U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 29, 1996, or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from to
----------- -------------
Commission file number 0-25866
PHOENIX GOLD INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Oregon 93-1066325
- -------------------------------------------------------------------------------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9300 NORTH DECATUR STREET, PORTLAND, OREGON 97203
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (503) 288-2008
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
par value
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].
Issuer's revenues for the fiscal year ending September 29, 1996 were
$26,563,142.
The aggregate market value of the voting common stock held by non-affiliates of
the issuer was $8,484,970 as of November 30, 1996.
There were 3,454,605 shares of the issuer's common stock outstanding as of
November 30, 1996.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Parts of Registrant's proxy statement dated on or about January 15, 1997
prepared in connection with the Annual Meeting of shareholders to be held on
February 18, 1997 are incorporated by reference into Part III of this Report.
<PAGE>
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
Phoenix Gold International, Inc. (the "Company") designs, markets and
sells innovative, high quality, high performance electronics and accessories for
the domestic and international car audio aftermarket, the professional sound
market and the custom audio/video and home theater markets. The Company also
designs, markets and sells innovative, high quality, high performance speakers
for the car audio aftermarket. The Company manufactures all of its electronics
and a portion of its accessories and speakers at its facility in Portland,
Oregon. The Company was incorporated in 1991 in Oregon.
The Company's car audio products encompass substantially all of the
components used in car audio systems (other than "head units" such as radios,
tape decks and CD players). The Company's car audio electronics include
amplifiers, equalizers, crossovers and line drivers. The Company's car audio
accessories include audio cables, speaker and power cables, connectors, clamps,
capacitors and fuseblocks. The Company's speaker products include subwoofers,
midranges and tweeters.
As the Company expanded its car audio product line from accessories to
electronics and speakers, it initially targeted car audio enthusiasts and
audiophiles with products that offer value by combining performance advantages,
such as sonic excellence, system flexibility and reliability, with distinctive
appearance and superior craftsmanship. The Company subsequently broadened its
car audio product line to offer similar performance characteristics at lower
price points. The Company's primary target market is car audio enthusiasts,
typically 18 to 34 year old males who desire high quality, high performance
systems. The Company also sells to other consumers who seek to increase the
quality of their car audio systems either by upgrading existing components or
installing new systems.
In November 1995, the Company acquired substantially all of the assets
of the professional sound division of Carver Corporation. The Company, as
licensee of the name "Carver Professional," designs, manufactures, markets and
sells electronic amplifiers and accessories for the domestic and international
professional sound market, including OEM customers.
Products
- --------
The Company has three product lines: electronics, accessories and speakers.
Electronics. The Company's amplifiers, signal processors and other
electronics are designed to deliver sonic excellence, system flexibility and
reliable performance. The Company sells car audio electronics designed for
audiophiles, serious audio enthusiasts and sound competitors.
Amplifiers. The Company sells a total of 12 car audio amplifiers in the
ZPA, ZX and Sapphire series at retail prices ranging from approximately $200 to
$1,150. Amplifiers in the ZPA series, introduced in 1996, are the Company's
reference amplifiers, designed to deliver maximum performance in expensive, high
end systems capable of driving multiple speakers. The ZPA series replaced the
Company's Mobile Series and Mobile Pro Series amplifiers. The ZX series,
introduced in 1996, includes multi-channel amplifiers with built-in crossovers
and offers the performance and sonic excellence of the reference series
amplifiers except in the most demanding applications. The ZX series replaced the
Company's M Class amplifiers. The Sapphire series, introduced in 1994, is
designed to provide high performance at lower prices.
<PAGE>
Additionally, the Company has periodically introduced limited edition
theme amplifiers, such as "Frank Amp'n Stein," "Son of Frank Amp'n Stein,"
"Route 66," "Outlaw 1845" and "Bandit," at retail prices ranging from
approximately $500 to $2,400
The Company sells a total of 10 Carver Professional amplifiers at
retail prices ranging from approximately $500 to $2,400. The PM series was
designed for multiple purposes, including instrument amplification, fixed
installations and touring applications. The PT series was designed specifically
for the touring sound industry for ease of transportability and use in a variety
of settings. The CA series amplifiers were designed for fixed installation
applications, including churches, warehouses and auditoriums.
Signal Processors. The Company sells a total of 19 car audio signal
processors, including equalizers, line drivers, and active and passive
crossovers. Signal processors, which are sold both as upgrade components and as
parts of complete systems, are used to increase the flexibility and performance
of audio systems. Retail prices of signal processors range from approximately
$130 to $600.
Accessories. The Company is a manufacturer and distributor of
innovative, high quality accessories. The Company sells over 900 accessories,
many of which are manufactured to the Company's design specifications, for use
primarily in car audio aftermarket applications. Car audio accessories include
audio cables, speaker and power cables, connectors, clamps, adapters,
capacitors, fuseblocks, distribution blocks, alternators, carpet, textiles and
adhesives. The Company continually improves its existing accessories line and
introduces new accessories. The Company is a single source from which its
dealers and distributors can purchase all of the accessories necessary to
install the full range of car audio systems. Accessories are available either as
individual items or in complete installation kits.
The Company also offers accessories for use in professional sound and
custom audio/video and home theater applications, including crossovers,
attenuators, transformers, speaker selectors, video cables, connectors, UL/CSA
approved cables, wall plates and volume controls. The Company also sells Smart
Audio Management panels for the custom audio/video market offering speaker
distribution and impedance matching.
Speakers. The Company began selling speakers in 1994. The Company
offers a total of 26 speakers in the ZeroPoint, XMAX, XS and Sapphire series,
including tweeters, midranges, subwoofers and coaxials. The ZeroPoint series is
the Company's reference speaker series and is designed to achieve audiophile
level sound quality, transparency and enhanced imaging in either the on or off
axis listening position. The XMAX series features reproduction of tight,
accurate bass in a small enclosure. The XS series features exceptional
musicality, excursion and versatility at lower price points. The Sapphire series
is the Company's lower price point speaker line. Retail prices of speakers range
from approximately $50 to $400. Speakers are sold individually, in pairs and in
component systems.
<PAGE>
The Company has an exclusive license to utilize patented technology to
produce a new speaker (the "Cyclone") for the car and home audio markets. This
technology uses a moving magnet rotary motor and a composite vane, replacing the
conventional motor magnet and cone of a typical loudspeaker. Compared to a
typical high performance 12-inch subwoofer, the Cyclone car audio subwoofer will
produce up to approximately three times more bass in a similar sized enclosure
and offers improved sound quality and greater power handling capacity. The
retail price of the Cyclone is approximately $850. The Company had lower than
expected sales of Cyclones in fiscal 1996 due to delayed receipt of
subassemblies and components from its suppliers. The Company expects these
shortages to continue through at least the end of the second quarter of fiscal
1997.
Sales, Distribution and Marketing
- ---------------------------------
The Company sells its products through car audio and specialty
retailers, principally in North America, Europe, Japan, Southeast Asia,
Australia and New Zealand. The Company also sells certain of its car audio
accessories through a mass merchandising chain of stores in the United States.
As of September 30, 1996, the Company sold its car audio, professional sound and
home products in the United States through 35 independent sales representatives
and 30 distributors. As of that date, the Company sold car audio accessories in
the United States through approximately 1,150 dealers, of which more than 450
also sell the Company's car audio electronics and speakers, and sold
professional sound products through approximately 300 dealers. As of that date,
the Company sold its products internationally through 91 distributors serving 46
countries. International sales accounted for 39.2%, 40.6% and 36.0% of net sales
in fiscal years 1996, 1995 and 1994, respectively. International sales are
denominated in United States dollars and are shipped f.o.b. the Company's
facility in Portland, Oregon.
No customer accounted for 10% or more of the Company's net sales
during fiscal 1996 or 1995. As of September 30, 1996, two customers accounted
for approximately 12.1% and 10.4%, respectively, of total accounts receivable.
The Company offers its dealers and distributors complete product lines,
excellent service and support, and high performance, reliable products. The
Company believes these efforts enable it to attract and retain qualified dealers
and distributors. The Company recruits on a selective basis new dealers and
distributors for each of its product lines in specific geographic areas. Dealers
and distributors are chosen based on location, financial stability, technical
expertise, sales history, integrity and installation and service capabilities.
The Company generally does not have written agreements with its car audio sales
representatives, dealers or distributors or its professional sound distributors.
The Company's written agreements with its professional sound representatives and
dealers are generally terminable upon no more than 30 days notice.
The Company markets its car audio products by participating in consumer
electronics trade shows and enthusiast events and by promoting its own
demonstration vehicles. The Company offers incentives to "Team Phoenix Gold"
competitors in regional, national and international car audio shows and
competitions and provides technical assistance, training and support from
Company engineers and technicians at "Tweek N Tune" workshops. The Company
advertises in car audio consumer magazines and its products have been reviewed
and profiled in national and international publications, including Car Audio and
Electronics and Auto Sound & Security. The Company markets its professional
sound, custom audio/video and home theater products by participating in trade
shows, advertising in trade journals and magazines and providing dealer support.
<PAGE>
Competition
- -----------
The markets for the Company's products are highly competitive and are
served by many United States and international manufacturers that market their
own lines of electronics, accessories and speakers through specialty dealer
networks and mass merchandise retail stores, as well as companies that market
generic products through the same distribution channels. The Company's principal
accessories competitors include Monster Cable Products, Inc., Esoteric Audio USA
Group of Companies and Recoton Corp. The Company's principal car audio
electronics competitors include Rockford Fosgate, a division of Rockford Corp.
("Rockford"), Orion Industries, Inc. and Precision Power, Inc. The Company's
principal professional sound competitors include Crown International, Inc., QSC
Audio Products, Inc. and Crest Audio, Inc. The Company's principal speaker
competitors include Rockford, MTX Corporation, Stillwater Design and Audio,
Inc., JL Audio, Inc., MB Quart Electronics USA, Inc. and Boston Acoustics, Inc.
Many competitors have greater financial and other resources than the Company.
The Company competes principally on the basis of innovation, breadth of
product line, quality and reliability of products, name recognition,
merchandising and distribution organization, and price. The Company believes it
competes favorably with respect to each of these factors.
Manufacturing and Assembly
- --------------------------
Manufactured Products. The Company manufactures all of its electronics
products and a portion of its accessories at its facility in Portland, Oregon.
Manufacturing processes include laser-cutting, computer controlled metal
fabrication, powder coating, automatic insertion of components into and wave
soldering of circuit boards, toroid winding, plastic injection molding,
silk-screening graphics and quality control testing. For use in its
manufacturing activities, the Company also purchases components manufactured by
third parties according to design specifications developed by the Company. The
Company purchases raw materials, components and subassemblies from approximately
300 suppliers located primarily in the United States and the Pacific Rim.
Certain of these materials, components and subassemblies are obtained from a
single supplier or a limited number of suppliers. The Company's principal
supplier is Team Phoenix Co. Ltd., an unaffiliated company. In fiscal 1995 and
1996, the Company had lower than anticipated sales of speakers due to delayed
receipt of speaker subassemblies from its suppliers. The Company expects
shortages of speaker subassemblies to continue through at least the end of the
second quarter of fiscal 1997.
Distributed Accessories. The Company distributes accessories, many of
which are manufactured to its design specifications by third parties.
Substantially all distributed accessories are subjected to quality control
procedures at the Company's facility and are marketed under the Phoenix Gold or
Carver Professional names.
<PAGE>
Designed Speakers. The Company's speakers are manufactured by third
parties in the United States and the Pacific Rim according to acoustical and
electrical design specifications developed by the Company. Speakers are
subjected to quality control procedures by the Company.
Customer Service
- ----------------
The Company believes two of the most important elements in its business
are understanding consumers and their preferences, and manufacturing high
quality, reliable products. The Company strives to understand the evolving needs
and preferences of consumers by communicating with its representatives, dealers
and distributors, sponsoring "Team Phoenix Gold" members and attending car audio
competitions and car audio, professional sound and custom audio/video and home
theater trade shows. Company representatives regularly seek suggestions from
dealers for improved design and performance of the Company's products.
