U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999,
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 000-25866
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) 286-9300
(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 3,244,345 shares of the issuer's common stock outstanding as of
July 31, 1999.
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PHOENIX GOLD INTERNATIONAL, INC.
Form 10-Q for the Quarter Ended June 30, 1999
INDEX
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Part I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Balance Sheets at June 30, 1999
and September 30, 1998 (unaudited) 3
Statements of Earnings for the Three and Nine Months Ended
June 30, 1999 and 1998 (unaudited) 4
Statements of Cash Flows for the Nine Months Ended
June 30, 1999 and 1998 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
INDEX TO EXHIBITS 15
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2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
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PHOENIX GOLD INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
June 30, September 30,
1999 1998
----------------- ------------------
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ASSETS
Current assets:
Cash and cash equivalents $ 2,600 $ 2,602
Accounts receivable, net 4,467,743 4,287,965
Inventories 5,897,451 6,886,720
Prepaid expenses 262,797 169,621
Deferred taxes 427,000 446,000
----------------- ------------------
Total current assets 11,057,591 11,792,908
Property and equipment, net 2,064,870 2,522,005
Goodwill, net 185,734 217,702
Deferred taxes 425,000 567,000
Other assets 157,474 108,513
----------------- ------------------
Total assets $ 13,890,669 $ 15,208,128
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,358,613 $ 1,781,341
Line of credit - 900,000
Accrued payroll and benefits 258,708 420,209
Other accrued expenses 448,857 448,214
Current portion of long-term obligations 991,508 222,529
----------------- -----------------
Total current liabilities 3,057,686 3,772,293
Long-term obligations - 938,938
Shareholders' equity:
Preferred stock;
Authorized - 5,000,000 shares; none outstanding - -
Common stock, no par value;
Authorized - 20,000,000 shares
Issued and outstanding - 3,244,345 and 3,464,745 shares 7,182,247 7,548,822
Retained earnings 3,650,736 2,948,780
------------------ ------------------
Total shareholders' equity 10,832,983 10,497,602
------------------ ------------------
Total liabilities and shareholders' equity $ 13,890,669 $ 15,208,128
================== ==================
SEE NOTES TO FINANCIAL STATEMENTS
3
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PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
------------------------------ --------------------------------
1999 1998 1999 1998
--------------- -------------- --------------- ---------------
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Net sales $ 7,454,978 $ 7,687,304 $ 20,320,979 $ 20,358,800
Cost of sales 5,399,452 5,390,185 14,870,784 14,859,007
-------------- ------------- ------------- -------------
Gross profit 2,055,526 2,297,119 5,450,195 5,499,793
Operating expenses:
Selling 883,550 1,141,146 2,465,873 2,863,557
General and administrative 585,084 619,999 1,699,728 1,805,450
-------------- ------------- ------------ -------------
Total operating expenses 1,468,634 1,761,145 4,165,601 4,669,007
-------------- ------------- ------------ -------------
Income from operations 586,892 535,974 1,284,594 830,786
Other income (expense):
Interest expense (27,991) (86,400) (116,638) (271,190)
Other income, net - 961 - 8,936
-------------- ------------- ------------ -------------
Total other income (expense) (27,991) (85,439) (116,638) (262,254)
-------------- ------------- ------------ -------------
Earnings before income taxes 558,901 450,535 1,167,956 568,532
Income tax expense (223,000) (181,000) (466,000) (228,000)
-------------- ------------- ------------ -------------
Net earnings $ 335,901 $ 269,535 $ 701,956 $ 340,532
============== ============= ============ =============
Net earnings per share - basic and diluted $ 0.10 $ 0.08 $ 0.21 $ 0.10
============== ============= ============ ============
Average shares outstanding - basic and diluted 3,246,231 3,464,745 3,310,412 3,464,682
============== ============= ============ ============
SEE NOTES TO FINANCIAL STATEMENTS
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4
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PHOENIX GOLD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
----------------------------------
1999 1998
--------------- ---------------
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Cash flows from operating activities:
Net earnings $ 701,956 $ 340,532
Adjustments to reconcile net earnings to
net cash provided by (used in) operating activities:
Depreciation and amortization 740,428 770,734
