U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-25866
------------------------------
PHOENIX GOLD INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1066325
- - -------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9300 NORTH DECATUR STREET, PORTLAND, OREGON 97203
- - -------------------------------------------------------------------------------
Address of principal executive offices) (Zip code)
(503) 288-2008
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
There were 3,464,745 shares of the issuer's common stock outstanding as of
January 30, 1998.
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
FORM 10-QSB FOR THE QUARTER ENDED DECEMBER 31, 1997
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Balance Sheets at December 31, 1997 (unaudited)
and September 30, 1997 (audited) 3
Statements of Operations for the Three Months Ended
December 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the Three Months Ended
December 31, 1997 and 1996 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------------ ------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,601 $ 2,603
Accounts receivable, net 4,333,930 5,186,630
Inventories 6,867,520 7,178,820
Prepaid expenses 390,060 247,523
Deferred taxes 350,000 380,000
------------------ ------------------
Total current assets 11,944,111 12,995,576
Property and equipment, net 3,315,012 3,478,827
Goodwill, net 247,419 257,324
Deferred taxes 230,000 231,000
Other assets 487,542 492,422
------------------ ------------------
Total assets $ 16,224,084 $ 17,455,149
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,112,352 $ 1,558,749
Notes payable 2,593,717 3,147,936
Accrued payroll and benefits 246,921 373,512
Other accrued expenses 203,741 241,337
Current portion of long-term obligations 386,332 395,669
------------------ ------------------
Total current liabilities 4,543,063 5,717,203
Long-term obligations 408,043 494,927
Shareholders' equity:
Preferred stock;
Authorized - 5,000,000 shares; none outstanding - -
Common stock, no par value;
Authorized - 20,000,000 shares
Issued and outstanding - 3,464,745 and 3,458,985 shares 7,548,822 7,521,865
Retained earnings 3,724,156 3,721,154
------------------ ------------------
Total shareholders' equity 11,272,978 11,243,019
------------------ ------------------
Total liabilities and shareholders' equity $ 16,224,084 $ 17,455,149
================== ==================
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
DECEMBER 31,
---------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Net sales $ 6,058,001 $ 5,572,276
Cost of sales 4,643,204 4,595,147
------------------ ------------------
Gross profit 1,414,797 977,129
Operating expenses:
Selling 755,053 767,414
General and administrative 566,278 601,656
------------------ ------------------
Total operating expenses 1,321,331 1,369,070
------------------ ------------------
Income (loss) from operations 93,466 (391,941)
Other income (expense):
Interest expense (97,439) (113,842)
Other income, net 7,975 1,280
------------------ ------------------
Total other income (expense) (89,464) (112,562)
------------------ ------------------
Earnings (loss) before income taxes 4,002 (504,503)
Income tax benefit (expense) (1,000) 192,000
------------------ ------------------
Net earnings (loss) $ 3,002 $ (312,503)
================== ==================
Net earnings (loss) per share - basic and diluted $ 0.00 $ (.09)
================== ==================
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
DECEMBER 31,
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 3,002 $ (312,503)
Adjustments to reconcile net earnings(loss)
to net cash provided by operating activities:
Depreciation and amortization 252,424 244,463
Deferred taxes 31,000 (192,000)
Changes in operating assets and liabilities:
Accounts receivable 852,700 654,005
Inventories 311,300 (458,237)
Prepaid expenses (142,537) (107,928)
Other assets (3,106) (44,821)
Accounts payable (446,397) 379,739
Accrued expenses (164,187) (96,265)
--------------- ---------------
Net cash provided by operating activities 694,199 66,453
Cash flows from investing activities:
Capital expenditures, net (70,718) (87,668)
---------------- ----------------
Net cash used in investing activities (70,718) (87,668)
Cash flows from financing activities:
Notes payable, net (554,219) 52,955
Repayment of long-term obligations (96,221) (31,740)
Proceeds from exercise of stock options 26,957 -
---------------- ----------------
Net cash provided by (used in) financing activities (623,483) 21,215
---------------- ----------------
Increase (decrease) in cash and cash equivalents (2) -
Cash and cash equivalents, beginning of period 2,603 2,599
---------------- ----------------
Cash and cash equivalents, end of period $ 2,601 $ 2,599
================ ================
Supplemental disclosures:
Cash paid for interest $ 102,429 $ 86,808
Cash paid for income taxes - 73,951
SEE NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PHOENIX GOLD INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from these unaudited financial statements. These unaudited
financial statements should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-KSB for the year
ended September 30, 1997 filed with the Securities and Exchange Commission. The
results of operations for the three-month period ended December 31, 1997 are not
necessarily indicative of the operating results for the full year. In the
opinion of management, all adjustments, consisting only of normal recurring
accruals, have been made to present fairly the Company's financial position at
December 31, 1997 and the results of its operations and its cash flows for the
three-month periods ended December 31, 1997 and 1996.
NOTE 2 - REPORTING PERIODS
The Company's fiscal year is the 52-week or 53-week period ending the last
Sunday in September. Fiscal 1998 and fiscal 1997 are 52-week years and all
quarters are 13-week periods. For presentation convenience, the Company has
indicated in these financial statements that its fiscal year ended on September
30 and that the three months presented ended on December 31.
NOTE 3 - PROSPECTIVE ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes requirements for disclosure of
comprehensive income and becomes effective for the year ending September 30,
1999. Reclassification of earlier financial statements for comparative purposes
is required.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes SFAS No. 14, FINANCIAL REPORTING FOR
SEGMENTS OF A BUSINESS ENTERPRISE. SFAS No. 131 will be effective for the year
ending September 30, 1999 and requires that comparative information from earlier
years be restated to conform to the requirements of this standard.