Proper installation is critical to achieving optimum performance of car
audio systems. The Company offers an 18-month limited warranty on car audio
electronics installed by an authorized dealer or installer and increases the
warranty period to 36 months if the warranty card accompanying the product and a
copy of the original sales receipt are returned to the Company. If the product
is not installed by an authorized dealer or installer, the Company offers a
30-day limited warranty. The Company offers a five-year limited warranty on
professional sound electronics and a one-year limited warranty on speakers.
Intellectual Property
- ---------------------
Phoenix Gold(R), Carver Professional(TM), PowerFlow(TM),
QuickSilver(TM), Sapphire(TM) and ZeroPoint(TM) are the principal trademarks of
the Company. The Company believes that Phoenix Gold and Carver Professional have
strong brand name recognition, an important competitive factor in its markets.
The Company has no patents, but is a licensee of patented technology with
respect to the Cyclone speaker. The Company has an exclusive, paid-up license to
use the name Carver Professional through November 2000.
Government Approval of Products
- -------------------------------
The Company is subject to and is in compliance with certain European
Community standards regarding electromagnetic and product safety compliance on
substantially all of its electronics sold in the European Community. The Company
believes that additional similar regulations may be imposed in Europe. Any
inability by the Company to comply with such similar regulations on a timely
basis could have a material adverse effect on the Company.
Employees
- ---------
As of September 30, 1996 the Company had 311 full-time employees,
including 258 in manufacturing, engineering, warehousing and shipping, 20 in
sales and marketing and 33 in administration. The Company considers its employee
relations to be good.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices and manufacturing operations are
located at 9300 North Decatur Street, Portland, Oregon in two adjacent leased
buildings consisting of a total of approximately 15,000 square feet of office
space and 130,000 square feet of manufacturing and warehouse space. Annual rent
for the Company's facilities is approximately $350,000. The lease expires June
30, 1999. The Company has an option to extend the lease for one five-year term
and has the option to purchase the main building for $3.1 million and the
adjacent building for $1.3 million at any time prior to June 30, 1999. The
Company believes that its existing facilities are adequate to meet its needs for
the foreseeable future and that, if needed, suitable additional or alternative
space will be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on May 4, 1995 in the Nasdaq
National Market under the symbol "PGLD". As reported by Nasdaq, the following
table sets forth the range of high and low trading price information for the
Company's Common Stock.
Fiscal year ended Fiscal year ended
September 30, 1995 September 30, 1996
Common Stock (PGLD) High Low High Low
------------------- ---- --- ---- ---
First Quarter N/A N/A $10.75 $8.50
Second Quarter N/A N/A 13.50 9.00
Third Quarter $ 8.625 $6.625 13.25 8.50
Fourth Quarter 10.75 8.25 9.25 6.75
The closing price of the Common Stock on November 29, 1996 was $6.50.
At December 16, 1996, the approximate number of holders of record of Common
Stock was 105.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company's existing credit agreements do not expressly limit or
prohibit the Company's ability to declare and pay dividends, although covenants
contained in such credit agreements related to the Company's debt to net worth
ratio, minimum tangible net worth, minimum current ratio and minimum cash flow
coverage may have such effect. The Company intends to retain all earnings for
use in its business and therefore does not anticipate paying any cash dividends
in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Comparison of Fiscal 1996 to Fiscal 1995
- ----------------------------------------
Net Sales. Net sales increased $6.39 million, or 31.7%, to $26.56
million for fiscal 1996 compared to $20.17 million for fiscal 1995, due
principally to the acquisition of the Company's professional sound division in
November 1995 and increased unit sales of existing and newly introduced car
audio electronics, accessories and speakers. In fiscal 1996, the Company had
lower than anticipated sales of speakers due to delayed receipt of speaker
subassemblies from its suppliers. The Company expects speaker subassembly
shortages to continue through at least the end of the second quarter of fiscal
1997. Sales of electronics, speakers and accessories increased 50.4%, 27.8% and
7.6%, respectively, in fiscal 1996 compared to fiscal 1995. International sales
increased $2.21 million, or 27.0%, to $10.40 million for fiscal 1996 compared to
$8.19 million for fiscal 1995. International sales accounted for 39.2% and 40.6%
of net sales in fiscal 1996 and fiscal 1995, respectively.
Gross Profit. Gross profit decreased to 23.1% of net sales in fiscal
1996 from 35.4% in fiscal 1995, due principally to higher materials costs and
decreased labor productivity relating to the Company's ZPA and ZX car audio
amplifiers introduced in fiscal 1996, lower margins on professional sound
products the Company began selling in December 1995 and increased reserves for
potentially obsolete raw materials and slow moving finished goods inventories.
<PAGE>
Operating Expenses. Operating expenses increased $4.10 million, or
107.1%, to $7.93 million in fiscal 1996 compared to $3.83 million in fiscal
1995. Operating expenses were 29.8% and 19.0% of net sales in fiscal 1996 and
fiscal 1995, respectively.
Selling expenses increased $1.61 million, or 74.6%, to $3.76 million in
fiscal 1996 compared to $2.15 million in fiscal 1995. Selling expenses were
14.1% and 10.7% of net sales in fiscal 1996 and fiscal 1995, respectively. The
increase in dollar amount was primarily due to increased promotional and trade
show expenses to support sales of existing products and the introduction of new
products, including the Company's professional sound products, the addition of
sales and marketing personnel and increased salary expense for existing sales
and marketing personnel, and increased commissions to sales representatives
reflecting increased sales volume.
General and administrative expenses increased $1.37 million, or 82.1%,
to $3.05 million in fiscal 1996 compared to $1.67 million in fiscal 1995.
General and administrative expenses were 11.5% and 8.3% of net sales in fiscal
1996 and fiscal 1995, respectively. The increases in dollar amount and as a
percentage of net sales were due principally to increased bad debt expenses,
higher legal, accounting and investor relations costs and increased personnel
costs. Historically, the Company has built infrastructure and added personnel on
an as-needed basis, resulting in occasional increases in general and
administrative expenses that are disproportionate to increases in net sales.
This policy has resulted in and may continue to result in variations in general
and administrative expenses as a percentage of sales from period to period.
In fiscal 1996, the Company took a one-time pretax charge of $1.12
million related to in-process research and development costs associated with the
purchase in November 1995 of Carver Corporation's professional sound division.
This charge was equal to 4.2% of net sales in fiscal 1996.
Other Income (Expense). Other expenses, net of other income, decreased
$22,000, or 8.5%, to $241,000 in fiscal 1996 from $263,000 in fiscal 1995,
primarily as a result of lower average debt levels during fiscal 1996 due to the
reduction of debt subsequent to the Company's initial public offering in May
1995.
Net Earnings (Loss). The foregoing factors contributed to a net loss
in fiscal 1996 of $1.27 million, or $0.37 per share (based on 3.45 million
shares), compared to net earnings of $1.88 million in fiscal 1995, or $0.67 per
share (based on 2.80 million shares). Net loss for fiscal 1996, before the
one-time pretax charge of $1.12 million related to the acquisition of the Carver
professional sound division, was $571,000, or $0.17 per share.
Comparison of Fiscal 1995 to Fiscal 1994
- ----------------------------------------
Net Sales. Net sales increased $3.95 million, or 24.4%, to $20.17
million for fiscal 1995 compared to $16.22 million for fiscal 1994, due
principally to an expanded electronics product line, increased sales of
accessories, the introduction in April 1994 of the Company's car audio speaker
line and an increased dealer base. The increase in net sales also resulted from
increased sales volume for existing products. In fiscal 1995, the Company had
lower than anticipated sales of speakers due to delayed receipt of speaker
subassemblies from its suppliers. International sales increased $2.34 million,
or 40.0%, to $8.19 million for fiscal 1995 compared to $5.85 million for fiscal
1994. International sales accounted for 40.6% and 36.0% of net sales in fiscal
1995 and fiscal 1994, respectively.
<PAGE>
Gross Profit. Gross profit increased to 35.4% of net sales in fiscal
1995 from 33.4% in fiscal 1994, due principally to increased labor productivity
resulting from investment in automated manufacturing equipment, continued
refinements of manufacturing processes and a higher-margin product mix in fiscal
1995.
Operating Expenses. Operating expenses increased $798,000, or 26.3%, to
$3.83 million in fiscal 1995 compared to $3.03 million in fiscal 1994. Operating
expenses were 19.0% and 18.7% of net sales in fiscal 1995 and fiscal 1994,
respectively.
Selling expenses increased $232,000, or 12.1%, to $2.15 million in
fiscal 1995 compared to $1.92 million in fiscal 1994. Selling expenses were
10.7% and 11.8% of net sales in fiscal 1995 and fiscal 1994, respectively. The
increase in dollar amount was primarily due to increased trade show and
promotional vehicle expenses to support sales of existing products and the
introduction of new products, increased commissions to sales representatives,
the addition of sales and marketing personnel and increased salary expense for
existing sales and marketing personnel.
General and administrative expenses increased $566,000, or 51.1%, to
$1.67 million in fiscal 1995 compared to $1.11 million in fiscal 1994. General
and administrative expenses were 8.3% and 6.8% of net sales in fiscal 1995 and
fiscal 1994, respectively. The increases in dollar amount and as a percentage of
net sales were due to additional management, accounting and other administrative
personnel, higher management and employee compensation levels, and higher
occupancy costs resulting from the Company's move to its new facility in early
fiscal 1995.
Other Income (Expense). Other expenses, net of other income, decreased
$23,000, or 8.0%, to $263,000, in fiscal 1995 from $286,000 for fiscal 1994,
primarily as a result of interest earnings on the proceeds from the Company's
initial public offering in May 1995.
Liquidity and Capital Resources
- -------------------------------
The Company's principal needs for funds are working capital and, to a
lesser extent, for capital expenditures. The Company financed its operations in
fiscal 1996 principally from bank borrowings, increased accounts payable and
proceeds from its initial public offering of Common Stock in May 1995. Net cash
used in operating activities in fiscal 1996 was $2.82 million. Cash and cash
equivalents at the end of fiscal 1996 and fiscal 1995 were $2,600 and $2.10
million, respectively. Working capital was $6.03 million and $8.82 million at
the end of fiscal 1996 and fiscal 1995, respectively.
Capital expenditures were $1.35 million, $1.53 million and $1.40
million in fiscal years 1996, 1995 and 1994, respectively. These expenditures
related primarily to the automation and the commencement of certain
manufacturing processes in house, leasehold improvements to the Company's new
facility and the acquisition of equipment for use by the Company's
administration, engineering and marketing departments. The Company does not
expect capital expenditures to exceed $500,000 in fiscal 1997.
<PAGE>
As of September 30, 1996, the Company had a $6.0 million revolving bank
operating line of credit. Borrowings under the line of credit are limited to 80%
of eligible accounts receivable and 50% of eligible inventory, net of trade
payables, and are subject to certain additional limits. Interest on the first
$4.0 million of borrowings under the line of credit equaled the bank's prime
lending rate (8.25% at September 30, 1996). Interest on borrowings in excess of
$4.0 million under the line of credit equaled the bank's prime lending rate plus
0.25%. Borrowings under the line of credit are secured by substantially all of
the assets of the Company. As of September 30, 1996, the Company was eligible to
borrow $5.34 million under the line of credit. Borrowings under the line of
credit were $3.93 million as of that date.
As of September 30, 1996, the Company was not in compliance with the
cash flow coverage covenant under the line of credit. In December 1996, the bank
agreed to forebear such noncompliance through March 15, 1997 and extend the
termination date of the line of credit from December 31, 1996 to March 31, 1997.
Effective January 1, 1997, the bank also will reduce the line of credit to $5.5
million and increase the interest rate to the bank's prime lending rate (8.25%
at December 16, 1996) plus 0.5%. As of November 30, 1996, the Company was
eligible to borrow $4.14 million under the line of credit. Borrowings under the
line of credit were $3.94 million as of that date. There can be no assurance
that the bank will extend the line of credit beyond March 31, 1997 or that the
Company will be able to obtain additional or alternative financing on acceptable
terms, or at all.
The Company has a $350,000 note payable to Carver Corporation related
to the acquisition of the Carver professional sound division in November 1995
bearing interest at a rate of 6% per annum that was due on November 20, 1996. In
November 1996 the Company renegotiated the payment terms of the note to provide
for seven monthly installments of $50,000 each, plus accrued interest, beginning
in November 1996.