Deferred taxes 161,000 8,000
Changes in operating assets and liabilities:
Accounts receivable (179,778) (32,206)
Inventories 989,269 525,169
Prepaid expenses (93,176) (94,994)
Other assets (80,002) (13,955)
Accounts payable (422,728) (108,526)
Accrued expenses (160,858) (222,276)
-------------- --------------
Net cash provided by operating activities 1,656,111 1,617,030
Cash flows from investing activities:
Capital expenditures, net (220,284) (287,166)
-------------- --------------
Net cash used in investing activities (220,284) (287,166)
Cash flows from financing activities:
Line of credit, net (900,000) (1,060,364)
Repayment of long-term obligations (169,254) (296,347)
Purchase of common stock (366,575) -
Proceeds from exercise of stock options - 26,957
-------------- --------------
Net cash used in financing activities (1,435,829) (1,329,870)
-------------- --------------
Decrease in cash and cash equivalents (2) (6)
Cash and cash equivalents, beginning of period 2,602 2,603
-------------- --------------
Cash and cash equivalents, end of period $ 2,600 $ 2,597
============== ==============
Supplemental disclosures:
Cash paid for interest $ 130,000 $ 285,000
Cash paid for income taxes 220,000 44,000
SEE NOTES TO FINANCIAL STATEMENTS
5
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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-K for the year
ended September 30, 1998 filed with the Securities and Exchange Commission. The
results of operations for the three- and nine-month periods ended June 30, 1999
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
June 30, 1999 and the results of its operations for the three- and nine-month
periods ended June 30, 1999 and 1998 and its cash flows for the nine-months
ended June 30, 1999 and 1998.
Note 2 - REPORTING PERIODS
The Company's fiscal year is the 52-week or 53-week period ending the last
Sunday in September. Fiscal 1999 and fiscal 1998 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 and nine months presented ended on June 30.
Note 3 - SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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. Phoenix Gold
operates in a single industry segment. Adoption of SFAS No. 131 may result in
additional disclosures in the notes to financial statements, but will have no
impact on the financial statements.
6
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Note 4 - INVENTORIES
Inventories are stated at the lower of cost or market and consist of the
following:
June 30, September 30,
1999 1998
--------------------- ---------------------
Raw materials $ 2,568,572 $ 2,732,112
Work-in-process 2,860 8,527
Finished goods 3,283,266 4,058,828
Supplies 42,753 87,253
--------------------- ---------------------
Total inventories $ 5,897,451 $ 6,886,720
===================== =====================
Note 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, September 30,
1999 1998
---------------- ---------------
Machinery, equipment, and vehicles $ 4,703,106 $ 4,526,903
Leasehold improvements 1,595,605 1,527,834
Construction in progress - 46,835
--------------- ----------------
6,298,711 6,101,572
Less accumulated depreciation
and amortization (4,233,841) (3,579,567)
--------------- ----------------
Total property and equipment, net $ 2,064,870 $ 2,522,005
=============== ================
Note 6 - LINE OF CREDIT
During December 1998, the Company renewed the $5.5 million bank operating
line of credit on essentially the same terms through December 1999. As of June
30, 1999, the Company was eligible to borrow $5.1 million under the line of
credit. There were no borrowings outstanding under the line of credit at June
30, 1999.
Note 7 - COMMITMENT
The Board of Directors has authorized the Company to purchase up to $1.0
million of Company common stock through broker-effected transactions in the open
market. During the nine months ended June 30, 1999, the Company has acquired
220,400 shares of its common stock from third parties for $366,575.
7
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Note 8 - SUBSEQUENT EVENT
During December 1998, the Company provided notice of its intent to
exercise its option to purchase the facility, which it leased through June 30,
1999. Subsequent to June 30, 1999, the Company completed the purchase of the
facility for $3.1 million. Additionally, on the same day, the Company sold the
facility and the existing improvements, with a remaining net book value of $1.0
million, for $5.1 million and then re-leased the facility. A gain of
approximately $1.0 million will be deferred and recognized over the ten-year
lease term as a reduction in rent expense. The net cash proceeds were used to
repay all of the remaining long-term obligations. Therefore, for financial
reporting purposes, the Company has reflected the long-term obligations existing
at June 30, 1999 as current liabilities as of such date.