<PAGE>
NOTE 4 - INVENTORIES
Inventories are stated at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
--------------------- ---------------------
<S> <C> <C>
Raw materials $ 2,678,801 $ 2,818,409
Work-in-process 12,161 11,867
Finished goods 4,056,339 4,204,428
Supplies 120,219 144,116
===================== =====================
Total inventories $ 6,867,520 $ 7,178,820
===================== =====================
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
--------------------- ---------------------
<S> <C> <C>
Machinery, equipment, and vehicles $ 4,407,419 $ 4,434,003
Leasehold improvements 1,590,012 1,590,012
Construction in progress 244,379 155,052
--------------------- ---------------------
6,241,810 6,179,067
Less accumulated depreciation
and amortization (2,926,798) (2,700,240)
===================== =====================
Total property and equipment, net $ 3,315,012 $ 3,478,827
===================== =====================
</TABLE>
NOTE 6 - NOTE PAYABLE
During December 1997, the Company renewed the $5.5 million revolving bank
operating line of credit through December 1998. Borrowings under the renewed
line of credit are limited to eligible accounts receivable and inventories and
are subject to certain additional limits. Interest on borrowings is equal to the
bank's prime lending rate plus an additional percentage based on debt service
coverage. Beginning January 1, 1998, the additional percentage was 1.00%.
Borrowings under the line of credit are secured only by accounts receivable,
inventories and certain equipment. The line of credit contains covenants which
require a minimum level of tangible net worth and minimum ratios of current
assets to current liabilities and debt service coverage.
<PAGE>
NOTE 7 - EARNINGS (LOSS) PER SHARE
Effective beginning in fiscal 1998, the Company adopted SFAS No. 128,
EARNINGS PER SHARE. SFAS No. 128 established new standards for computing and
presenting earnings per share. The earnings (loss) per share calculation is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1997
-------------------------------------------------------
NET AVERAGE PER
EARNINGS SHARES SHARE
------------------ ------------------ --------------
<S> <C> <C> <C>
Basic earnings per share $ 3,002 3 ,464,555 $ 0.00
Effect of dilutive options and warrants - 20,741 -
------------------ ------------------ --------------
Diluted earnings per share $ 3,002 3,485,296 $ 0.00
================== ================== ==============
THREE MONTHS ENDED
DECEMBER 31, 1996
-------------------------------------------------------
NET AVERAGE PER
LOSS SHARES SHARE
------------------ ------------------ --------------
Basic loss per share $ (312,503) 3,454,605 $ (0.09)
Effect of dilutive options and warrants
- - -
------------------ ------------------ --------------
Diluted loss per share $ (312,503) 3,454,605 $ (0.09)
================== ================== ==============
</TABLE>
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
Net sales increased $486,000, or 8.7%, to $6.1 million for the three
months ended December 31, 1997, compared to $5.6 million for the three months
ended December 31, 1996. Sales of electronics products in the quarter ended
December 31, 1997 increased 18.2% from the quarter ended December 31, 1996.
Sales of car audio electronics increased 22.6% compared to the same quarter in
fiscal 1997 due to the continuing success of the initial introduction of the QX
series and XS series car audio amplifiers that are designed to address lower
price points. Sales of professional audio electronics decreased 3.5% due to
weaker distribution and dealer demand partially offset by increased OEM sales.
Sales of speakers decreased 8.1% due to market softness. Sales of accessories
increased 3.6% in the first quarter of fiscal 1998 compared to the corresponding
quarter in fiscal 1997.
International sales increased 15.1% to $2.4 million for the three months
ended December 31, 1997, from $2.1 million in the comparable 1996 period. The
increase resulted primarily from increased sales of car audio electronics.
International sales represented 39.2% and 37.0% of net sales for the three
months ended December 31, 1997 and 1996, respectively. For the three months
ended December 31, 1997, the effects on the Company of the Asian financial
crisis were not material. However, the Company remains cautious about future
sales in certain markets in Asia.
Gross profit increased to 23.4% from 17.5% of net sales for the three
months ended December 31, 1997 and 1996, respectively, primarily due to changes
in product mix and increased sales volume which caused manufacturing overhead to
decrease as a percentage of sales.
Operating expenses consist of selling, general and administrative
expenses. Total operating expenses decreased $48,000, or 3.5%, to $1,321,000 for
the three months ended December 31, 1997 compared to $1,369,000 for the three
months ended December 31, 1996. Operating expenses were 21.8% and 24.6% of net
sales in the respective three-month periods.
Selling expenses decreased $12,000, or 1.6%, to $755,000 for the three
months ended December 31, 1997 compared to $767,000 for the comparable 1996
period. Selling expenses were 12.5% and 13.8% of net sales in the respective
three-month periods. The decreased selling expenses in dollar amount were due to
continuing cost control programs.
General and administrative expenses decreased $35,000, or 5.9%, to
$566,000 for the three months ended December 31, 1997 compared to $602,000 for
the comparable fiscal 1997 period. General and administrative expenses were 9.3%
and 10.8% of net sales in the respective three-month periods. The decreased
general and administrative expenses in dollar amount were due to lower bad debt
expense and continuing cost control programs.
<PAGE>
Interest expense decreased by $16,000 to $97,000 for the three months
ended December 31, 1997 compared to $114,000 for the three months ended December
31, 1996. The decrease was due to decreased borrowings.
Net earnings were $3,000, or $0.00 earnings per share (basic and diluted)
for the three months ended December 31, 1997, compared to a net loss of
$313,000, or $0.09 loss per share (basic and diluted) for the three months ended
December 31, 1996. The increase in net earnings in the first quarter of fiscal
1998 compared to the corresponding quarter in fiscal 1997 was due to increased
sales, improved gross margin and continuing cost control programs which reduced
operating expenses as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company's primary needs for funds are for working capital and, to a
lesser extent, capital expenditures. The Company financed its operations during
the first quarter of fiscal 1998 from cash generated from operating activities.