Due to seasonally lower sales levels in the first two fiscal quarters
and the maintenance of inventory levels in anticipation of higher sales in the
third and fourth fiscal quarters, the Company's cash requirements are usually
greater during the first two fiscal quarters.
Accounts receivable increased $1.29 million, or 33.8%, to $5.12 million
at September 30, 1996 compared to $3.83 million at September 30, 1995, primarily
due to significant shipments of products during the last month of fiscal 1996
and increased sales volume during fiscal 1996.
The Company's total inventories increased $4.49 million, or 100.1%, to
$8.97 million as of September 30, 1996 compared to $4.48 million as of September
30, 1995. The increase in inventories in fiscal 1996 was principally in raw
materials and work in process related to the acquisition of the Carver
professional sound division and the introduction of the Company's new ZPA and ZX
car audio amplifier series. Inventory turnover ratios were 3.04 and 3.08 for
fiscal 1996 and 1995, respectively.
<PAGE>
As of September 30, 1996, the Company had a net deferred tax asset of
$756,000 compared to a net deferred tax liability of $186,000 as of September
30, 1995. The change resulted primarily from differences in book and tax
accounting treatments arising from the acquisition of the Carver professional
sound division.
As of September 30, 1996, the Company's capital lease obligations
totaled $308,000, including a current portion of $125,000, at annual interest
rates ranging from 5.0% to 10.3%.
Forward-Looking Statements
- --------------------------
This Report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, including, without
limitation, statements as to expectations, beliefs and future financial
performance, that are based on currect expectations and are subject to certain
risks, trends and uncertainties that could cause actual results to vary from
those projected, which variances may have a material adverse effect on the
Company. Among the factors that could cause actual results to differ materially
are the following: business conditions and growth in the car audio, professional
sound and custom audio/video and home theater markets and the general economy;
competitive factors such as rival products and price pressures; the failure of
new products to compete successfully in existing or new markets; the failure to
achieve timely improvement in the manufacturing ramp with respect to new
products; changes in product mix; availability and price of components,
subassemblies and products supplied by third-party vendors; and cost and yield
issues associated with production at the Company's factory.
ITEM 7. FINANCIAL STATEMENTS
See pages 17 through 30.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated by reference to the information contained under the
captions "Proposal 1: Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission in connection with the
Company's 1997 annual meeting of shareholders.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the information contained under the
caption "Proposal 1: Election of Directors" of the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1997 annual meeting of shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the information contained under the
caption "Proposal 1: Election of Directors" of the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1997 annual meeting of shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information contained under the
caption "Proposal 1: Election of Directors" of the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission in connection
with the Company's 1997 annual meeting of shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Articles of Incorporation and Bylaws
------------------------------------
3(i) - 1995 Restated Articles of Incorporation and Articles of
Amendment (Incorporated by reference to Exhibit 3(i) to
Registration Statement on Form SB-2 effective May 3, 1995
(Registration No. 93-90588))
3(i)(a) - Articles of Amendment filed April 7, 1995 (Incorporated by
reference to Exhibit 3(i)(a) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
3(ii) - Restated Bylaws (Incorporated by reference to Exhibit 3(ii)
to Registration Statement on Form SB-2 effective May 3, 1995
(Registration No. 93-90588))
Instruments Defining Rights of Security Holders
-----------------------------------------------
4 - See Articles 2, 5 and 6 of Exhibit 3(i) and Article 6 of
Exhibit 3(ii)
Material Contracts
------------------
*10.1 - Amended and Restated 1995 Stock Option Plan dated January 27,
1995, as amended July 16, 1996 and December 23, 1996
*10.1 - Form of Incentive Stock Option Agreement (Incorporated by
reference to Exhibit 10.1(a) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
<PAGE>
*10.2 - Form of Nonstatutory Stock Option Agreement (Incorporated by
reference to Exhibit 10.1(b) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
10.3 - Lease Agreement between the Company and BB&S Development
Company dated February 2, 1994 (Incorporated by reference to
Exhibit 10.2 to Registration Statement on Form SB-2 effective
May 3, 1995 (Registration No. 93-90588))
10.4 - Amendment dated January 12, 1996 to Lease Agreement between
the Company and BB&S Development Company dated February 2,
1994 (Incorporated by reference to Exhibit 10.1 to Form
10-QSB filed with the Securities and Exchange Commission for
the quarterly period ended December 31, 1995)
10.5 - Asset Purchase Agreement between the Company and Carver
Corporation dated as of November 20, 1995 (Incorporated by
reference to Exhibit 2.1 to Form 8-K filed with the
Securities and Exchange Commission on December 1, 1995)
10.6 - Amendment No. 1 to Asset Purchase Agreement between the
Company and Carver Corporation dated as of November 20, 1995
(Incorporated by reference to Exhibit 2.2 to Form 8-K filed
with the Securities and Exchange Commission on December 1,
1995)
10.7 - License Agreement between the Company and Carver Corporation
dated as of November 20, 1995 (Incorporated by reference to
Exhibit 2.3 to Form 8-K filed with the Securities and
Exchange Commission on December 1, 1995)
10.8 - License Agreement dated September 30, 1993 between the
Company and Intersonics Technology Corporation, and
amendments (Incorporated by reference to Exhibit 10.2 to Form
10-QSB/A (Amendment No. 1) filed with the Securities and
Exchange Commission for the quarterly period ended December
31, 1995)**
10.9 - Forbearance letter between the Company and United States
National Bank of Oregon ("USNB") dated December 27, 1996
10.10 - Commitment letter between the Company and United States
National Bank of Oregon ("USNB") dated December 27, 1996
10.11 - Commercial Security Agreement between the Company and USNB
dated as of January 1, 1997.
10.12 - Promissory Note dated January 1, 1997 made by the Company in
favor of USNB
<PAGE>
10.13 - Form of Indemnity Agreement (Incorporated by reference to
Exhibit 10.6 to Registration Statement on Form SB-2 effective
May 3, 1995 (Registration No. 93-90588))
23.1 - Consent of Deloitte & Touche LLP, Independent Auditors
27 - Financial Data Schedule
- -----------------------------
* Management contract or compensatory plan or arrangement.
** Certain material contained in this exhibit and indicated with an
asterisk has been omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential
treatment under Rule 24b-2 promulgated under the Securities Exchange
Act of 1934, as amended.
b) Reports on Form 8-K
None
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report 17
Balance Sheets at September 30, 1996 and 1995 18
Statements of Operations for the Three Years
Ended September 30, 1996 19
Statements of Shareholders' Equity for the
Three Years Ended September 30, 1996 20
Statements of Cash Flows for the Three Years
Ended September 30, 1996 21
Notes to Financial Statements 22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
PHOENIX GOLD INTERNATIONAL, INC.
We have audited the accompanying balance sheets of PHOENIX GOLD INTERNATIONAL,
INC. as of September 30, 1996 and 1995, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of PHOENIX GOLD INTERNATIONAL, INC. as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
December 27, 1996
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
September 30,
--------------------------------------
1996 1995
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,599 $ 2,101,563
Accounts receivable, net 5,119,360 3,825,473
Inventories 8,971,560 4,482,442
Prepaid expenses 285,777 328,047
Deferred taxes 525,428 53,614
------------ ------------
Total current assets 14,904,724 10,791,139
Property and equipment, net 3,938,790 3,386,714
Goodwill, net 296,946 201,396
Other assets 461,734 130,000
Deferred taxes 230,333 -
------------ ------------
Total assets $ 19,832,527 $ 14,509,249
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,529,450 $ 1,322,083
Notes payable 4,278,983 -
Accrued expenses 830,411 503,996
Income taxes payable 102,356 29,993
Current portion of long-term obligations 130,334 113,800
------------ ------------
Total current liabilities 8,871,534 1,969,872
Long-term obligations, net of
current portion 171,995 286,189
Deferred taxes - 240,000
Shareholders' equity:
Preferred stock;
Authorized - 5,000,000 shares at
September 30, 1996; none outstanding - -
Common stock, no par value;
Authorized - 20,000,000 shares
Issued and outstanding - 3,454,605
at September 30, 1996,
3,445,000 at September 30, 1995 7,477,939 7,432,987
Retained earnings 3,311,059 4,580,201
------------ ------------
Total shareholders' equity 10,788,998 12,013,188
------------ ------------
Total liabilities and shareholders'
equity $ 19,832,527 $ 14,509,249
============ ============
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Year Ended September 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Net sales $26,563,142 $20,173,822 $16,222,183
Cost of sales 20,432,478 13,039,022 10,801,630
----------- ----------- -----------
Gross profit 6,130,664 7,134,800 5,420,553
Operating expenses:
Selling 3,757,981 2,152,931 1,921,055
General and administrative 3,048,573 1,674,587 1,108,520
In-process research
and development expenses 1,120,500 - -
------------ ----------- -----------
Total operating expenses 7,927,054 3,827,518 3,029,575
----------- ----------- -----------
Income (loss) from operations (1,796,390) 3,307,282 2,390,978
----------- ----------- -----------
Other income (expense):
Interest expense (260,233) (300,526) (269,998)
Other, net 19,495 37,423 (16,040)
----------- ----------- -----------
Total other expense (240,738) (263,103) (286,038)
----------- ----------- -----------
Earnings (loss) before taxes (2,037,128) 3,044,179 2,104,940
Income tax expense (benefit) (767,986) 1,162,902 801,000
----------- ----------- -----------
Net earnings (loss) $(1,269,142) $ 1,881,277 $ 1,303,940
=========== =========== ===========
Net earnings (loss) per share $ (0.37) $ 0.67 $ 0.57
=========== =========== ===========
Shares used in per share calculation 3,449,068 2,798,877 2,270,207
=========== =========== ===========
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A
Redeemable
Nonvoting
Preferred
Stock Common Stock
---------------- ------------------
Retained
Shares Amount Shares Amount Earnings Total
------ -------- -------- -------- --------- -------
Balances,
September 30, 1993 2,500 $250,000 2,180,000 $ 200,000 $1,294,984 $1,744,984
Redemption of
preferred stock (2,500)(250,000) - - 100,000 (150,000)
Net earnings - - - - 1,303,940 1,303,940
------ ------- --------- --------- ---------- ----------
Balances,
September 30, 1994 - - 2,180,000 200,000 2,698,924 2,898,924
Issuance of stock
for initial public
offering - - 1,265,000 7,232,987 - 7,232,987
Net earnings - - - - 1,881,277 1,881,277
------ ------- --------- ---------- ---------- ---------
Balances,
September 30, 1995 - - 3,445,000 7,432,987 4,580,201 12,013,188
Issuance of common
stock upon exercise
of options - - 9,605 44,952 - 44,952
Net loss - - - - (1,269,142)(1,269,142)
===== ======= ========= ========== ========== =========
Balance,
September 30, 1996 - $ - 3,454,605 $7,477,939 $3,311,059 $10,788,998
===== ======= ========= ========== ========== ===========
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------
1996 1995 1994
------------------ ----------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,269,142) $ 1,881,277 $ 1,303,940
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 850,696 603,938 378,493
Loss on sale of equipment - 4,608 -
Deferred taxes (942,147) 68,386 33,000
In-process research and development expenses 1,120,500 - -
Changes in operating assets and liabilities:
Accounts receivable (1,293,887) (1,363,296) (925,196)
Inventories (3,709,016) (496,283) (1,382,835)
Prepaid expenses 42,270 (83,485) (174,370)
Other assets (223,612) (130,000) -
Accounts payable 2,207,367 (136,734) 594,155
Accrued expenses 326,415 99,429 173,172
Income taxes payable 72,363 (398,485) 243,993
------------ ------------- -------------
Net cash provided by (used in) operating activities (2,818,193) 49,355 244,352
----------- ------------- -------------
Cash flows from investing activities:
Capital expenditures, net (1,348,286) (1,525,007) (1,403,772)
Acquisition of Carver professional sound division (1,792,616) - -
----------- ------------- -------------
Net cash used in investing activities (3,140,902) (1,525,007) (1,403,772)
----------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term obligations - 2,092,563 2,097,836
Repayment of long-term obligations (113,804) (3,780,611) (892,626)
Notes payable, net 3,928,983 (1,885,762) 10,714
Proceeds from notes payable to shareholders - 37,431 100,000
Repayment of notes payable to shareholders - (137,431) -
Redemption of preferred stock - - (150,000)
Issuance of common stock upon exercise of options 44,952 - -
Proceeds from initial public offering, net of expenses - 7,232,987 -
------------ ------------- -------------
Net cash provided by financing activities 3,860,131 3,559,177 1,165,924
------------ ------------- -------------
Increase (decrease) in cash (2,098,964) 2,083,525 6,504
Cash and cash equivalents, beginning of year 2,101,563 18,038 11,534
------------ ------------- -------------
Cash and cash equivalents, end of year $ 2,559 $ 2,101,563 $ 18,038
============ ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 215,280 $ 320,508 $ 261,648
Cash paid during the year for income taxes 102,000 1,493,000 524,000
Supplemental disclosure of non-cash and investing activities:
Equipment financed by capital leases 16,145 - 589,463
Increase in retained earnings arising from redemption
of Series A preferred stock - - 100,000
Note payable incurred for acquisition of Carver professional
sound division 350,000 - -
</TABLE>
See Notes to Financial Statements
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Three Years Ended September 30, 1996
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. The Company designs and sells electronics and
accessories for the domestic and international car audio aftermarket, the
professional sound market and custom audio/video and home theater markets. The
Company also designs and sells speakers for the car audio aftermarket. The
Company manufactures all of its electronics and certain accessories at its
facility in Portland, Oregon.
