay or omission on the
part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute
a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Grantor, shall constitute a
waiver of any of Lender's rights or of any of Grantor's
obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may
be granted or withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is
obligated for the Indebtedness, Borrower irrevocably waives,
disclaims and relinquishs all claims against such other
person which Borrower has or would otherwise have by
virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS AGRICULTURAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS.
THIS AGREEMENT IS DATED MAY 1, 1998.
GRANTOR:
R.H. PHILLIPS, INC.
By://s// Mike Motroni
-----------------------------------------------
Title: Chief Financial Officer
------------------------------------------------
By://s// John Giguiere
------------------------------------------------
Title: Co-Chief Executive Officer
-----------------------------------------------
===============================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.24 (c) 1998
CFI ProServices, Inc. All rights reserved. [CA-E40 RHPI.LN
C3.OVL]
<PAGE> 17
COMMERCIAL SWEEP ACCOUNT LINE OF
CREDIT ADDENDUM
Borrower: R.H. PHILLIPS, INC. Lender: U.S. BANK NATIONAL
26836 County Road 12A ASSOCIATION
Esparto, CA 95627 California Corporate Banking
980 9th Street, Suite 1100
Sacramento, CA 95814
This COMMERCIAL SWEEP ACCOUNT LINE OF CREDIT
ADDENDUM is attached to and by this reference is made a
part of each Promissory Note or Credit Agreement, dated
May 1, 1998, and executed in connection with a loan or
other financial accommodations between U.S. BANK and
R.H. PHILLIPS, INC..
Borrower has requested and been granted a Commecial Sweep
Account with the loan option ("Sweep"). Borrower authorizes
Lender to transfer funds in accordance with this Addendum to
and from the following accounts:
NAME ACCOUNT NUMBER
Sweep Account (DDA) 8110-012690
Line of Credit 7155425480-141
1. So long as the Line of Credit is in place and/or has available
credit, funds will be transferred between these accounts at the
close of each business day so that the Borrower's DDA
maintains a collected balance equal to a pre-established
balance (the "Loan Peg Balance"). Any collected funds in the
DDA that exceed the Loan Peg Balance will be transferred to
the Line of Credit to reduce the outstanding principal balance
thereof. Lender may limit the amount of excess collected funds
that it will transfer to or from Borrower's Line of Credit on any
particular day. Should the collected funds in the DDA be less
than the Loan Peg Balance, an advance will be made from the
Line of Credit to restore the DDA to the Loan Peg Balance.
Should there be no outstanding balance under the Line of
Credit, Lender shall maintain excess collected funds in the DDA
unless otherwise agreed. For the purposes of Sweep, business
day shall mean Monday through Friday, not including federal or
state holiday.
2. Any advance from the Line of Credit pursuant to this
Addendum shall be deemed to have been requested by
Borrower under the terms of the Line of Credit and shall be
subject to the terms of the Line of Credit. No advance shall be
made by Lender to Borrower under this Addendum if (a) the
maximum unpaid principal balance permitted by the Line of
Credit would be exceeded, (b) the advance would otherwise
result in a breach of any of Borrower's obligations to Lender, (c)
Borrower is then in default under the Line of Credit or other
agreement with Lender or (d) Lender in good faith elects not to
make the advance for any reason.
3. The Loan Peg Balance for Borrower's DDA will be
established by Lender in its discretion from time to time based
on Lender's analysis of Borrower's DDA. Lender may increase
or decrease the Loan Peg Balance at any time without notice to
Borrower. Lender shall not be accountable for errors in
judgement in performing any service under this Addendum but
only for gross negligence or willful misconduct.
4. Lender shall not be required to comply with any direction of
Borrower which in Bank's judgement may subject it to liability, or
to defend or prosecute any suit or action unless indemnified in
a manner and amount satisfactory to it. Lender is authorized to
accept oral instructions, including telephone instructions, from
Borrower representatives.
5. Borrower may terminate this service by written notice
executed by Borrower and delivered to Lender and indemnify
Lender to its satisfaction against liabilities incurred in the
administration of the account. Lender may change the terms or
discontinue this Sweep at any time upon written notice, sent to
Borrower's address as shown in Lender's records.
6. Borrower shall pay such fees for this service as may be
disclosed to Borrower by Lender. Except as expressly
supplemented above, all terms of Borrower's promissory note,
Commercial Deposit Account Agreement and any other
agreement with Lender and any amendments thereto remain in
full force and effect.