Net cash provided by operating activities was $694,000 for the three months
ended December 31, 1997. When cash flow from operations exceeds current needs,
the Company pays down in part the balance owing on its operating line of credit
rather than investing and accumulating excess cash, resulting in low reported
cash balances.
Accounts receivable decreased $853,000, inventories decreased by $311,000
and accounts payable decreased $446,000 during the first quarter of fiscal 1998,
leading to a increase in working capital of $123,000 during the three-month
period.
Prepaid expenses increased $143,000 during the three months ended December
31, 1997, primarily due to trade show deposits and insurance costs incurred in
the beginning of the Company's fiscal year.
The Company made capital expenditures of $71,000 for the three months
ended December 31, 1997. Management anticipates that discretionary capital
expenditures for the remainder of fiscal 1998 will be approximately $400,000.
These anticipated expenditures will be financed from proceeds of short-term debt
and cash provided from operations.
A $5.5 million revolving bank operating line of credit was available
through December 31, 1997. Interest on the borrowings was equal to the bank's
prime lending rate (8.50% at December 31, 1997) plus an additional percentage
based on tangible net worth. At December 31, 1997, the additional percentage
above prime was 1.50%. Borrowings under the line of credit were limited to
eligible accounts receivable and inventories and were subject to certain
additional limits. Borrowings under the line of credit were secured by
substantially all of the assets of the Company. The line of credit contained
covenants which required a minimum level of tangible net worth, a maximum level
of inventories and minimum ratios of current assets to current liabilities and
debt service coverage. Additionally, the line of credit prohibited dividends. As
of December 31, 1997, the Company was eligible to borrow $4.5 million under the
line of credit. Borrowings under the line of credit were $2.6 million as of that
date.
During December 1997, the Company renewed the $5.5 million revolving bank
operating line of credit through December 1998. Borrowings under the renewed
line of credit are limited to eligible accounts receivable and inventories and
are subject to certain additional limits. Interest on borrowings is equal to the
bank's prime lending rate plus an additional percentage based on debt service
coverage. Beginning January 1, 1998, the additional percentage was 1.00%.
Borrowings under the line of credit are secured only by accounts receivable,
inventories and certain equipment. The line of credit contains covenants which
require a minimum level of tangible net worth and minimum ratios of current
assets to current liabilities and debt service coverage.
<PAGE>
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 current 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Loan Agreement dated December 19, 1997 between
the Company and U.S. National Bank Association
10.2 Promissory Note dated December 17, 1997 made
by the Company in favor of U.S. National Bank
Association
27 Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K, dated December 1, 1997, was
filed on December 3, 1997 to report a director's
resignation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHOENIX GOLD INTERNATIONAL, INC.
/s/ Joseph K. O'Brien
-----------------------------------
Joseph K. O'Brien
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Dated: February 10, 1998
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
------- ----
10.1 Loan Agreement dated December 19, 1997
between the Company and U.S. National Bank
Association 15
10.2 Promissory Note dated December 17, 1997
made by the Company in favor of U.S.
National Bank Association 21
27 Financial Data Schedule 33
EXHIBIT 10.1
December 19, 1997
ACKNOWLEDGMENT COPY
-------------------
Mr. Joe O'Brien, CFO
Phoenix Gold International, Inc.
9300 North Decatur
Portland, OR 97203
Dear Joe:
I am pleased to advise you that U.S. Bank National Association has renewed your
revolving line of credit subject to the following terms and conditions:
BORROWER: Phoenix Gold International, Inc.
GUARANTOR(S): None.
REVOLVING LINE OF CREDIT:
MAXIMUM LOAN AMOUNT: $5,500,000.
PURPOSE: Operating funds.
INTEREST RATE: The interest rate is tied to a
performance matrix based on the
Borrower's Time Fixed Charge
Coverage and adjusted quarterly. The
interest rate spread will be
adjusted either upward or downward
for the subsequent quarter after
achieving the Times Fixed charge
coverage ratio, based on the
following matrix:
<TABLE>
<CAPTION>
TIMES FIXED
LEVEL CHARGE COVERAGE PRIME + LIBOR +
-----------------------------------------------------------------
<S> <C> <C> <C>
1 Greater than 3.00:1 0 2.25%
2 Less than or equal to 3.00:1.0 0 2.75%
3 Less than or equal to 2.50:1.0 0.50% 3.25%
4 Less than or equal to 2.00:1.0 1.00% 3.75%
5 Less than or equal to 1.51:1.0 1.50% 4.25%
6 Less than 1.25:1.0 Default Default
</TABLE>
<PAGE>
The LIBOR option will be available
under the following conditions:
a) Minimum advances of $500,000 and
increments of $100,000
thereafter.
b) LIBOR contracts may vary in
length of time from one month up
to three months.
c) The Bank may require up to two
days prior written notice before
allowing LIBOR advances.
d) No principal repayment during the
fixed rate period.
INITIAL FUNDING PRIOR TO DECEMBER
31, 1997, WILL BE UNDER LEVEL 4.
THE INTEREST RATE CHARGED TO
BORROWER IS TIED TO THE PRIME RATE
OF U.S. BANK NATIONAL ASSOCIATION,
COMPUTED ON THE BASIS OF A 360-DAY
YEAR AND THE ACTUAL NUMBER OF DAYS
ELAPSED. BORROWER IS ADVISED THAT
U.S. BANK NATIONAL ASSOCIATION'S
PRIME RATE IS THE RATE OF INTEREST
WHICH THE BANK FROM TIME TO TIME
IDENTIFIES AND PUBLICLY ANNOUNCES AS
ITS PRIME RATE, AND IS NOT
NECESSARILY, FOR EXAMPLE, THE LOWEST
RATE OF INTEREST WHICH THE BANK
COLLECTS FROM ANY BORROWER OR GROUP
OF BORROWERS.