Reporting Period. The Company's fiscal year is the 52- or 53-week
period ending the last Sunday in September. Fiscal years 1994 and 1995 were
52-week years and fiscal 1996 was a 53-week year. For presentation convenience,
the Company has indicated in these financial statements that its fiscal years
end on September 30.
Revenue Recognition. Revenue is recognized upon shipment of the
product.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with original maturities of 90 days or less to be cash equivalents.
Inventories. Inventories are stated at the lower of cost or market.
Cost is determined by the average cost method. Raw materials inventories
generally consist of component parts. Finished goods and work-in-process
inventories include labor and manufacturing overhead.
Property and Equipment. Property and equipment are recorded at cost.
Depreciation is provided using the straight- line method over the estimated
useful lives (generally 3 to 10 years) of the related assets. Leasehold
improvements and equipment under capital leases are amortized over the estimated
useful lives of the assets or the terms of the lease, whichever is shorter.
Goodwill. Goodwill arising from the excess of purchase price over fair
value of net assets acquired at the Company's inception is amortized using the
straight-line method over a period of twenty years. Goodwill arising from the
excess of purchase price over fair value of net assets acquired in the Company's
acquisition of the Carver professional sound division is amortized using the
straight-line method over a period of five years. The Company monitors events
and changes in circumstances that could indicate that the carrying amount of
goodwill may not be fully recoverable. When events and changes are present that
indicate that the carrying amount of goodwill may not be fully recoverable, the
Company assesses the recoverability of goodwill by determining whether the
carrying value of such goodwill can be recovered through undiscounted cash flows
from operations associated with the business acquired. Accumulated amortization
was $77,772 and $50,349 as of September 30, 1996 and 1995, respectively.
Income Taxes. The Company provides for deferred income taxes based
upon an asset and liability approach. Deferred taxes have been provided for
differences between tax expense on the financial statements and that which is
expected to be paid currently. See Note 8.
<PAGE>
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Financial Instruments. Statements of Financial Accounting Standards
("SFAS") No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the estimated fair value of financial instruments. The
carrying value of the Company's cash, accounts receivable, accounts payable,
accrued expenses and notes payable approximates their estimated fair values
because of the short maturities of those instruments.
Net Earnings (Loss) Per Share. Net earnings (loss) per share is
computed on the basis of the weighted average number of common and common
equivalent shares outstanding. When dilutive, outstanding options for common
stock are included in the calculation of common and common equivalent shares
outstanding using the treasury stock method. Also in accordance with the
accounting rules of the Securities and Exchange Commission (SEC), shares issued
or options granted within one year prior to the filing date of the registration
statement for the Company's initial public offering have been included in the
calculation of common and common equivalent shares as if they were outstanding
for all periods presented using the treasury stock method.
Prospective Accounting Change. The Company has not elected early
adoption of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123
will have no effect on the financial position or results of operations of the
Company because the Company will continue to account for compensation expense
for its stock-based employee compensation plans as measured using the method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Upon
adoption of SFAS No. 123 in 1997, pro forma disclosures of net earnings and
earnings per share will be provided as if the method prescribed by SFAS No. 123
had been applied in measuring compensation expense.
Note 2 ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
September 30, September 30,
1996 1995
------------- -------------
Accounts receivable $5,394,326 $3,875,473
Allowance for doubtful accounts (274,966) (50,000)
========== ==========
Total accounts receivable $5,119,360 $3,825,473
========== ==========
<PAGE>
Note 3 INVENTORIES
Inventories consist of the following:
September 30, September 30,
1996 1995
------------- -------------
Raw materials $4,288,206 $1,161,666
Work-in-process 1,101,414 346,055
Finished goods 3,411,342 2,874,923
Supplies 170,598 99,798
========== ==========
Total inventories $8,971,560 $4,482,442
========== ==========
Note 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, September 30,
1996 1995
------------- -------------
Machinery, equipment, and vehicles $4,144,651 $3,043,170
Leasehold improvements 1,425,816 1,324,350
Construction in progress 193,685 55,315
---------- ----------
5,764,152 4,422,835
Less accumulated depreciation and
amortization (1,825,362) (1,036,121)
---------- ----------
Total property and equipment, net $3,938,790 $3,386,714
========== ==========
Note 5 NOTES PAYABLE
As of September 30, 1996, the Company had a $6.0 million revolving bank
operating line of credit. Borrowings under the line of credit are limited to 80%
of eligible accounts receivable and 50% of eligible inventory, net of trade
payables, and are subject to certain additional limits. Interest on the first
$4.0 million of borrowings under the line of credit equaled the bank's prime
lending rate (8.25% at September 30, 1996). Interest on borrowings in excess of
$4.0 million under the line of credit equaled the bank's prime lending rate plus
0.25%. Borrowings under the line of credit are secured by substantially all of
the assets of the Company. As of September 30, 1996, the Company was eligible to
borrow $5.34 million under the line of credit. Borrowings under the line of
credit were $3.93 million as of that date.
Bank Covenant Default. As of September 30, 1996, the Company was not in
compliance with the cash flow coverage covenant under the line of credit. In
December 1996, the bank agreed to forebear such noncompliance through March 15,
1997 and extend the termination date of the line of credit from December 31,
1996 to March 31, 1997. Effective January 1, 1997, the bank also will reduce the
line of credit to $5.5 million and increase the interest rate to the bank's
prime lending rate (8.25% at December 16, 1996) plus 0.5%. There can be no
assurance that the bank will extend the line of credit beyond March 31, 1997 or
that the Company will be able to obtain additional or alternative financing on
acceptable terms, or at all.
<PAGE>
The Company has a $350,000 note payable to Carver Corporation related
to the acquisition of the Carver professional sound division in November 1995
bearing interest at a rate of 6% per annum that was due on November 20, 1996. In
November 1996 the Company renegotiated the payment terms of the note to provide
for seven monthly installments of $50,000 each, plus accrued interest, beginning
in November 1996.
Note 6 LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
---------- ----------
Equipment term note, due August 26, 1999,
payable in monthly installments, including
interest at 9.00%, collateralized by equipment. $16,145 $ -
Less current portion (5,332) -
------- ------
Total long-term debt $10,813 $ -
======= ======
Maturities on long-term debt are as follows:
September 30,
-------------
1997....................... $ 5,334
1998....................... 5,408
1999....................... 5,403
Thereafter................. -
-------
Total.................... $16,145
<PAGE>
Note 7 LEASE COMMITMENTS
The Company leases its office, warehouse and manufacturing facility
under a five-year operating lease agreement. Terms of the lease include an
option to purchase the facility and an option to extend the length of the lease
for five additional years. The Company also leases manufacturing equipment under
capital lease agreements.
Minimum future rentals under capital and operating leases having
initial or remaining terms of one year or more are as follows:
Capital Operating
Leases Leases
------------ ------------
September 30,
-------------
1997................................. $ 145,940 $ 352,313
1998................................. 141,188 367,500
1999................................. 21,121 275,625
Thereafter........................... - -
---------- ----------
Total............................ 308,249 $ 995,438
==========
Less amount representing interest.... (22,065)
----------
Present value of minimum lease payments 286,184
Less current portion of capital lease
obligations........................ (125,000)
----------
Total noncurrent portion of capital
lease obligations.................. $ 161,184
==========
Rent expense under operating leases for the three years ended
September 30, 1996, 1995 and 1994 was $348,147, $228,913 and $200,292,
respectively.
<PAGE>
Note 8 TAXES ON INCOME
Income tax expense (benefit):
Year Ended September 30,
------------------------------------
1996 1995 1994
---------- ---------- ----------
Current:
Federal $ 155,831 $ 906,000 $ 631,000
State 18,330 188,516 137,000
---------- ---------- ----------
Total current 174,161 1,094,516 768,000
Deferred:
Federal (842,974) 61,000 29,000
State (99,173) 7,386 4,000
---------- ---------- ----------
Total deferred (942,147) 68,386 33,000
---------- ---------- ----------
Total $ (767,986) $1,162,902 $ 801,000
========== ========== ==========
Effective income tax rates are as follows:
Year Ended September 30,
1996 1995 1994
---------------- ----------------- ------------------
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
Taxes at statutory
federal income
tax rate $(692,000) (34.0%) $1,035,000 34.0% $ 716,000 34.0%
State taxes, net of
federal benefit (90,000) (4.4) 134,000 4.4 92,000 4.4
Other, net 14,014 .7 (6,098) (.2) (7,000) (0.4)
--------- ---- ---------- ---- --------- ----
Total $(767,986) (37.7%) $1,162,902 38.2% $ 801,000 38.0%
========= ==== ========== ==== ========= ====
The tax effects of temporary differences which give rise to deferred
tax assets and deferred tax liabilities are as follows:
September 30,
------------------------------
1996 1995
------------- -------------
Deferred tax liabilities:
Depreciation $ (182,000) $ (163,000)
Goodwill and other intangible assets - (77,000)
------------ ------------
Total deferred tax liabilities (182,000) (240,000)
Deferred tax assets:
Accrued expenses 350,000 44,000
Goodwill and other assets 412,333 -
Other 175,428 9,614
------------ ------------
Total deferred tax assets 937,761 53,614
============ ============
Net deferred taxes $ 755,761 $ (186,386)
============ ============
Current deferred tax asset $ 525,428 $ 53,614
Long-term deferred tax asset 230,333 -
Long-term deferred tax liability - (240,000)
============ ============
Net deferred taxes $ 755,761 $ (186,386)
============ ============
<PAGE>
Note 9 STOCK OPTION PLAN
The Company's Board of Directors and shareholders adopted and approved
a stock option plan (the "Stock Option Plan") on January 27, 1995. Under the
Stock Option Plan, the Board of Directors may grant incentive and nonqualified
options to employees, directors and consultants to purchase up to 315,000 shares
of common stock. The Stock Option Plan was amended on July 16, 1996 by the
Company's Board of Directors, subject to shareholder approval, to reserve an
additional 200,000 shares for issuance.
In general, options to purchase common stock shall not be granted at
less than the fair market value at the date of grant. The exercise price for
options granted to employees possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company must be at least
110 percent of the fair market value at the date of grant. The Stock Option Plan
expires in 2005. The Stock Option Plan can also be terminated by the Board of
Directors at any time without shareholder approval with respect to shares of
common stock not subject to outstanding options. Options generally become
exercisable ratably over a four or five year period and expire five to ten years
after the date of grant. Options to purchase a total of 209,530 shares of common
stock remained available for grant as of September 30, 1996 under the Stock
Option Plan.
The following table summarizes information relating to shares under
option and shares available for grant under the Stock Option Plan.