Future rent expense under the facility operating lease is as follows:
Year ended September 30,
1999 $ 130,200
2000 524,055
2001 537,075
2002 550,095
2003 563,580
2004 578,460
Thereafter 2,951,355
---------------------
Total $ 5,834,820
=====================
8
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Part I: FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
- ---------------------
Net sales decreased $232,000, or 3.0%, to $7.5 million for the three
months ended June 30, 1999, compared to $7.7 million for the three months ended
June 30, 1998 due principally to decreased international sales. Domestic sales
were unchanged at $5.2 million for the three months ended June 30, 1999 compared
to June 30, 1998. International sales decreased 9.3% to $2.3 million from $2.5
million in the comparable 1998 period. The decrease resulted primarily from
decreased sales to Canada and Latin America offset in part by increased sales to
Asia and Europe. International sales represented 30.2% and 32.3% of net sales
for the three months ended June 30, 1999 and 1998, respectively. The Company
expects international sales for fiscal 1999 to remain at levels lower than
historically achieved due to current worldwide economic conditions.
Net sales for the nine months ended June 30, 1999 decreased $38,000, or
0.2%, to $20.3 million from $20.4 million for the nine months ended June 30,
1998 due to decreased international sales offset in part by increased domestic
sales. International sales decreased $1.6 million, or 22.6%, to $5.5 million for
nine months ended June 30, 1999 compared to $7.1 million for the nine months
ended June 30, 1998. For the nine months ended June 30, 1999, domestic sales
increased 11.8% to $14.8 million from $13.3 million in the comparable 1998
period. The decrease in international sales resulted primarily from decreased
sales to Europe and other international markets. International sales represented
27.0% and 34.8% of net sales for the nine months ended June 30, 1999 and 1998,
respectively.
Gross profit decreased to 27.6% of net sales for the three months ended
June 30, 1999 from 29.9% of net sales for the three months ended June 30, 1998.
Gross profit decreased to 26.8% of net sales for the nine months ended June 30,
1999 from 27.0% for the comparable prior period. The decrease for the three
months ended June 30, 1999 was primarily due to decreased sales volume which
increased manufacturing overhead as a percentage of sales and manufacturing
inefficiencies due to new product introductions.
Operating expenses consist of selling, general and administrative
expenses. Total operating expenses decreased $293,000, or 16.6%, to $1,469,000
for the three months ended June 30, 1999 compared to $1,761,000 for the three
months ended June 30, 1998. Operating expenses were 19.7% and 22.9% of net sales
in the respective three-month periods. Operating expenses decreased $503,000, or
10.8%, to $4,166,000 for the nine months ended June 30, 1999 compared to
$4,669,000 in the comparable period in fiscal 1998. Operating expenses were
20.5% and 22.9% of net sales in the respective nine month periods.
Selling expenses decreased $258,000, or 22.6%, to $884,000 for the three
months ended June 30, 1999, compared to $1,141,000 for the comparable 1998
period. Selling expenses were 11.9% and 14.8% of net sales in the respective
three-month periods. Selling expenses decreased $398,000, or 13.9%, in the first
nine months of fiscal 1999, to $2.5 million, compared to $2.9 million for the
first nine months of fiscal 1998. Selling expenses were 12.1% and 14.1% of net
sales in the respective nine month periods. The decreased selling expenses were
due to reduced promotional activities and sales incentive programs.
9
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General and administrative expenses decreased $35,000, or 5.6%, to
$585,000 for the three months ended June 30, 1999, compared to $620,000 for the
comparable fiscal 1998 period. General and administrative expenses were 7.8% and
8.1% of net sales in the respective three-month periods. General and
administrative expenses decreased $106,000, or 5.9% in the first nine months of
fiscal 1999, to $1,700,000, compared to $1,805,000 for the first nine months of
fiscal 1998. General and administrative expenses were 8.4% and 8.9% of net sales
in the respective nine month periods. The decreased general and administrative
expenses were due to lower payroll costs as a result of reductions in
administrative personnel.
Interest expense decreased by $58,000 to $28,000 for the three months
ended June 30, 1999, compared to $86,000 for the three months ended June 30,
1998. Interest expense decreased by $155,000 to $117,000 for the first nine
months of fiscal 1999 compared to $271,000 for the first nine months of fiscal
1998. The decrease was due to decreased borrowings and decreased interest rates
on the outstanding borrowings.