MATURITY DATE: Payable on demand.
REVIEW DATE: December 31, 1998.
REPAYMENT: Optional advance note; interest
payable monthly, principal payable
upon demand, automated credit sweep
on prime based borrowings.
REPAYMENT OF EACH ADVANCE RECEIVED
BY THE BORROWER UNDER THE LINE OF
CREDIT IS SUBJECT TO THE TERMS OF
THE PROMISSORY NOTE EVIDENCING THAT
ADVANCE AS WELL AS ALL TERMS AND
CONDITIONS OF THIS LETTER. IN THE
EVENT OF ANY CONFLICT BETWEEN THE
TWO, THE TERMS AND CONDITIONS OF THE
PROMISSORY NOTE SHALL CONTROL.
LOAN FEE: Upfront annual loan fee of 1/8th
of 1% ($6,875), plus all out of
pocket expenses.
COLLATERAL: Perfected first priority security
interest in all of Borrower's now
owned and hereafter acquired
accounts receivable, inventory, and
equipment. (Except equipment which
is currently pledged to other
lenders as security).
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.
<PAGE>
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.
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 2.10:1. Current Ratio
is defined as Current Assets divided
by Current Liabilities
TANGIBLE NET WORTH: Maintain a Tangible Net Worth in
excess of $10,700,000. Tangible Net
Worth is defined as Net Worth minus
any intangible assets.
TIMES FIXED
CHARGE COVERAGE: Maintain a ratio of Times Fixed
Charge Coverage equal to or
greater than 1.25:1. Defined as
earnings before interest, taxes,
depreciation, and amortization
(EBITDA) divided by scheduled
principal payments on long term debt
and capital leases plus interest
expense plus cash funded capital
expenditures plus dividends.
All computations made to determine compliance with the covenant requirements
shall be made in accordance with generally accepted accounting principles,
applied on a consistent basis and certified by Borrower as being true and
correct on a quarterly basis beginning December 31, 1997. The Times Fixed Charge
Coverage will be based on a rolling four quarter average.
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>
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, 1997 and
the revolving credit facility contemplated by this letter must be
documented and closed on or before December 31, 1997.
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>
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 OREGON 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/ Daniel A. Rice
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.
PHOENIX GOLD INTERNATIONAL, INC.
- - --------------------------------
By: /s/ Joseph K. O'Brien
---------------------------
Title: Chief Financial Officer
----------------------------
Date: December 22, 1997
----------------------------
<PAGE>
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 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 any action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.
EXHIBIT 10.2
ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)
$5,500,000.00 DATED AS OF: 12-17-97
- - --------------------------------------------------------------------------------
PHOENIX GOLD INTERNATIONAL, INC. ("BORROWER")
- - --------------------------------------------------------------------------------
U.S. BANK NATIONAL ASSOCIATION ("LENDER")
1. TYPE OF CREDIT. This note is given to evidence Borrower's obligation
to repay all sums which Lender may from time to time advance to Borrower
("Advances") under a:
/ / single disbursement loan. Amounts loaned to Borrower hereunder will be
disbursed in a single Advance in the amount shown in Section 2.
/X/ revolving line of credit. No Advances shall be made which create a
maximum amount outstanding at any one time which exceeds the maximum
amount shown in Section 2. However, Advances hereunder may be borrowed,
repaid and reborrowed, and the aggregate Advances loaned hereunder from
time to time may exceed such maximum amount.
/ / non-revolving line of credit. Each Advance made from time to time
hereunder shall reduce the maximum amount available shown in Section 2.
Advances loaned hereunder which are repaid may not be reborrowed.
2. PRINCIPAL BALANCE. The unpaid principal balance of all Advances
outstanding under this note ("Principal Balance") at one time shall not exceed
$ 5,500,000.00.
- - ---------------
3. PROMISE TO PAY. For value received Borrower promises to pay to
Lender or order at OREGON COMMERCIAL LOAN SERVICING , the Principal Balance of
this note, with interest thereon at the rate(s) specified in Sections 4 and
11 below.
4. INTEREST RATE. The interest rate on the Principal Balance outstanding may
vary from time to time pursuant to the provisions of this note. Subject to the
provisions of this note, Borrower shall have the option from time to time of
choosing to pay interest at the rate or rates and for the applicable periods of
time based on the rate options provided herein; provided, however, that once
Borrower notifies Lender of the rate option chosen in accordance with the
provisions of this note, such notice shall be irrevocable. The rate options are
the Prime Borrowing Rate and the LIBOR Borrowing Rate, each as defined herein.
(a) DEFINITIONS. The following terms shall have the following meanings:
"Business Day" means any day other than a Saturday, Sunday, or
other day that commercial banks in Portland, Oregon or New York City are
authorized or required by law to close; provided, however that when used in
connection with a LIBOR Rate, LIBOR Amount or LIBOR Interest Period such term
shall also exclude any day on which dealings in U.S. dollar deposits are not
carried on in the London interbank market.
"LIBOR Amount" means each principal amount for which Borrower
chooses to have the LIBOR Borrowing Rate apply for any specified LIBOR Interest
Period.
"LIBOR Interest Period" means as to any LIBOR Amount, a period
of ONE, TWO OR THREE months commencing on the date the LIBOR Borrowing Rate
becomes applicable thereto; provided, however, that: (i) the first day of each
LIBOR Interest Period must be a Business Day; (ii) no LIBOR Interest Period
shall be selected which would extend beyond EXPIRY ; (iii) no LIBOR Interest
Period shall extend beyond the date of any principal payment required under
Section 6 of this note, unless the sum of the Prime Rate Amount, plus LIBOR
Amounts with LIBOR Interest Periods ending on or before the scheduled date of
such principal payment, plus principal amounts remaining unborrowed under a line
of credit, equals or exceeds the amount of such principal payment; (iv) any
LIBOR Interest Period which would otherwise expire on a day which is not a
Business Day, shall be extended to the next succeeding Business Day, unless the
result of such extension would be to extend such LIBOR Interest Period into
another calendar month, in which event the LIBOR Interest Period shall end on
the immediately preceding Business Day; and (v) any LIBOR Interest Period that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
LIBOR Interest Period) shall end on the last Business Day of a calendar month.