Number Option Price
of Shares Per Share
------------------ -------------------
Outstanding at September 30, 1994 - -
Granted 297,675 $ 4.69 - 8.22
Exercised - -
Canceled - -
------- --------------
Outstanding at September 30, 1995 297,675 4.68 - 8.22
Granted 10,295 8.75 - 11.75
Exercised (9,605) 4.68
Canceled (2,500) 8.22
------- --------------
Outstanding at September 30, 1996 295,865 $ 4.68 - 11.75
======= ==============
There were 161,764 options exercisable at September 30, 1996 at exercise prices
ranging from $4.68 to $11.75.
At September 30, 1996, there were outstanding warrants to purchase up
to 110,000 shares of Common Stock at $8.10 per share. Such warrants became
exercisable on May 4, 1996 and expire on May 3, 2000.
<PAGE>
Note 10 INTERNATIONAL AND DOMESTIC SALES
The Company operates in a single industry segment: the manufacturing
and sales of electronics, accessories and speaker products for use in car and
professional sound audio and custom home audio and video applications. Net sales
by geographic region are as follows:
Year Ended September 30,
------------------------------------
1996 1995 1994
---------- ---------- ----------
United States $16,161,385 $11,985,542 $10,374,586
International:
Europe 5,578,371 3,899,981 2,474,623
Asia 2,054,498 1,625,771 1,347,226
Other 2,768,888 2,662,528 2,025,748
----------- ----------- -----------
Total international 10,401,757 8,188,280 5,847,597
----------- ----------- -----------
Total $26,563,142 $20,173,822 $16,222,183
=========== =========== ===========
Note 11 ACQUISITION
Effective November 20, 1995, the Company acquired substantially all of
the assets of the professional sound division of Carver Corporation. The
purchase price for the assets was $2.14 million, of which the Company paid $1.79
million in cash and issued a $350,000 note payable due on November 20, 1996. The
Company accounted for the acquisition under the purchase method of accounting
and recorded in-process research and development expenses of $1.12 million,
finished goods of $780,000, other intangibles of $110,000 and goodwill of
$132,000.
The following unaudited pro forma combined results of operations
accounts for the acquisition as if it had occurred at the beginning of fiscal
1995 or at the beginning of fiscal 1996. The pro forma results give effect to
cost of goods sold, amortization of goodwill and the effects on interest
expense, interest income and taxes. However, a one-time, nonrecurring, pretax
charge of $1.12 million relating to the purchase price allocated to in-process
research and development expenses has not been included in the following pro
forma results.
Year Ended September 30,
1996 1995
-------------- --------------
Net sales $26,991,519 $26,590,822
Net earnings (loss) $ (657,791) $ 1,283,952
Earnings (loss) per share $ (0.19) $ 0.46
The pro forma statements may not be indicative of the results that
would have occurred if the acquisition had been effective on the date indicated,
or the results that may be obtained in the future.
<PAGE>
Note 12 MAJOR CUSTOMERS AND SALES CONCENTRATION RISK
No customer accounted for 10% or more of the Company's net sales
during fiscal 1996, 1995 or 1994. As of September 30,1996, two customers
accounted for approximately 12.1% and 10.4%, respectively, of total accounts
receivable.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PHOENIX GOLD INTERNATIONAL, INC.
By: /s/ Keith A. Peterson
--------------------------------
Keith A. Peterson
Chairman, President, Chief Executive
Officer and Director
Date: December 30, 1996
--------------------------
In accordance with the Exchange Act, this report has been signed below by the
following persons and in the capacities and on the dates indicated.
Signature Capacities Date
- --------- ---------- ----
Chairman, President, December 30, 1996
Chief Executive Officer
/s/ Keith A. Peterson and Director (Principal
- --------------------- Executive Officer)
Keith A. Peterson
Executive Vice President, December 30, 1996
/s/ Timothy G. Johnson Chief Operating Officer,
- ---------------------- Secretary and Director
Timothy G. Johnson
Vice President - Finance December 30, 1996
/s/ David D. Bills (Principal Financial and
- ---------------------- Accounting Officer)
David D. Bills
/s/ Frank G. Magdlen December 30, 1996
- --------------------- Director
Frank G. Magdlen
/s/ Matthew W. Chapman December 30, 1996
- ---------------------- Director
Matthew W. Chapman
<PAGE>
EXHIBIT INDEX
Page
----
Articles of Incorporation and Bylaws
------------------------------------
3(i) - 1995 Restated Articles of Incorporation and Articles of
Amendment (Incorporated by reference to Exhibit 3(i) to
Registration Statement on Form SB-2 effective May 3, 1995
(Registration No. 93-90588))
3(i)(a) - Articles of Amendment filed April 7, 1995 (Incorporated by
reference to Exhibit 3(i)(a) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
3(ii) - Restated Bylaws (Incorporated by reference to Exhibit 3(ii)
to Registration Statement on Form SB-2 effective May 3, 1995
(Registration No. 93-90588))
Instruments Defining Rights of Security Holders
-----------------------------------------------
4 - See Articles 2, 5 and 6 of Exhibit 3(i) and Article 6 of
Exhibit 3(ii)
Material Contracts
------------------
*10.1 - Amended and Restated 1995 Stock Option Plan dated January 27,
1995, as amended July 16, 1996 and December 23, 1996
*10.1 - Form of Incentive Stock Option Agreement (Incorporated by
reference to Exhibit 10.1(a) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
*10.2 - Form of Nonstatutory Stock Option Agreement (Incorporated by
reference to Exhibit 10.1(b) to Registration Statement on
Form SB-2 effective May 3, 1995 (Registration No. 93-90588))
10.3 - Lease Agreement between the Company and BB&S Development
Company dated February 2, 1994 (Incorporated by reference to
Exhibit 10.2 to Registration Statement on Form SB-2 effective
May 3, 1995 (Registration No. 93-90588))
10.4 - Amendment dated January 12, 1996 to Lease Agreement between
the Company and BB&S Development Company dated February 2,
1994 (Incorporated by reference to Exhibit 10.1 to Form
10-QSB filed with the Securities and Exchange Commission for
the quarterly period ended December 31, 1995)
<PAGE>
10.5 - Asset Purchase Agreement between the Company and Carver
Corporation dated as of November 20, 1995 (Incorporated by
reference to Exhibit 2.1 to Form 8-K filed with the
Securities and Exchange Commission on December 1, 1995)
10.6 - Amendment No. 1 to Asset Purchase Agreement between the
Company and Carver Corporation dated as of November 20, 1995
(Incorporated by reference to Exhibit 2.2 to Form 8-K filed
with the Securities and Exchange Commission on December 1,
1995)
10.7 - License Agreement between the Company and Carver Corporation
dated as of November 20, 1995 (Incorporated by reference to
Exhibit 2.3 to Form 8-K filed with the Securities and
Exchange Commission on December 1, 1995)
10.8 - License Agreement dated September 30, 1993 between the
Company and Intersonics Technology Corporation, and
amendments (Incorporated by reference to Exhibit 10.2 to Form
10-QSB/A (Amendment No. 1) filed with the Securities and
Exchange Commission for the quarterly period ended December
31, 1995)**
10.9 - Forbearance letter between the Company and United States
National Bank of Oregon ("USNB") dated December 27, 1996
10.10 - Commitment letter between the Company and United States
National Bank of Oregon ("USNB") dated December 27, 1996
10.11 - Commercial Security Agreement between the Company and USNB
dated as of January 1, 1997.
10.12 - Promissory Note dated January 1, 1997 made by the Company in
favor of USNB
10.13 - Form of Indemnity Agreement (Incorporated by reference to
Exhibit 10.6 to Registration Statement on Form SB-2 effective
May 3, 1995 (Registration No. 93-90588))
23.1 - Consent of Deloitte & Touche LLP, Independent Auditors
27 - Financial Data Schedule
- -----------------------------
* Management contract or compensatory plan or arrangement.
** Certain material contained in this exhibit and indicated with an
asterisk has been omitted and filed separately with the Securities and
Exchange Commission pursuant to an application for confidential
treatment under Rule 24b-2 promulgated under the Securities Exchange
Act of 1934, as amended.
PHOENIX GOLD INTERNATIONAL, INC.
(formerly, JISHUDOKURITSU, INC.)
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
I. PURPOSE
The purpose of the Plan is to provide a means by which selected Employees,
Nonemployee Directors and Consultants may be given an opportunity to acquire
stock of the Company. The Company, by means of the Plan, seeks to retain the
services of persons who are currently Employees, Nonemployee Directors or
Consultants, to secure and retain the services of new Employees, Nonemployee
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company. Accordingly, the Plan provides
for granting Incentive Stock Options, Nonstatutory Stock Options and Restricted
Stock Awards, or any combination of the foregoing, as is best suited to the
circumstances of the particular person as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the
Plan unless specifically modified by any paragraph:
a. "1934 Act" means the Securities Exchange Act of 1934, as amended and in
effect from time to time, or any successor statute.
b. "Award" means, individually or collectively, any Option, Restricted
Stock Award or Nonemployee Director Option.
c. "Board" means the Board of Directors of the Company.
d. "Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, or any successor statute. Reference in the Plan to any
section of the Code shall be deemed to include any amendments or successor
provisions to any such section.
e. "Committee" means not less than two members of the Board who are
selected by the Board as provided in Paragraph A of Article IV.
f. "Common Stock" means the Common Stock, without par value, of the
Company.
<PAGE>
g. "Company" means Phoenix Gold International, Inc., an Oregon corporation.
h. "Consultant" means any person, including an adviser, engaged by the
Company to render services and who does not render such services as an Employee
or Nonemployee Director.
i. "Director" means an individual elected to the Board by the shareholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
j. "Disability" means the condition of being permanently "disabled" within
the meaning of Section 22(e)(3) of the Code, namely being unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not less than
12 months.
k. "Employee" means any person (including a Director) in an employment
relationship with the Company.
l. "Fair Market Value" means, as of any specified date, the reported
closing sale price of the Common Stock on the composite tape on that date, or if
no such price is reported on that date, on the last preceding date on which such
price of the Common Stock is so reported. If the Common Stock is traded over the
counter at the time a determination of its fair market value is required to be
made hereunder, its fair market value shall be deemed to be equal to the closing
sale price of Common Stock on that date, or if no such price is reported on that
date, on the last preceding date on which such price of Common Stock is so
reported. In the event Common Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it
deems appropriate.
m. "Holder" means an Employee, Consultant or a Nonemployee Director who has
been granted an Award.
n. "Incentive Stock Option" means an incentive stock option within the
meaning of Section 422 of the Code.
o. "Nonemployee Director" means a Nonemployee Director as defined in Rule
16b-3, as such Rule may be amended from time to time.
<PAGE>
p. "Nonemployee Director Option" means an Award described in Article IX of
the Plan.
q. "Nonemployee Director Option Agreement" means a written agreement
between the Company and a Holder with respect to a Nonemployee Director Option.
r. "Nonstatutory Stock Option" means a stock option other than an Incentive
Stock Option.
s. "Option" means an Award described in Article VII of the Plan.
t. "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
u. "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
v. "Plan" means the Amended and Restated 1995 Stock Option Plan of the
Company, as set forth herein and as may be hereafter amended from time to time.
w. "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
x. "Restricted Stock Award" means an Award described in Article VIII of the
Plan.
y. "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission under the 1934 Act, as such may be amended from time to time, and any
successor rule, regulation or statute fulfilling the same or similar function.
z. "Subsidiary" means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code; namely, any corporation in
which the Company directly or indirectly controls 50 percent or more of the
total combined voting power of all classes of stock having voting power.
III. EFFECTIVE DATE AND DURATION
OF THE PLAN
The Plan shall be effective as of January 27, 1995, the date of its
adoption by the Board and the shareholders of the Company. No further Awards may
be granted under the Plan after January 26, 2005. The Plan shall remain in
effect until all Awards granted under the Plan have been satisfied or expired.
<PAGE>
IV. ADMINISTRATION
A. Composition of Committee. The Plan shall be administered by a committee
which shall (i) be appointed by the Board and (ii) consist of Nonemployee
Directors.