Net earnings were $336,000, or $0.10 per share (basic and diluted), for
the three months ended June 30, 1999, compared to net earnings of $270,000, or
$0.08 per share (basic and diluted), for the three months ended June 30, 1998.
Net earnings were $702,000, or $0.21 per share (basic and diluted), for the nine
months ended June 30, 1999, compared to net earnings of $341,000, or $0.10 per
share (basic and diluted), for the comparable 1998 period. The increase in net
earnings was due to cost control programs which reduced operating expenses in
dollar amount and 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 nine months ended June 30, 1999 from cash generated from operating
activities. Net cash provided by operating activities was $1,656,000 for the
nine months ended June 30, 1999. When cash flow from operations exceeds current
needs, the Company historically has paid down in part the balance owing on its
operating line of credit rather than accumulating and investing excess cash,
resulting in low reported cash balances.
Inventories decreased $989,000, accounts payable decreased $423,000 and
accrued expenses decreased $161,000 during the nine months ended June 30, 1999
due to management's continuing efforts to improve working capital efficiency and
reduce outstanding liabilities. The line of credit was paid in full, a reduction
of $900,000, due to cash generated by operating activities.
The Company made capital expenditures of $220,000 for the nine months
ended June 30, 1999. Management anticipates that discretionary capital
expenditures for the remainder of fiscal 1999 will be approximately $100,000.
These anticipated expenditures will be financed first from cash provided from
operations and, if necessary, then from existing cash balances and proceeds from
the line of credit.
The Board of Directors has authorized the Company to purchase up to $1.0
million of Company common stock through broker-effected transactions in the open
market. During the nine months ended June 30, 1999, the Company has acquired
220,400 shares of its common stock from third parties for $366,575.
10
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During December 1998, the Company provided notice of its intent to
exercise its option to purchase the facility, which it leased through June 30,
1999. Subsequent to June 30, 1999, the Company completed the purchase of the
facility for $3.1 million. Additionally, on the same day, the Company sold the
facility and the existing improvements, with a remaining net book value of $1.0
million, for $5.1 million and then re-leased the facility. A gain of
approximately $1.0 million will be deferred and recognized over the ten-year
lease term as a reduction in rent expense. The net cash proceeds were used to
repay all of the remaining long-term obligations. Therefore, for financial
reporting purposes, the Company has reflected the long-term obligations existing
at June 30, 1999 as current liabilities as of such date.
During December 1998, the Company renewed the $5.5 million revolving
operating line of credit on essentially the same terms through December 1999. As
of June 30, 1999, the Company was eligible to borrow $5.1 million under the line
of credit. There were no borrowings outstanding under the line of credit at June
30, 1999.
The Company has assessed its exposure to market risks for its financial
instruments and has determined that its exposures to such risks are not
material.
YEAR 2000 CONVERSION
- --------------------
Many computer programs use only two digits to identify a year in a date
field within the program (e.g. "99" or "01"). If not corrected, computer
applications may fail or cause incorrect results by or at the year 2000. The
Company is in the process of preparing its computer systems and applications for
the Year 2000 date conversion. The process includes a review of information
systems used in the Company's internal business as well as by third party
vendors, its bank, manufacturers and suppliers. The Company has substantially
completed its internal assessment of Year 2000 conversion requirements. The
Company's products do not include embedded technology, such as microcontrollers.
The Company's third party interfaces, such as those with its vendors and
customers, are not computerized, and the Company's information systems utilize
standard, readily available business software. The Company is still assessing
the potential cost of Year 2000 conversion on its phone and voice-mail system.
However, at this time, the Company believes the effect of the Year 2000
conversion on its business will not be material.
Information systems that are determined not to be Year 2000 compliant will
be modified, upgraded or replaced through acquisition and implementation of "off
the shelf" upgrades to existing information system software. A portion of the
upgrades has already been acquired from third party vendors at a cost of less
than $20,000, and the balance of the upgrades is believed to be readily
available. The Company has begun to implement such upgrades and expects to
complete the implementation during fiscal 1999. Additionally, the Company
believes the aggregate cost of all such upgrades will not be material.