"LIBOR Rate" means, for any LIBOR Interest Period, the rate per
annum (computed on the basis of a 360-day year and the actual number of days
elapsed and rounded upward to the nearest 1/16 of 1%) established by Lender as
its LIBOR Rate, based on Lender's determination, on the basis of such factors as
Lender deems relevant, of the rate of interest at which U.S. dollar deposits
would be offered to U.S. Bank National Association in the London interbank
market at approximately 11 a.m. London time on the date which is two Business
Days prior to the first day of such LIBOR Interest Period for delivery on the
first day of such LIBOR Interest Period for the number of months therein;
provided, however, that the LIBOR Rate shall be adjusted to take into account
<PAGE>
the maximum reserves required to be maintained for Eurocurrency liabilities by
banks during each such LIBOR Interest Period as specified in Regulation D of the
Board of Governors of the Federal Reserve System or any successor regulation.
"Prime Rate" means the rate of interest which Lender from time
to time establishes as its prime rate and is not, for example, the lowest rate
of interest which Lender collects from any borrower or class of borrowers. When
the Prime Rate is applicable under Section 4(b) or 11(b), the interest rate
hereunder shall be adjusted without notice effective on the day the Prime Rate
changes, but in no event shall the rate of interest be higher than allowed by
law.
"Prime Rate Amount" means any portion of the Principal Balance
bearing interest at the Prime Borrowing Rate.
(b) THE PRIME BORROWING RATE.
(i) The Prime Borrowing Rate is a per annum rate equal to the Prime
Rate plus SEE ATTACHED EXHIBIT "A" per annum.
(ii) Whenever Borrower desires to use the Prime Borrowing Rate option,
Borrower shall give Lender notice orally or in writing in accordance with
Section 15 of this note, which notice shall specify the requested effective date
(which must be a Business Day) and principal amount of the Advance or increase
in the Prime Rate Amount, and whether Borrower is requesting a new Advance under
a line of credit or conversion of a LIBOR Amount to the Prime Borrowing Rate.
(iii) Subject to Section 11 of this note, interest shall accrue on the
unpaid Principal Balance at the Prime Borrowing Rate unless and except to the
extent that the LIBOR Borrowing Rate is in effect.
(c) THE LIBOR BORROWING RATE.
(i) The LIBOR Borrowing Rate is the LIBOR Rate plus SEE ATTACHED
EXHIBIT "A" per annum.
(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender
between 8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business Day.
Borrower may request an Advance, conversion of any portion of the Prime Rate
Amount to a LIBOR Amount or a new LIBOR Interest Period for an existing LIBOR
Amount, at such rate only by giving Lender notice in accordance with Section 4
(c) (iii) before 10:00 a.m. (Portland, Oregon time) on such day.
(iii) Whenever Borrower desires to use the LIBOR Borrowing Rate option,
Borrower shall give Lender irrevocable notice (either in writing or orally and
promptly confirmed in writing) between 8:00 a.m. and 10:00 a.m. (Portland,
Oregon time) two (2) Business Days prior to the desired effective date of such
rate. Any oral notice shall be given by, and any written notice or confirmation
of an oral notice shall be signed by, the person(s) authorized in Section 15 of
this note, and shall specify the requested effective date of the rate, LIBOR
Interest Period and LIBOR Amount, and whether Borrower is requesting a new
Advance at the LIBOR Borrowing Rate under a line of credit, conversion of all or
any portion of the Prime Rate Amount to a LIBOR Amount, or a new LIBOR Interest
Period for an outstanding LIBOR Amount. Notwithstanding any other term of this
note, Borrower may elect the LIBOR Borrowing Rate in the minimum principal
amount of $ 500,00.00 and in multiples of $ 100,000.00 above such amount;
provided, however, that no more than N/A separate LIBOR Interest Periods may be
in effect at any one time.
(iv) If at any time the LIBOR Rate is unascertainable or unavailable to
Lender or if LIBOR Rate loans become unlawful, the option to select the LIBOR
Borrowing Rate shall terminate immediately. If the LIBOR Borrowing Rate is then
in effect, (A) it shall terminate automatically with respect to all LIBOR
Amounts (i) on the last day of each then applicable LIBOR Interest Period, if
Lender may lawfully continue to maintain such loans, or (ii) immediately if
Lender may not lawfully continue to maintain such loans through such day, and
(B) subject to Section 11, the Prime Borrowing Rate automatically shall become
effective as to such amounts upon such termination.
(v) If at any time after the date hereof (A) any revision in or
adoption of any applicable law, rule, or regulation or in the interpretation or
administration thereof (i) shall subject Lender or its Eurodollar lending office
to any tax, duty, or other charge, or change the basis of taxation of payments
to Lender with respect to any loans bearing interest based on the LIBOR Rate, or
(ii) shall impose or modify any reserve, insurance, special deposit, or similar
requirements against assets of, deposits with or for the account of, or credit
extended by Lender or its Eurodollar lending office, or impose on Lender or its
Eurodollar lending office any other condition affecting any such loans, and (B)
the result of any of the foregoing is (i) to increase the cost to Lender of
making or maintaining any such loans or (ii) to reduce the amount of any sum
receivable under this note by Lender or its Eurodollar lending office, Borrower
shall pay Lender within 15 days after demand by Lender such additional amount as
will compensate Lender for such increased cost or reduction. The determination
hereunder by Lender of such additional amount shall be conclusive in the absence
of manifest error. If Lender demands compensation under this Section 4(c)(v),
Borrower may upon three (3) Business Days' notice to Lender pay the accrued
interest on all LIBOR Amounts, together with any additional amounts payable
under Section 4(c)(vi). Subject to Section 11, upon Borrower's paying such
accrued interest and additional costs, the Prime Borrowing Rate immediately
shall be effective with respect to the unpaid principal balance of such LIBOR
Amounts.