THIS COMMERCIAL SWEEP ACCOUNT LINE OF CREDIT
ADDENDUM IS EXECUTED ON MAY 1, 1998.
BORROWER:
R.H. PHILLIPS, INC.
By://s// Mike Motroni
-----------------------------------------------
Title: Chief Financial Officer
------------------------------------------------
By://s// John Giguiere
------------------------------------------------
Title: Co-Chief Executive Officer
-----------------------------------------------
LENDER:
U.S. BANK NATIONAL ASSOCIATION
By://s// Karen Howe
------------------------------------------------
Authorized Officer
<PAGE> 18
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$10,000,000.00 Dated as of:
MAY 1, 1998
R.H. PHILLIPS, INC.
("Borrower")
U.S. BANK NATIONAL ASSOCIATION
("Lender")
1. TYPE OF CREDIT This note is given to evidence Borrower's
obligation to repay all sums which Lender may from time to time
advance to Borrower ("Advances") under a:
single disbursement loan. Amounts loaned to Borrower
hereunder will be disbursed in a single Advance in the amount
shown in Section 2.
X revolving line of credit. No Advances shall be made which
create a maximum amount outstanding at any on t 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 Ten Million and 00/100ths Dollars in
lawful money of the United States of America.
3. PROMISE TO PAY. For vlaue received Borrower promises
to pay to Lender or order at 980 9th St., Ste. 1100, Sacramento,
CA 95814 the Principal Balance of this note, with interest thereon
at the rate(s) specified in Sections 4 and 11 below.
4. INTEREST RATE. The interest rate on the Principal Balance
outstanding may vary from time to time pursuant to the
provisions of this note. Subject to the provisions of this ntoe,
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 one, two, or three 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 April 30, 2000; (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 National Association 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 of 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 LIBOR Borrowing Rate is the LIBOR Rate plus
1.5% 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 LIBIR 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.
(iii) Whenever Borrower desires to use the LIBOR Borrowing
Rate option, Borrower shal 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
<PAGE> 19
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
$100,000.00 above such amount; provided, however, that no
morw than ten separate LIBOR Interest Periods may be in effect
at any one time.
(iv) If at any time the LIBOR Rate in unascertainable or
unavailable to Lender of 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 of
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 for the
account of, or credit extended by Lender or its Eurodollar lending
office, or impose on Lender or its Eurodollar lending office any
other condition affecting any such loans, and (B) the result of any
of the foregoing is (i) to increase the cost to Lender of making or
maintaining any such loans or (ii) to reduce the amount of any
sum receivable under this note by Lender or its Eurodollar
lending office, Borrower shall pay Lender within 15 days after
demand by Lender such additional amount as will compensate
Lender for such increased cost or reduction. The determination
hereunder by Lender of such additional amount shall be
conclusive in the absence of manifest error. If Lender demands
compensation under this Section 4(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 through 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 a 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) (vi)); 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
on demand, or if no demand, on
X on April 30, 2000.
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 May, 1998, 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 May, 1998, 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.
8. CHANGE IN PAYMENT AMOUNT. Each time the interest
rate on this 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 rate to an amount holder in its sole discretion deems
necessary to continue amortizing the Principal Balance at the
same rate established by the installment amounts specified in
Section 6 (a), whether or not a "balloon" payment may also be
due upon maturity of this note. Holder shall notify the
undersigned of each such change in writing. Whether
<PAGE> 20
or not the installment amount is increased under this Section 8.
Borrower understands that, as a result of increases in the rate of
interest, the final payment due whether or not a "balloon"
payments, shall include the entire Principal Balance and interest
thereon then outstanding, and may be substantially more than 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 (e.g. February 31),
such payment shall be paid on the last banking day of that month.
10. PAYMENT BY AUTOMATIC DEBIT.
X Borrower hereby authorizes Lender to automatically deduct the
amount of all principal and interest payments from account
number 8110-012690 at a branch of Lender. If there are
insufficient funds in the account to pay the automatic deduction in
full, Lender may allow the account to become overdrawn, or
Lender may reverse the automatic deduction. Borrower will pay
all the fees on the account which result from the automatic
deduction, 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 nay 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 is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (vi) Any
creditor tries to take any of Borrower's property on or in which
Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (vii) Any of the
events described in this default section occurs with respect to any
general partner in Borrower or any guarantor of this change in the
financial condition or management of Borrower or Lender in
good faith deems itself insecure with respect to the payment of
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 nay 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 amounts owing hereudner immediately upon Lender's
demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected
upon the request of Borrower (if an individual), any of the
undersigned (if Borrower consists of more than one individual),
any person or persons authorized in subsection (b) of this Section
15, and any person or persons otherwise authorized to execute
and deliver promissory notes to Lender on behalf of Borrower.