There can be no assurance, however, because of the existence of numerous
systems and related components within the Company and the interdependency of
these systems, that certain systems at the Company, or systems at entities that
provide services or goods for the Company, will operate in the Year 2000. The
Company is continuing to evaluate the risks to the Company of failure to be Year
2000 compliant and expects to complete a contingency plan prior to year end.
Although no assurance can be given, the inability to complete the Company's Year
2000 conversion on a timely basis or the failure of a system at the Company or
at an entity that provides services and goods to the Company is not expected to
have a material impact on future operating results, financial condition or cash
flows.
11
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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;
business conditions in international markets; changes in the number of
customers; the timing and size of orders by dealers, distributors and OEM
customers; 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; cost and yield
issues associated with production at the Company's factory; and possible costs
and delays associated with Year 2000 computer incompatibilities.
12
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.23 Purchase and Sale Agreement dated June 15, 1999 between
the Company and 6710 LLC
10.24 First Amendment to Purchase and Sale Agreement
dated June 15, 1999 between the Company and 6710 LLC
10.25 6710 LLC Commercial Lease dated June 30, 1999 between the
Company and 6710 LLC
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
13
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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: August 10, 1999
14
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INDEX TO EXHIBITS
Exhibit Page
------- ----
10.23 Purchase and Sale Agreement dated
June 15, 1999 between the Company and 6710 LLC 16
10.24 First Amendment to Purchase and Sale Agreement
dated June 15, 1999 between the Company and 6710 LLC 26
10.25 6710 LLC Commercial Lease dated June 30, 1999
between the Company and 6710 LLC 27
27 Financial Data Schedule 43
15
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT, dated for reference purposes
the 15th day of June, 1999, is by and between PHOENIX GOLD INTERNATIONAL, INC.,
an Oregon corporation, whose address is 9300 N. Decatur Street, Portland, Oregon
97203 ("Phoenix Gold"), and 6710 L.L.C., an Oregon limited liability company,
whose address is P.O. Box 82448, Portland, Oregon 97282 ("6710").
RECITALS
A. Phoenix Gold leases certain real property at 9300 N. Decatur Street
in Portland, Multnomah County, Oregon (the "Leased Premises") from B.B. & S.
Development Co., an Oregon general partnership ("BB&S") pursuant to that certain
Standard Industrial/Commercial Single-Tenant Lease-Net dated February 2, 1994,
as amended and modified by an Addendum dated February 2, 1994, a Letter
Agreement dated January 12, 1996, and a Termination Agreement dated August 31,
1998 (collectively, the "BB&S Lease").
B. Pursuant to that certain Indenture of Lease dated November 15,
1983, as previously modified by that certain letter agreement dated November 28,
1983, that certain letter agreement dated February 13, 1989, that certain
Addendum on Lease for Warehouse Space dated July 23, 1991, that certain
Amendment to Lease dated January 27, 1992, and that certain undated Extension
and Amendment to Lease (collectively the "Bushwacker Lease"), BB&S leased
certain real property adjoining the Leased Premises to Bushwacker, Inc., an
Oregon corporation formerly known as L.T.D. Enterprises, Inc. ("Bushwacker").
For the purposes of this Agreement, the Leased Premises and the real property
leased to Bushwacker are together called the "Property". The Property is more
particularly described on Exhibit A attached hereto and by this reference
incorporated herein.
C. The Property is the subject of Chicago Title Insurance Company of
Oregon's (the "Title Company") Preliminary Title Report, Fourth Supplemental
dated as of June 8, 1999 and issued under Order No. 196950 (the "Title Report"),
a copy of which has previously been provided to 6710.
D. Phoenix Gold has exercised its purchase option contained in the
BB&S Lease, pursuant to which Phoenix Gold will purchase the Property from BB&S.
As a condition precedent to conveying the Property to Phoenix Gold, BB&S must
complete certain survey work and obtain a Property Line Adjustment from the City
of Portland. In addition, Phoenix Gold and BB&S are currently negotiating an
access and sewer easement that will affect the Property (the "Easement").