(vi) Borrower shall pay to Lender, on demand, such amount as Lender
reasonably determines (determined as though 100% of the applicable LIBOR Amount
had been funded in the London interbank market) is necessary to compensate
Lender for any direct or indirect losses, expenses, liabilities, costs, expenses
or reductions in yield to Lender, whether incurred in connection with
liquidation or re-employment of funds or otherwise, incurred or sustained by
Lender as a result of: (A) Any payment or prepayment of a LIBOR Amount,
termination of the LIBOR Borrowing Rate or conversion of a LIBOR Amount to the
Prime Borrowing Rate on a day other than the last day of the applicable LIBOR
Interest Period (including as a result of acceleration or a notice pursuant to
Section 4(c)(v)); or (B) Any failure of Borrower to borrow, continue or prepay
any LIBOR Amount or to convert any portion of the Prime Rate Amount to a LIBOR
Amount after Borrower has given a notice thereof to Lender.
<PAGE>
(vii) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay
interest based on such rate, plus any other applicable taxes or charges
hereunder, even though Lender may have obtained the funds loaned to Borrower
from sources other than the London interbank market. Lender's determination of
the LIBOR Borrowing Rate and any such taxes or charges shall be conclusive in
the absence of manifest error.
(viii) Notwithstanding any other term of this note, Borrower may not
select the LIBOR Borrowing Rate if an event of default hereunder has occurred
and is continuing.
(ix) Nothing contained in this note, including without limitation the
determination of any LIBOR Interest Period or Lender's quotation of any LIBOR
Borrowing Rate, shall be construed to prejudice Lender's right, if any, to
decline to make any requested Advance or to require payment on demand.
5. COMPUTATION OF INTEREST. All interest under Section 4 and Section 11
will be computed at the applicable rate based on a 360-day year and applied to
the actual number of days elapsed.
6. PAYMENT SCHEDULE.
(a) PRINCIPAL. Principal shall be paid:
/X/ on demand.
/ / on demand, or if no demand, on _______.
/ / on ______.
/ / subject to Section 8, in installments of
/ / ____each, plus accrued interest, beginning on ____ and on
the same day of each _______ thereafter until ______ when
the entire Principal Balance plus interest thereon shall
be due and payable.
/ / ____ each, including accrued interest, beginning on _____
and on the same day of each _____ thereafter until _____
when the entire Principal Balance plus interest thereon
shall be due and payable.
/ / ________.
(b) INTEREST.
(i) Interest on the Prime Rate Amount shall be paid:
/X/ on the FIRST day of JANUARY, 1998 and on the same day of
each MONTH. thereafter prior to maturity and at maturity.
/ / at maturity.
/ / at the time each principal installment is due and at
maturity.
/ / _____.
(ii) Interest on all LIBOR Amounts shall be paid:
/X/ on the last day of the applicable LIBOR Interest Period,
and if such LIBOR Interest Period is longer than three
months, on the last day of each three month period
occurring during such LIBOR Interest Period, and at
maturity.
/ / on the _____ day of _____and on the same day of each ____
thereafter prior to maturity and at maturity.
/ / at maturity.
/ / at the time each principal installment is due and at
maturity.
/ / ______.
7. PREPAYMENT.
(a) Prepayments of all or any part of the Prime Rate Amount may be made at
any time without penalty.
(b) Except as otherwise specifically set forth herein, Borrower may not
prepay all or any part of any LIBOR Amount or terminate any LIBOR
Borrowing Rate, except on the last day of the applicable LIBOR Interest
Period.
(c) Principal prepayments will not postpone the date of or change the
amount of any regularly scheduled payment. At the time of any principal
prepayment, all accrued interest, fees, costs and expenses shall also
be paid.
8. CHANGE IN PAYMENT AMOUNT. Each time the interest rate on this note changes
the holder of this note may, from time to time, in holder's sole discretion,
increase or decrease the amount of each of the installments remaining unpaid at
the time of such change in rate to an amount holder in its sole discretion deems
necessary to continue amortizing the Principal Balance at the same rate
established by the installment amounts specified in Section 6(a), whether or not
a "balloon" payment may also be due upon maturity of this note. Holder shall
notify the undersigned of each such change in writing. Whether or not the
installment amount is increased under this Section 8, Borrower understands that,
as a result of increases in the rate of interest the final payment due, whether
or not a "balloon" payment, shall include the entire Principal Balance and
interest thereon then outstanding, and may be substantially more than the
installment specified in Section 6.
<PAGE>
9. ALTERNATE PAYMENT DATE. Notwithstanding any other term of this note,
if in any month there is no day on which a scheduled payment would otherwise
be due (e.g. February 31), such payment shall be paid on the last banking
day of that month.
10. PAYMENT BY AUTOMATIC DEBIT.
/ / Borrower hereby authorizes Lender to automatically deduct the amount of all
principal and interest payments from account number ____ at_____ . If there are
insufficient funds in the account to pay the automatic deduction in full, Lender
may allow the account to become overdrawn, or Lender may reverse the automatic
deduction. Borrower will pay all the fees on the account which result from the
automatic deductions, including any overdraft and non-sufficient funds charges.
If for any reason Lender does not charge the account for a payment, or if an
automatic payment is reversed, the payment is still due according to this note.