(b). Borrower hereby authorizes any one of the following
individuals to request Advances and to select interest rate
options: John Giguiere, Karl E. Giguiere, Lane 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 8110-012690 at a 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 known
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 regarding the enforcement of any
of its rights under this note or any document securing the same,
or if this note is placed in the hands of an attorney for collection
or if suit or litigation is brought to enforce this note or any
document securing the same, Borrower promises to pay all costs
thereof including such additional sums as the court or
arbitrator(s) may adjudge reasonable as attorney fees, including
without limitation, costs and attorney fees incurred in any
appellate court, in any proceeding under the bankruptcy code, or
in any receivership and post-judgment attorney fees incurred in
enforcing any judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker,
co-maker, guarantor or otherwise, waives diligence, demand,
presentment for payment, notice of non-payment, protest and
notice of protest and waives all defenses based on suretyship or
impairment of collateral. Without notice to Borrower and
without diminishing or affecting Lender's rights or Borrower's
obligations hereunder, Lender may deal in any manner with any
person who at any time is liable for, or provides any real or
personal property collateral for, any indebtedness of Borrower to
Lender, including the indebtedness evidenced by this note.
Without limiting, the foregoing, Lender may, in its sole discretion:
(a) make secured or unsecured loans to Borrower and agree to
any number of waivers, modification, 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.
<PAGE> 21
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 a part (the "Loan"),
be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association and Title 9 of the U.S. Code. All Claims will be
subject to the statutes of limitation applicable if they were
litigated. This provision is void if the Loan, at the time of the
proposed submission to arbitration, is secured by real property
located outside or 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 more, three neutral arbitrators will
decide all issues. All arbitrators will be active California State
Bar members in good standing. All arbitration hearings will be
held in Sacramento, California. In addition to all other powers,
the arbitrator(s) shall have the exclusive right to determine all
issues of arbitrability. Judgment on any arbitration award may be
entered in any court with jurisdiction.
(c) If either party institutes any judicial proceeding relating to the
Loan, such action shall not be a waiver of the right to submit any
Claim to arbitration. In addition, each has the right before, during
and after any arbitration to exercise any number of the following
remedies, in any order or concurrently: (i) setoff; (ii) self-help
repossession; (iii) judicial or non-judicial foreclosure against real
or personal property collateral; and (iv) provisional remedies,
including injunction, appointment of receiver, attachment, claim
and delivery and replevin.
23. GOVERNING LAW. This note shall be governed by and
construed and enforced in accordance with the laws of the State
of California without regard to conflicts of law principles:
provided, however, that to the extent that Lender has greater
rights or remedies under Federal law, this provision shall not be
deemed to deprive Lender of such rights and remedies as may be
available under Federal lao.
EACH OF THE UNDERSIGNED HEREBY
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF
THIS DOCUMENT.
24. ADDENDUM. An addendum titled "Commercial Sweep
Account Line of Credit Addendum" is attached hereto and by this
reference made a part thereof, just as if all the terms and
conditions of said addendum were in the body of this Note.
BORROWER:
R.H. PHILLIPS, INC.
By://s// Mike Motroni
-----------------------------------------------
Title: Chief Financial Officer
------------------------------------------------
By://s// John Giguiere
------------------------------------------------
Title: Co-Chief Executive Officer
-----------------------------------------------
For valuable consideration, Lender agrees to the terms of the
arbitration provision set forth in this note.
Lender Name: U.S. Bank National Association
By: //s//Karen Howe
----------------------------------------------------
Title: Authorized Officer
----------------------------------------------------
Date:
----------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM THE MARCH 31, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 137
<SECURITIES> 0
<RECEIVABLES> 2,503
<ALLOWANCES> 55
<INVENTORY> 10,688
<CURRENT-ASSETS> 710
<PP&E> 35,900
<DEPRECIATION> 6,472
<TOTAL-ASSETS> 44,154
<CURRENT-LIABILITIES> 3,010
<BONDS> 19,242
<COMMON> 14,191
4,521
0
<OTHER-SE> 2,395
<TOTAL-LIABILITY-AND-EQUITY> 44,154
<SALES> 3,988
<TOTAL-REVENUES> 3,988
<CGS> 2,000
<TOTAL-COSTS> 2,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> 478
<INCOME-TAX> 192
<INCOME-CONTINUING> 286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