B. Authority of the Committee. Subject to the provisions of the Plan, the
Committee shall have sole authority, in its discretion, to determine (i) which
Employees, Nonemployee Directors and Consultants shall receive Awards, (ii) the
time or times when Awards shall be granted, (iii) the type or types of Awards to
be granted, and (iv) the number of shares of Common Stock which may be issued
under each Award. In making such determinations the Committee may take into
account the nature of the services rendered by the respective individuals, their
present and potential contribution to the success of the Company, and such other
factors as the Committee in its discretion shall deem relevant. The Committee
shall also have such additional powers as are delegated to it by the Plan.
Subject to the express provisions of the Plan, the Committee is authorized to
construe the Plan and the respective agreements executed thereunder, to
prescribe such rules and regulations relating to the Plan as it may deem
advisable to carry out the Plan, and to determine the terms, restrictions and
provisions of each Award, including such terms, restrictions and provisions as
shall be requisite in the judgment of the Committee to cause designated Options
to qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in any agreement
relating to an Award in the manner and to the extent it shall deem expedient to
carry it into effect. The determinations of the Committee on the matters
referred to in this Article IV shall be conclusive.
C. Liability of Committee Members. No member of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Award.
D. Costs of Plan. The costs and expenses of administering the Plan shall be
borne by the Company.
V. ELIGIBILITY
Employees, Nonemployee Directors and Consultants are eligible to receive
Options and Restricted Stock Awards; provided, however, only Employees are
eligible to receive Incentive Stock Options. Only Nonemployee Directors are
eligible to receive Nonemployee Director Options. Any Award may be granted on
more than one occasion to the same person, and may include an Incentive Stock
Option, a Nonstatutory Stock Option, a Restricted Stock Award, or any
combination thereof. No employee may be granted options or Restated Stock Awards
under the Plan for more than an aggregate of 100,000 shares of Common Stock in
connection with the hiring of the employee or 50,000 shares of Common Stock in
any calendar year otherwise.
<PAGE>
VI. SHARES SUBJECT TO THE PLAN
A. Aggregate Number of Shares. Subject to Article X, the aggregate number
of shares of Common Stock that may be issued under the Plan shall not exceed
515,000 shares, after giving effect to a 109-to-one stock split declared by the
Board on January 27, 1995. Shares shall be deemed to have been issued under the
Plan only (i) to the extent actually issued and delivered pursuant to an Award,
or (ii) to the extent an Award is settled in cash. To the extent that an Award
lapses or the rights of its Holder terminate, any shares of Common Stock subject
to such Award shall again be available for the grant of an Award.
B. Stock Offered. The stock to be offered pursuant to the grant of any
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
VII. OPTIONS
A. Option Period. The term of each Option shall be as specified by the
Committee at the date of grant, except that no Incentive Stock Option shall be
exercisable after the expiration of ten years from the date of grant of such
Incentive Stock Option.
B. Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
C. Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive Stock
Options granted are exercisable for the first time by an individual during any
calendar year under all incentive stock option plans of the Company exceeds
$100,000, such Incentive Stock Options shall be treated as options which do not
constitute Incentive Stock Options. The Committee shall determine, in accordance
with applicable provisions of the Code, Treasury Regulations and other
administrative pronouncements, which of a Holder's Options will not constitute
Incentive Stock Options because of such limitation and shall notify the Holder
of such determination as soon as practicable after such determination. No
Incentive Stock Option shall be granted to an individual if, at the time the
Option is granted, such individual owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company, unless
(i) at the time such Option is granted the exercise price is at least 110
percent of the Fair Market Value of the Common Stock subject to the Option and
(ii) such Option by its terms is not exercisable after the expiration of five
years from the date of grant.
<PAGE>
D. Separate Stock Certificates. Separate stock certificates shall be issued
by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
a Nonstatutory Stock Option.
E. Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under Section 422 of
the Code. An Option Agreement may provide for the payment of the exercise price,
in whole or in part, by the delivery of a number of shares of Common Stock (plus
cash if necessary) having a Fair Market Value (as of the exercise date of the
Option) equal to such exercise price. Moreover, an Option Agreement may provide
for a "cashless exercise" of the Option by establishing procedures whereby the
Holder, by a properly executed written notice, directs (i) an immediate market
sale or margin loan respecting all or a part of the shares of Common Stock to
which the Holder is entitled upon exercise of the Option, (ii) the delivery of
the shares of Common Stock from the Company directly to a brokerage firm and
(iii) the delivery of the exercise price from sale or margin loan proceeds from
the brokerage firm directly to the Company. Such Option Agreement may also
include, without limitation, provisions relating to (a) vesting of Options, (b)
tax matters (including provisions covering any applicable employee wage
withholding requirements), and (c) any other matters not inconsistent with the
terms and provisions of this Plan that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Option
Agreements need not be identical.
F. Exercise Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee, but such exercise price (i) shall not be less than the Fair Market
Value of a share of Common Stock on the date such Option is granted if the
Option is an Incentive Stock Option and (ii) shall be subject to adjustment as
provided in Article X. An Option or portion thereof may be exercised by delivery
of an irrevocable notice of exercise to the Company. The exercise price of an
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
<PAGE>
G. Termination of Employment or Service.
1. In the event the employment or service of a Holder of an Option by
the Company terminates for any reason other than because of Disability or
death, such Option may be exercised at any time prior to the expiration
date of the Option or the expiration of three months after the date of such
termination, whichever is the shorter period, but only if and to the extent
the Holder was entitled to exercise the Option at the date of such
termination.
2. In the event the employment or service of a Holder of an Option by
the Company terminates because of Disability, such Option may be exercised
at any time prior to the expiration date of the Option or the expiration of
one year after the date of such termination, whichever is the shorter
period, but only if and to the extent the Holder was entitled to exercise
the Option at the date of such termination.
3. In the event of the death of a Holder of an Option while employed
by or providing service to the Company, such Option may be exercised at any
time prior to the expiration date of the Option or the expiration of one
year after the date of such death, whichever is the shorter period, but
only if and to the extent the Holder was entitled to exercise the Option on
the date of death, and only by the person or persons to whom such Holder's
rights under the Option shall pass by the Holder's will or by the laws of
descent and distribution of the state or country of domicile at the time of
death.
4. The Committee, at the time of grant or at any time thereafter, may
extend the three-month and one-year expiration periods any length of time
not later than the original expiration date of the Option, and may increase
the portion of the Option that is exercisable, subject to such terms and
conditions as the Committee may determine.
5. To the extent that the Option of any deceased Holder or of any
Holder whose employment or service terminates is not exercised within the
applicable period, all further rights to purchase Common Stock pursuant to
such Option shall cease and terminate.
H. Rights As a Shareholder. The Holder of an Option under the Plan shall
have no rights as a shareholder with respect to the Common Stock subject to such
Option until the date of issue to the Holder of a stock certificate for such
shares. Except as otherwise expressly provided in the Plan, no adjustment shall
be made for dividends or other rights for which the record date occurs prior to
the date such stock certificate is issued.
<PAGE>
I. Options in Substitution for Stock Options Granted by Other Corporations.
Options may be granted under the Plan from time to time in substitution for
stock options held by individuals employed by corporations who become Employees
as a result of a merger or consolidation of the employing corporation with the
Company, or the acquisition by the Company of the assets of the employing
corporation, or the acquisition by the Company of stock of the employing
corporation with the result that such employing corporation becomes a
Subsidiary.
VIII. RESTRICTED STOCK AWARDS
A. Restriction Period. At the time a Restricted Stock Award is granted, the
Committee shall establish a period of time (the "Restriction Period") applicable
to such Award. Each Restricted Stock Award may have a different Restriction
Period, in the discretion of the Committee. The Restriction Period applicable to
a particular Restricted Stock Award shall not be changed except as permitted by
Paragraph B of this Article VIII or Article X.
B. Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends during the Restriction Period, to vote Common Stock
subject thereto and to enjoy all other shareholder rights, except that (i) the
Holder shall not be entitled to delivery of the stock certificate until the
Restriction Period shall have expired, (ii) the Company shall retain custody of
the stock certificate during the Restriction Period, (iii) the Holder may not
sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the stock
during the Restriction Period, and (iv) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Agreement shall
cause a forfeiture of the Restricted Stock Award. Stock dividends issued with
respect to Common Stock awarded pursuant to a Restricted Stock Award shall be
treated as additional Common Stock covered by the Restricted Stock Award. At the
time of such Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions or restrictions relating to Restricted Stock
Awards, including, but not limited to, rules pertaining to the termination of
employment or service (by retirement, Disability, death or otherwise) of a
Holder prior to expiration of the Restriction Period. Such additional terms,
conditions or restrictions shall be set forth in a Restricted Stock Agreement
made in conjunction with the Award. Such Restricted Stock Agreement may also
include, without limitation, provisions relating to (i) vesting of Awards, (ii)
tax matters (including provisions (x) covering any applicable employee wage
withholding requirements and (y) prohibiting an election by the Holder under
Section 83(b) of the Code), and (iii) any other matters not inconsistent with
the terms and provisions of this Plan that the Committee shall in its sole
discretion determine.
<PAGE>
C. Exercise Price and Payment. The Committee shall determine the amount and
form of any payment for Common Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Common Stock received pursuant to a
Restricted Stock Award, except to the extent otherwise required by law.
D. Restricted Stock Agreement. At the time any Award is granted under this
Article VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. NONEMPLOYEE DIRECTOR OPTIONS
A. Exercise Price. The price at which a share of Common Stock may be
purchased upon exercise of a Nonemployee Director Option shall be the Fair
Market Value of a share of Common Stock on the date such Nonemployee Director
Option is granted.
B. Term and Limitations on Exercise. Each Nonemployee Director Option shall
be a Nonstatutory Stock Option and shall have a five-year term from the date of
grant, unless earlier terminated as provided in Paragraph G of Article VII or
Article X. Each Nonemployee Director Option shall become exercisable at the rate
of one-third per year on each of the first three anniversaries of the date of
grant, subject to earlier exercise pursuant to Article X. If a Holder ceases to
be a Director for any reason, including death or Disability, the exercise of the
Option shall be subject to Paragraph G of Article VII.
C. General Rules. Nonemployee Director Options shall be governed by the
provisions of Article VII to the extent such provisions are not inconsistent
with this Article IX. Each Nonemployee Director Option shall be evidenced by a
Nonemployee Director Option Agreement.
D. Automatic Grants. Immediately after the close of each shareholder
meeting at which a Nonemployee Director is first elected to the Board, such
Nonemployee Director shall automatically be granted a Nonemployee Director
Option to purchase 5,775 shares of Common Stock. Immediately after the close of
each shareholder meeting thereafter at which such Nonemployee Director is
re-elected to the Board, such Nonemployee Director shall automatically be
granted a Nonemployee Director Option to purchase 1,400 shares of Common Stock.
Notwithstanding the foregoing, no Nonemployee Director shall be granted
Nonemployee Director Options covering, in the aggregate, more than 8,575 shares
of Common Stock.
<PAGE>
X. CHANGES IN CAPITAL STRUCTURE
A. If the outstanding Common Stock is hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another corporation by reason of any
reorganization, merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split-up, combination of shares or dividend payable in
shares, appropriate adjustment shall be made by the Committee in the number and
kind of shares available for Awards. In addition, the Committee shall make
appropriate adjustment in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable, the option
price of outstanding Options and any and all other matters deemed appropriate by
the Committee, so that the Holder's proportionate interest and economic value
before and after the occurrence of the event is maintained. Notwithstanding the
foregoing, the Committee shall have no obligation to effect any adjustment that
would or might result in the issuance of fractional shares, and any fractional
shares resulting from any adjustment may be disregarded or provided for in any
manner determined by the Committee. Any such adjustments made by the Committee
shall be conclusive. Any adjustment provided for in this Paragraph A of Article
X shall be subject to any required shareholder action. In the event of
dissolution of the Company or a merger, consolidation or plan of exchange
affecting the Company, in lieu of providing for Options as provided above in
this Paragraph A of Article X or in lieu of having the Options continue
unchanged, the Committee may, in its sole discretion, provide a 30-day period
prior to such event during which Holders shall have the right to exercise
Options in whole or in part without any limitation on exercisability and upon
the expiration of which 30-day period all unexercised Options shall immediately
terminate.
B. The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Common Stock or the rights thereof, the dissolution or liquidation of
the Company, or any sale, lease, exchange or other disposition of all or any
part of its assets or business or any other corporate act or proceeding.