If the account is a Money Market Account, the number of withdrawals from that
account is limited as set out in the account agreement. Lender may cancel the
automatic deduction at any time in its discretion.
Provided, however, if no account number is entered above, Borrower does not want
to make payments by automatic debit.
11. DEFAULT.
(a) Without prejudice to any right of Lender to require payment on demand or to
decline to make any requested Advance, each of the following shall be an event
of default: (i) Borrower fails to make any payment when due. (ii) Borrower fails
to perform or comply with any term, covenant or obligation in this note or any
agreement related to this note, or in any other agreement or loan Borrower has
with Lender. (iii) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this note or perform
Borrower's obligations under this note or any related documents. (iv) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (v) Borrower dies, becomes insolvent, liquidates
or dissolves, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (vi) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (vii) Any of the events described in
this default section occurs with respect to any general partner in Borrower or
any guarantor of this note, or any guaranty of Borrower's indebtedness to Lender
ceases to be, or is asserted not to be, in full force and effect. (viii) There
is any material adverse change in the financial condition or management of
Borrower or Lender in good faith deems itself insecure with respect to the
payment or performance of Borrower's obligations to Lender. If this note is
payable on demand, the inclusion of specific events of default shall not
prejudice Lender's right to require payment on demand or to decline to make any
requested Advance.
(b) Without prejudice to any right of Lender to require payment on demand, upon
the occurrence of an event of default, Lender may declare the entire unpaid
Principal Balance on this note and all accrued unpaid interest immediately due
and payable, without notice. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable law,
increase the interest rate on this note to a rate equal to the Prime Borrowing
Rate plus 5%. The interest rate will not exceed the maximum rate permitted by
applicable law. In addition, if any payment of principal or interest is 19 or
more days past due, Borrower will be charged a late charge of 5% of the
delinquent payment.
12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall, at
any time, be conclusive evidence of the unpaid Principal Balance and interest
owing on this note. Notwithstanding any other provisions of this note, in the
event holder makes Advances hereunder which result in an unpaid Principal
Balance on this note which at any time exceeds the maximum amount specified in
Section 2, Borrower agrees that all such Advances, with interest, shall be
payable on demand.
13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section 1 is a
revolving line of credit or a non-revolving line of credit, Borrower agrees that
Lender is under no obligation and has not committed to make any Advances
hereunder. Each Advance hereunder shall be made at the sole option of Lender.
14. DEMAND NOTE. If this note is payable on demand, Borrower acknowledges and
agrees that (a) Lender is entitled to demand Borrower's immediate payment in
full of all amounts owing hereunder and (b) neither anything to the contrary
contained herein or in any other loan documents (including but not limited to,
provisions relating to defaults, rights of cure, default rate of interest,
installment payments, late charges, periodic review of Borrower's financial
condition, and covenants) nor any act of Lender pursuant to any such provisions
shall limit or impair Lender's right or ability to require Borrower's payment in
full of all amounts owing hereunder immediately upon Lender's demand.
15. REQUESTS FOR ADVANCES.
(a) Any Advance may be made or interest rate option selected upon the request of
Borrower (if an individual), any of the undersigned (if Borrower consists of
more than one individual), any person or persons authorized in subsection (b) of
this Section 15, and any person or persons otherwise authorized to execute and
deliver promissory notes to Lender on behalf of Borrower.
(b) Borrower hereby authorizes any ____ of the following individuals to request
Advances and to select interest rate options: ____ unless Lender is otherwise
instructed in writing.
<PAGE>
(c) All Advances shall be disbursed by deposit directly to Borrower's account
number at branch of Lender, or by cashier's check issued to Borrower.
(d) Borrower agrees that Lender shall have no obligation to verify the identity
of any person making any request pursuant to this Section 15, and Borrower
assumes all risks of the validity and authorization of such requests. In
consideration of Lender agreeing, at its sole discretion, to make Advances upon
such requests, Borrower promises to pay holder, in accordance with the
provisions of this note, the Principal Balance together with interest thereon
and other sums due hereunder, although any Advances may have been requested by a
person or persons not authorized to do so.
16. PERIODIC REVIEW. Lender will review Borrower's credit accommodations
periodically. At the time of the review, Borrower will furnish Lender with any
additional information regarding Borrower's financial condition and business
operations that Lender requests. This information may include but is not limited
to, financial statements, tax returns, lists of assets and liabilities, agings
of receivables and payables, inventory schedules, budgets and forecasts. If upon
review, Lender, in its sole discretion, determines that there has been a
material adverse change in Borrower's financial condition, Borrower will be in
default. Upon default, Lender shall have all rights specified herein.
17. NOTICES. Any notice hereunder may be given by ordinary mail, postage paid
and addressed to Borrower at the last known address of Borrower as shown on
holder's records. If Borrower consists of more than one person, notification
of any of said persons shall be complete notification of all.
18. ATTORNEY FEES. Whether or not litigation or arbitration is commenced,
Borrower promises to pay all costs of collecting overdue amounts. Without
limiting the foregoing, in the event that holder consults an attorney regarding
the enforcement of any of its rights under this note or any document securing
the same, or if this note is placed in the hands of an attorney for collection
or if suit or litigation is brought to enforce this note or any document
securing the same, Borrower promises to pay all costs thereof including such
additional sums as the court or arbitrator(s) may adjudge reasonable as attorney
fees, including without limitation, costs and attorney fees incurred in any
appellate court, in any proceeding under the bankruptcy code, or in any
receivership and post-judgment attorney fees incurred in enforcing any judgment.
19. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or
otherwise, waives diligence, demand, presentment for payment, notice of
non-payment, protest and notice of protest and waives all defenses based on
suretyship or impairment of collateral. Without notice to Borrower and without
diminishing or affecting Lender's rights or Borrower's obligations hereunder,
Lender may deal in any manner with any person who at any time is liable for, or
provides any real or personal property collateral for, any indebtedness of
Borrower to Lender, including the indebtedness evidenced by this note. Without
limiting the foregoing, Lender may, in its sole discretion: (a) make secured or
unsecured loans to Borrower and agree to any number of waivers, modifications,
extensions and renewals of any length of such loans, including the loan
evidenced by this note; (b) impair, release (with or without substitution of new
collateral), fail to perfect a security interest in, fail to preserve the value
of, fail to dispose of in accordance with applicable law, any collateral
provided by any person; (c) sue, fail to sue, agree not to sue, release, and
settle or compromise with, any person.
20. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned
Borrowers are joint and several and are binding upon any marital community of
which any of the undersigned are members. Holder's rights and remedies under
this note shall be cumulative.
21. SEVERABILITY. If any term or provision of this note is declared by a court
of competent jurisdiction to be illegal, invalid or unenforceable for any reason
whatsoever, such illegality, invalidity or unenforceability shall not affect the
balance of the terms and provisions hereof, which terms and provisions shall
remain binding and enforceable, and this note shall be construed as if such
illegal, invalid or unenforceable provision had not been contained herein.
22. ARBITRATION.
(a) Either Lender or Borrower may require that all disputes, claims,
counterclaims and defenses, including those based on or arising from any alleged
tort ("Claims") relating in any way to this note or any transaction of which
this note is a part (the "Loan"), be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and Title 9 of the U.S. Code. All Claims will be subject to the
statutes of limitation applicable if they were litigated. This provision is void
if the Loan, at the time of the proposed submission to arbitration, is secured
by real property located outside of Oregon or Washington, or if the effect of
the arbitration procedure (as opposed to any Claims of Borrower) would be to
materially impair Lender's ability to realize on any collateral securing the
Loan.
(b) If arbitration occurs and each party's Claim is less than $100,000, one
neutral arbitrator will decide all issues; if any party's Claim is $100,000 or
more, three neutral arbitrators will decide all issues. All arbitrators will be
active Oregon State Bar members in good standing. All arbitration hearings will
be held in Portland, Oregon. In addition to all other powers, the arbitrator(s)
shall have the exclusive right to determine all issues of arbitrability.
Judgment on any arbitration award may be entered in any court with jurisdiction.
(c) If either party institutes any judicial proceeding relating to the Loan,
such action shall not be a waiver of the right to submit any Claim to
arbitration. In addition, each has the right before, during and after any
arbitration to exercise any number of the following remedies, in any order or
concurrently: (i) setoff; (ii) self-help repossession; (iii) judicial or
non-judicial foreclosure against real or personal property collateral; and (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery and replevin.
<PAGE>
23. GOVERNING LAW. This note shall be governed by and construed and enforced in
accordance with the laws of the State of Oregon without regard to conflicts of
law principles; provided, however, that to the extent that Lender has greater
rights or remedies under Federal law, this provision shall not be deemed to
deprive Lender of such rights and remedies as may be available under Federal
law.
24. PERFORMANCE PRICING MATRIX. The applicable rate of interest shall
be based on Times Fixed Charge Coverage and adjusted quarterly, as set forth
in the pricing matrix attached hereto as Exhibit "A".
25. DISCLOSURE.
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.
EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.
PHOENIX GOLD INTERNATIONAL, INC.
- - ---------------------------------------------------------
Borrower Name (Corporation, Partnership or other Entity)
/s/ JOSEPH K. O'BRIEN CHIEF FINANCIAL OFFICER
- - ---------------------------------------------------------
By Title
For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.
Lender Name: U.S. Bank National Association
------------------------------
By: /s/ DANIEL A. RICE
------------------
Title: VICE PRESIDENT
------------------
Date: 12/22/97
------------------
<PAGE>
EXHIBIT `A'
This exhibit is attached and made a part of that certain Promissory Note in the
amount of $5,500,000.00, dated DECEMBER 17, 1997, from PHOENIX GOLD
INTERNATIONAL, INC. (Borrower) to U.S. Bank National Association (Lender).
PERFORMANCE PRICING MATRIX
--------------------------
Pricing to be governed by a matrix which is based in Times Fixed Charge Coverage
and adjusted quarterly, as follows:
LEVEL TFCC PRIME + LIBOR+
greater
1 than 3.00 0 2.25%
2 2.51 - 3.00 0 2.75%
3 2.01 - 2.50 0.50% 3.25%
4 1.51 - 2.00 1.00% 3.75%
5 1.25 - 1.50 1.50% 4.25%
6 less than 1.25 DEFAULT DEFAULT
PHOENIX GOLD INTERNATIONAL, INC.
By: /s/ Joseph K. O'Brien
--------------------------
Title: Chief Financial Officer
--------------------------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Daniel A. Rice
-------------------------
Title: Vice President
-----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PHOENIX
GOLD INTERNATIONAL, INC.'S FINANCIAL STATEMENTS CONTAINED IN ITS QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDING DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-END> DEC-28-1997
<CASH> 2,601
<SECURITIES> 0
<RECEIVABLES> 4,333,930
<ALLOWANCES> 0
<INVENTORY> 6,867,520
<CURRENT-ASSETS> 11,944,111
<PP&E> 6,241,810
<DEPRECIATION> 2,926,798
<TOTAL-ASSETS> 16,224,084
<CURRENT-LIABILITIES> 4,543,063
<BONDS> 408,043
0
0
<COMMON> 7,548,822
<OTHER-SE> 3,724,156
<TOTAL-LIABILITY-AND-EQUITY> 16,224,084
<SALES> 6,058,001
<TOTAL-REVENUES> 6,058,001
<CGS> 4,653,204
<TOTAL-COSTS> 4,653,204
<OTHER-EXPENSES> 1,321,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,439
<INCOME-PRETAX> 4,002
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 3,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,002
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