<PAGE>
C. Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to Awards theretofore granted or the exercise
price per share, if applicable.
XI. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided, that no change in any Award theretofore granted may be made
which would impair the rights of the Holder without the consent of the Holder;
provided further, that the provisions of Article IX shall not be amended more
than once during any period of six calendar months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder; and provided further, that the Board may not,
without approval of the shareholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
grant or exercise of an Award, except as provided in Article X;
(b) to change the price at which an Award may be granted or exercised,
except as provided in Article X;
(c) to change the class of individuals eligible to receive Awards; or
(d) to extend the maximum period during which Awards may be granted
under the Plan.
XII. MISCELLANEOUS
A. No Right To An Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an
Employee, a Consultant or a Nonemployee Director any right to be granted an
Award or any of the rights hereunder except as may be evidenced by an Award or
by an Option Agreement, Restricted Stock Agreement or Nonemployee Director
Option Agreement duly executed on behalf of the Company, and then only to the
extent and on the terms and conditions expressly set forth therein.
<PAGE>
B. No Employment Rights Conferred. Nothing in the Plan shall (i) confer
upon any Employee any right with respect to continuation of employment with the
Company or (ii) interfere in any way with the right of the Company to terminate
the Employee's employment (or service as a Director, in accordance with
applicable corporate law, or service as a Consultant) at any time for any
reason, with or without cause.
C. Other Laws; Withholding. The Company shall not be obligated to issue any
Common Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933, as amended, and such other state and federal laws, rules or regulations
as the Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in connection with all Awards any taxes required by law to
be withheld and to require any payments required to enable it to satisfy its
withholding obligations.
D. No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company from taking any corporate action which is
deemed by the Company to be appropriate or in its best interest, whether or not
such action would have an adverse effect on the Plan or any Award granted under
the Plan. No Employee, Consultant, Director, beneficiary or other person shall
have any claim against the Company as a result of any such action.
E. Restrictions on Transfer. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution; provided, however, that
with the consent of the Committee, Nonstatutory Stock Options may be assigned or
transferred pursuant to a qualified domestic relations order (a "QDRO") as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. An Award may be exercisable during
the lifetime of the Holder only by such Holder, the Holder's guardian or legal
representative or the Holder's permitted assignee or transferee under a QDRO.
F. Governing Law. To the extent that federal laws (such as the Code and the
federal securities laws) do not otherwise control, the Plan shall be construed
in accordance with the laws of the state of Oregon.
H. Headings. Headings contained in the Plan are for reference purposes and
shall not affect the meaning or interpretation of the Plan.
EXHIBIT 10.9
U.S. Bank
Daniel A. Rice
Vice President
Oregon Corporate Banking
111 S.W. Fifth Avenue, Suite 400
Post Office Box 4412
Portland, OR 97204
503-275-5175
December 27, 1996
Mr. David Bills
Vice President - Finance
Phoenix Gold International, Inc.
9300 North Decatur
Portland, OR 97203
Re: Account 4503617482
Dear David:
Reference is made to the indebtedness owed by Phoenix Gold International, Inc.
to U.S. National Bank of Oregon, as outlined below:
Obligation Principal Principal Interest Maturity
Number Balance Owing Owing Date
- ---------- --------- --------- -------- --------
166 $ 601,997.26 On Demand $ 3,694.38 2/28/97
174 $ 50,100.00 On Demand $ -0- 5/31/97
208 $3,300,000.00 On Demand $19,891.67 2/28/97
224 $ 127,345.35 On Demand $ 1,529.60 2/28/97
This letter supersedes our letter of December 5, 1996 and is to inform you that
Phoenix Gold International, Inc. is in default with its Loan Agreement dated
October 2, 1995, which was subsequently amended by the Loan Agreements dated May
29, 1996 and December 27, 1996. Specifically, as of September 30, 1996, Phoenix
Gold failed to maintain a cash flow cover ratio of 1.20 to 1.00 or greater. The
actual covenant calculation was -0.20 to 1.00. We recognize that the one-time
charges related to the Carver Professional acquisition and receivable/inventory
reserve significantly impacted the calculation and if excluded from the
calculation would have resulted in a cash flow cover ratio of 1.07 to 1.00.
We are in receipt of a draft operating plan for fiscal year 1997 which indicates
that Phoenix Gold will return to compliance with the cash flow cover covenant by
September 30, 1997. U.S. Bank will grant temporary forbearance of the event of
default as set forth in the Loan Agreement dated October 2, 1995. This
forbearance will continue through March 15, 1997. Decisions regarding any
further forbearance beyond March 15, 1997 will be made by Bank in the exercise
of its sole discretion. Bank shall have no duty to extend the existing credit
facilities or make any other or future loans of any kind or nature in any
amount.
<PAGE>
Phoenix Gold International, Inc.
Forbearance Letter
December 27, 1996
The actions requested herein are in addition to any remedies the Bank may have
under any of its loan documents. No action taken or not taken at this time acts
as a waiver of any rights the Bank may presently have under the loan documents,
including acceleration of the entire outstanding balance. Please sign and return
the acknowledgment copy of this letter by December 31, 1996. If you have any
questions you may contact me at 275-5175.
Sincerely,
/s/ Brian A. Oliver, Vice President
for Daniel A. Rice, Vice President
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER
TO BE ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
In consideration of the above Forebearance, Phoenix Gold International, Inc.
("PGII") hereby unconditionally releases United States National Bank of Oregon
("USBO"), its officers, agents, employees, attorneys, directors, subsidiaries,
and affiliates from all liability of whatever nature known or unknown in any way
related to the handling and administration by USBO of PGII's past and current
banking and credit transactions with USBO, including but not limited to PGII's
revolving line of credit. This release includes a complete release of any and
all claims under any and all federal and state laws and regulations. PGII hereby
acknowledges and agrees that USBO shall have no obligation to extend any other
or future loans of any kind or nature in any amount to it, nor to alter, revise,
amend, or extend the maturity or other terms of the obligations described on
page one above.
PGII reaffirms the terms, obligations, representations, and warranties set forth
in PGII's security agreements, notes, and all other loan documentation delivered
to USBO and acknowledges that such loan documentation remains in full force and
effect and is and shall remain valid and enforceable in accordance with its
terms, subject to no defenses, setoffs, counterclaims or recoupments whatsoever.
BORROWER:
By: /s/ Timothy G. Johnson
Title: Executive Vice President
Date: December 27, 1996
EXHIBIT 10.10
U.S. Bank
Daniel A. Rice
Vice President
Oregon Corporate Banking
111 S.W. Fifth Avenue, Suite 400
Post Office Box 4412
Portland, OR 97204
503-275-5175
December 27, 1996
Mr. David Bills
Vice President - Finance
Phoenix Gold International, Inc.
9300 North Decatur
Portland, OR 97203
This letter sets forth the terms and conditions of your credit facility with
United States National Bank of Oregon and supersedes our letter of December 9,
1996.
Borrower: Phoenix Gold International, Inc.
Guarantor(s): None.
REVOLVING LINE OF CREDIT:
- ------------------------
Maximum Loan Amount: $5,500,000.
Purpose: Operating funds.
Interest Rate: Fully floating variable interest rate equal
to U.S. Bank's prime rate plus 0.50%. All
interest shall be computed on the basis of a
360-day year and the actual number of days
elapsed.
Maturity Date: Payable on demand.
Review Date: March 31, 1997.
Repayment: Optional advance note with principal and
interest payable on demand. Interest payable
monthly in absence of demand.
Loan Fee: Non-refundable upfront annual loan fee of
1/4th of 1% prorated to $1,145.83 due upon
acceptance of this commitment for the
extension to March 31, 1997.
<PAGE>
Page 2
Phoenix Gold International, Inc.
December 27, 1996
Collateral: Perfected first priority security interest in
all of Borrower's now owned and hereafter
acquired accounts receivable, inventory and
equipment.
Costs: Borrower shall be responsible for all of the
Banks costs, expenses, fees, including
attorneys fees, associated with the
negotiation and documentation of these credit
facilities.
LETTERS OF CREDIT:
- -----------------
Maximum Loan Amount: $500,000. Issued letters of credit reduce
both the credit and collateral availability
under the revolving line of credit.
Purpose: Issuance of stand-by, commercial, or import
letters of credit.
Review Date: March 31, 1997.
Maturity Date: June 30, 1997.
Repayment: Vary depending upon type of letter of credit
issued.
Pricing: Standard issuance fees, which vary depending
upon type of letter of credit issued.
Collateral: Cross-collateralized to revolving line of
credit.
FINANCIAL REPORTING
-------------------
1. Annual CPA audited financial statement to be provided within 90 days of the
end of each fiscal year.
2. Monthly company prepared financial statements to be provided within 30 days
of the end of each month.
3. Quarterly compliance certificate to be provided within 30 days of the end of
each quarter.
<PAGE>
Page 3
Phoenix Gold International, Inc.
December 27, 1996
FINANCIAL COVENANTS
-------------------
As long as indebted to Bank, Borrower is to be in compliance with the following
financial benchmarks, as described below:
Current Ratio: Maintain a ratio of Current Assets to Current
Liabilities equal to or greater than 1.50:1. Current
Ratio is defined as Current Assets divided by Current
Liabilities.
Tangible Net Worth: Maintain a Tangible Net Worth in excess of
$10,000,000. Tangible Net Worth is defined as Net
Worth minus any intangible assets.
Debt-to-Worth Ratio: Debt-to-Worth Ratio not to exceed 1.00:1. Debt-to-
Worth Ratio is defined as total liabilities divided
by net worth minus any intangible assets.
Cash Flow Cover: Cash Flow Cover in excess of 1.20:1. Cash Flow Cover
is defined as (net profit after tax plus non cash
items such as depreciation and amortization) divided
by (the required term debt payments plus cash funded
fixed asset purchases plus dividends/withdrawals).
All computations made to determine compliance with the covenant requirements
shall be made in accordance with generally accepted accounting principals,
applied on a consistent basis and certified by Borrower as being true and
correct on a quarterly basis (except the cash flow cover which is tested on an
annual basis) beginning December 31, 1996.
As of September 30, 1996, the Borrower was out of compliance with the Cash Flow
Cover covenant. The Lender has elected to forebear through March 15, 1997,
subject to the terms outlined in the Forbearance Letter dated December 27, 1996.
GENERAL TERMS AND CONDITIONS
----------------------------
1. Prime Rate: U.S. Bank's prime rate is the rate of interest which Lender from
time to time establishes as its prime rate and is not, for example, the lowest
rate of interest which Lender collects from any borrower or class of borrowers.
2. Loan Advances: Advances may be requested by Borrower from time to time in
accordance with the terms of the promissory note. All advances shall be made at
the sole option of Lender. Lender may decline to make any advance and may
terminate the availability of advances at any time.
3. Insurance: Borrower shall maintain insurance in such amounts and covering
such risks as Lender shall require.
<PAGE>
Page 4
Phoenix Gold International, Inc.
December 27, 1996
4. Financial Reporting: At any time requested by Lender, Borrower shall furnish
any additional information regarding Borrower's financial condition and business
operations that Lender reasonably 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.
5. Loan Documentation: Borrower shall deliver to Lender duly executed promissory
notes, deeds of trust, mortgages, security agreements, financing statements,
loan agreements, guaranties, borrower authorizations, attorney opinion letters
and other documents ("Loan Documents") as required by Lender in form and
substance satisfactory to Lender and its counsel.
6. Non-Assignable: This credit accommodation may not be assigned by Borrower. No
guarantor or any third party is intended as a third-party beneficiary or has any
right to rely hereon.
7. Arbitration: Borrower and Lender hereby agree to be bound by the terms of the
Arbitration clause attached hereto as Exhibit A.
8. Expenses: Borrower shall reimburse Lender for all out-of-pocket expenses
incurred in connection with this credit accommodation upon demand, whether or
not this transaction closes or is funded. Such expenses shall include, without
limitation, attorney fees, title insurance fees, travel costs, examination
expenses, and filing fees.
9. Expiration Date: This offer will expire on December 31, 1996 and the
revolving credit facility contemplated by this letter must be documented and
closed on or before December 31, 1996.
10. 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.
This letter summarizes certain principal terms and conditions relating to the
loan and supersedes all prior oral or written negotiations, understandings,
representations and agreements with respect to the loan. However, the Loan
Documents will include additional terms, conditions, covenants, representations,
warranties and other provisions which Lender customarily includes in similar
transactions or which Lender determines to be appropriate to this transaction.
Except to the extent modified by any other agreement, all terms, condition,
covenants and other provisions of this letter shall remain in effect until the
revolving line of credit (including any renewals, extensions or modifications)
is terminated and the loan balance is paid in full, and by signing below,
Borrower agrees to comply with all such provisions.
In addition to the events of default in any Loan Document, any failure to comply
with any term, condition or obligation in this letter shall constitute an event
of default under each of the Loan Documents. The provisions of this letter shall
survive the closing of the loan and the execution and delivery of the Loan
Documents. In the event of a conflict between this letter and the Loan
Documents, the terms of the Loan Documents shall control.
<PAGE>
Page 5
Phoenix Gold International, Inc.
December 27, 1996
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER
TO BE ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
If the above terms and conditions are acceptable to you, please sign, date and
return the acknowledgment copy of this letter on or before the Expiration Date.
Sincerely,
/s/ Brian A. Oliver, VP
for Daniel A. Rice
Vice President
275-5175
Borrower hereby accepts Lender's offer to extend credit on terms and conditions
stated above. Borrower hereby agrees to the Arbitration clause set forth in
Exhibit A attached hereto.
By: /s/ Timothy G. Johnson
Title: Executive Vice President
Date: December 27, 1996
<PAGE>
Page 6
Phoenix Gold International, Inc.
December 27, 1996
EXHIBIT A
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this letter or the revolving line of credit 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 securing any loan 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; foreclosing by notice and 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 or any act, or exercise of any
right, concerning any collateral securing any loan, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing any loan, shall also be arbitrated, provided however that no arbitrator
shall have the right or other power to enjoin or restrain any act of any party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing herein shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The stature 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 any action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.
EXHIBIT 10.11
COMMERCIAL SECURITY AGREEMENT
Loan Loan
Principal Date Maturity No. Call Collateral Account Officer Initials
$5,500,000 1-1-97 19 365 4503617482 47440
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: Phoenix Gold Lender: UNITED STATES NATIONAL BANK OF OREGON
International, Inc. CORPORATE BANKING DIVISION
9300 N. Decatur PL-7 OREGON COMMERCIAL LOAN SERVICING
Portland, OR 97203 555 S.W. OAK
PORTLAND, OR 97204
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between Phoenix Gold
International, Inc. (referred to below as "Grantor"); and UNITED STATES NATIONAL
BANK OF OREGON (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 Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
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 accounts, chattel paper, general intangibles, inventory and equipment
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.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(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.
<PAGE>
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 Phoenix Gold International, 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 UNITED STATES NATIONAL BANK OF OREGON, its
successors and assigns.
Note. The word "Note" means the note or credit agreement dated January 1,
1997, in the principal amount of $5,500,000.00 from Phoenix Gold International,
Inc. to Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
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.
<PAGE>
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Organization. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Grantor's
incorporation. Grantor has its chief executive office at 9300 N. Decatur,
Portland, OR 97203. Grantor will notify Lender of any change in the location of
Grantor's chief executive office.
Authorization. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor 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 Grantor or (b) any law,
governmental regulation, court decree, or order applicable to Grantor.
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.
<PAGE>
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; (e) all
storage facilities owned, rented, leased, or being used by Grantor; and (d) all
other properties where Collateral is or may be located. 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.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the State of
Oregon, without the prior written consent of 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.
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. 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.
<PAGE>
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 lo 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 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.
<PAGE>
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., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing or intended to protect
human health or the environment ("Environmental Laws"). 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 Environmental 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, or as a result of a violation of any
Environmental Laws. 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, 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.
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 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.
<PAGE>
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created by
monthly payments from Grantor of a sum estimated by Lender to be sufficient to
produce, at least fifteen (15) days before the premium due date, amounts at
least equal to the insurance premiums to be paid. If fifteen (15) days before
payment is due, the reserve funds are insufficient, Grantor shall upon demand
pay any deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account which Lender
may satisfy by payment of the insurance premiums required to be paid by Grantor
as they become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor's sole responsibility.
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; (a)
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.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts and above in the paragraph
titled 'Transactions Involving Collateral" , 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 lo preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
<PAGE>
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 agreement between Lender and Grantor.
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 properly, 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.
<PAGE>
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.
Adverse Change. A material adverse change occurs in Grantor'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.
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 Oregon 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.
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 unless Grantor has signed, after an
Event of Default occurs, a statement renouncing or modifying Grantor's right to
notification of sale. The requirements of reasonable notice shall be met it such
notice is given at least ten (10) days 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.
<PAGE>
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of 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.
<PAGE>
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 Oregon. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Multnomah
County, the State of Oregon. Subject to the provisions on arbitration, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Oregon.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement. Lender
may pay someone else to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (and including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
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.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, 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 addressees).
<PAGE>
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 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.
<PAGE>
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 relinquishes 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 COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 1,
1997.
GRANTOR:
Phoenix Gold International, Inc.
/s/ David D. Bills - VP Finance
- -------------------------------
Authorized Officer
PROMISSORY NOTE
EXHIBIT 10.12
Loan Loan
Principal Date Maturity No. Call Collateral Account Officer Initials
$5,500,000 1-1-97 19 365 4503617482 47440
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: Phoenix Gold Lender: UNITED STATES NATIONAL BANK OF OREGON
International, Inc. CORPORATE BANKING DIVISION
9300 N. Decatur PL-7 OREGON COMMERCIAL LOAN SERVICING
Portland, OR 97203 555 S.W. OAK
PORTLAND, OR 97204
================================================================================
Principal Amount: $5,500,000.00
Initial Rate: 8.750%
Date of Note: January 1, 1997
PROMISE TO PAY. Phoenix Gold International, Inc. ("Borrower") promises to pay to
UNITED STATES NATIONAL BANK OF OREGON ("Lender"), or order, in lawful money of
the United States of America, on demand, the principal amount of Five Million
Five Hundred Thousand & 00/100 Dollars ($5,500,000.00) or so much as may be
outstanding, together with Interest on the unpaid outstanding principal balance
of each advance. Interest shall be calculated from the date of each advance
until repayment of each advance.
PAYMENT. Borrower will pay this loan immediately upon Lender's demand. In
addition, Borrower will pay regular monthly payments of all accrued unpaid
interest due as of each payment date, beginning February 1, 1997, with all
subsequent interest payments to be due on the same day of each month after that.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the 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 (the "Index"). The interest rate shall
be adjusted without notice effective on the day Lender's prime rate changes.
Lender will tell Borrower the current Index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each Day. The Index
currently is 8.250% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 0.500 percentage points over
the Index, resulting in an initial rate of 8.750% per annum.
<PAGE>
PREPAYMENT. Except for the foregoing, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due. DEFAULT. Borrower will be in default if any of
the following happens: (a) Borrower fails to make any payment when due. (b)
Borrower breaks any promise Borrower has made to Lender, or Borrower fails to
comply with or to perform when due any other term, obligation, covenant, or
condition contained in this Note or any agreement related to this Note, or in
any other agreement or loan Borrower has with Lender. (c) 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. (d) Borrower becomes insolvent, a receiver is appointed for any part
of Borrower's property, Borrower makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Borrower or against Borrower
under any bankruptcy or insolvency laws. (e) 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. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse change
occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the indebtedness is impaired. lb) Lender in good faith
deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.500
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender 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 and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Oregon. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Multnomah County, the State of Oregon. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with the
laws of the State of Oregon.
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 this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that ail oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender, regardless of the fact that persons other than
those authorized to borrow have authority to draw against the accounts. The
unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if: (a) Borrower or any guarantor is in default under the terms of
this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower
has applied funds provided pursuant to this Note for purposes other than those
authorized by Lender; or (e) Lender in good faith deems itself insecure under
this Note or any other agreement between Lender and Borrower.
<PAGE>
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Note 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 securing this Note 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; foreclosing by notice and 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 securing this Note, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing this Note, 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. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Note 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.
LATE CHARGE. If a payment is 19 days or more past due, Borrower will be charged
a late charge of 5% of the delinquent payment.
PERIODIC REVIEW. Lender will review the loan periodically. At the time of the
review, Borrower will furnish Lender with any additional information regarding
Borrower's financial condition and business operations that Lender requests.
This information may include, but is not limited to, financial statements, tax
returns, lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets and forecasts. If upon review, Lender, in its sole
discretion, determines that there has been a material adverse change in
Borrower's financial condition, Borrower will be in default. Upon default,
Lender shall have all rights specified herein.
DEMAND NOTE. BORROWER ACKNOWLEDGES AND AGREES THAT (A) THIS NOTE IS A DEMAND
NOTE, AND LENDER IS ENTITLED TO DEMAND BORROWER'S IMMEDIATE PAYMENT IN FULL OF
ALL AMOUNTS OWING HEREUNDER, (B) NEITHER ANYTHING TO THE CONTRARY CONTAINED
HEREIN OR IN ANY OTHER LOAN DOCUMENTS (INCLUDING BUT NOT LIMITED TO, PROVISIONS
RELATING TO DEFAULTS, RIGHTS OF CURE, DEFAULT RATE OF INTEREST, INSTALLMENT
PAYMENTS, LATE CHARGES, PERIODIC REVIEW OF BORROWER'S FINANCIAL CONDITIONS, AND
COVENANTS) NOR ANY ACT OF LENDER PURSUANT TO ANY SUCH PROVISIONS SHALL LIMIT OR
IMPAIR LENDER'S RIGHT OR ABILITY TO REQUIRE BORROWER'S PAYMENT IN FULL OF ALL
AMOUNTS OWING HEREUNDER IMMEDIATELY UPON LENDER'S DEMAND, AND (C) UPON LENDER
MAKING ANY SUCH DEMAND, LENDER SHALL HAVE NO OBLIGATION TO MAKE ANY ADVANCE
UNDER THIS NOTE OR UNDER THE LOAN DOCUMENTS.
PRIOR NOTE. The Promissory Notes from Borrower to Lender dated June 5, 1996 in
the amount of $2,000,000.00 and dated October 5, 1995 in the amount of
$4,000,000.00.
<PAGE>
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive presentment, demand for payment, protest and notice of
dishonor. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE.
<PAGE>
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Phoenix Gold International, Inc.
/s/ David D. Bills - VP Finance
- --------------------------------
Authorized Officer
LENDER:
UNITED STATES NATIONAL BANK OF OREGON
By:/s/
----------------------------------
Authorized Officer
EXHIBIT 23.1
DELOITTE & TOUCHE LLP
3900 US Bancorp Tower Telephone: (503) 222-1341
111 SW Fifth Avenue Facsimile: (503) 224-2172
Portland, Oregon 97204-3698
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-98648 on Form S-8 of our report dated December 27, 1996 appearing in this
Annual Report on Form 10-KSB of Phoenix Gold International, Inc. for the year
ended September 30, 1996.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
December 30, 1996
- ---------------------
Deloitte Touche
Tohmatsu
International
- ---------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHOENIX GOLD
INTERNATIONAL, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS ANNUAL REPORT ON
FORM 10-KSB FOR THE PERIOD ENDING SEPTEMBER 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 2,599
<SECURITIES> 0
<RECEIVABLES> 5,119,360
<ALLOWANCES> 0
<INVENTORY> 8,971,560
<CURRENT-ASSETS> 14,904,724
<PP&E> 5,764,152
<DEPRECIATION> 1,825,362
<TOTAL-ASSETS> 19,832,527
<CURRENT-LIABILITIES> 8,871,534
<BONDS> 171,995
0
0
<COMMON> 7,477,939
<OTHER-SE> 3,311,059
<TOTAL-LIABILITY-AND-EQUITY> 19,832,527
<SALES> 26,563,142
<TOTAL-REVENUES> 26,563,142
<CGS> 20,432,478
<TOTAL-COSTS> 28,359,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (260,233)
<INCOME-PRETAX> (2,037,128)
<INCOME-TAX> 767,986
<INCOME-CONTINUING> (1,269,142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,269,142)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