E. 6710 desires to acquire the Property from Phoenix Gold immediately
after Phoenix Gold acquires the Property from BB&S, then lease the Property to
Phoenix Gold, subject to the Bushwacker Lease. Phoenix Gold desires to sell the
Property to 6710 immediately after Phoenix Gold acquires it from BB&S, then
lease the Property from 6710, subject to the Bushwacker Lease. After the
transactions described in this Recital E, Bushwacker shall be a tenant of
PAGE 1 - PURCHASE AND SALE AGREEMENT
<PAGE>
Phoenix Gold and a subtenant of 6710. The Lease between 6710 and Phoenix Gold is
hereinafter called the "6710 Lease".
NOW THEREFORE, for valuable consideration, including the covenants,
terms and conditions set forth below, Phoenix Gold and 6710 have agreed as
follows:
1. SALE AND PURCHASE. Phoenix Gold agrees to sell to 6710, and 6710
agrees to buy from Phoenix Gold, the Property.
2. PRICE; EARNEST MONEY; PAYMENT. The purchase price for the Property
shall be the sum of $5,094,500, which shall be paid in cash at closing. Upon
mutual execution of this Agreement, 6710 shall deposit $10,000 as earnest money
(the "Earnest Money") with the Title Company, which shall be applied to the
purchase price at closing. The balance of the purchase price shall be paid in
cash at closing.
3. PRELIMINARY TITLE REPORT. Special Exception Nos. 8 through 21,
inclusive, and 22a of the Title Report shall be considered "Permitted
Exceptions" for the purposes of this Agreement.
4. CLOSING.
4.1 TIME AND PLACE OF CLOSING. The closing of the transaction
provided for in this Agreement shall take place in escrow at the Title Company's
office at 930 Pioneer Tower, 888 SW Fifth Avenue, Portland, Oregon 97204 on or
before July 1, 1999, immediately following the closing of Phoenix Gold's
purchase of the Property from BB&S.
4.2 DOCUMENTS. The Property shall be conveyed to 6710 at closing
by statutory warranty deed (the "Deed"), free and clear of all liens,
encumbrances, restrictions and reservations other than the Permitted Exceptions,
the Bushwacker Lease, and the Easement. At closing, Phoenix Gold and 6710 shall
enter into the 6710 Lease.
4.3 CONDITIONS OF CLOSING. In addition to the conditions to
closing described in Sections 3 and 4 above, the obligations of Phoenix Gold and
6710 hereunder shall be subject to the fulfillment of the following conditions,
each of which shall be continuous conditions unless waived by Phoenix Gold and
6710:
(a) The closing of the sale of the Property from BB&S to
Phoenix Gold shall have occurred.
(b) There shall be no material change in the physical
condition of the Property between the date of 6710's execution of this Agreement
and the closing date, and no other material adverse changes related to or
connected with the Property directly or indirectly. 6710, its agents, and
designees shall have reasonable access to the Property prior to closing for the
sole purpose of confirming that it is in substantially the same condition at
closing as it was when inspected. 6710's right to access does not negate the
warranties and covenants contained in this Agreement. 6710 shall indemnify and
hold Phoenix Gold harmless from any loss, damage, or claim arising out of 6710's
access to the Property.
PAGE 2 - PURCHASE AND SALE AGREEMENT
<PAGE>
(c) 6710 shall have reviewed and approved the final form of
the document creating the Easement.
(d) As of the close of escrow, the Title Company shall have
issued or committed to issue to 6710 the title policy described in Section 5
below.
The waiver by 6710 of any condition shall not relieve Phoenix Gold of
any liability or obligation with respect to any representation, warranty,
covenant, or agreement of Phoenix Gold. Neither Phoenix Gold nor 6710 shall act
or fail to act for the purpose of permitting or causing any condition to fail.
Upon failure of any of the preceding conditions to occur, which is not waived by
the parties, other than any condition which fails by reason of an uncured
default by Phoenix Gold or 6710, this Agreement shall terminate, the Earnest
Money shall be returned to 6710, and all documents shall be returned to the
party that provided them.
4.4 KEYS AND PLANS. At closing, Phoenix Gold shall deliver to
6710 keys to all entrance doors and copies of all records and plans to the
building and its systems, to the extent Phoenix Gold receives them and they
haven't already been provided to 6710.
5. TITLE INSURANCE POLICY. Within ten days after the closing, Phoenix
Gold shall furnish to 6710, at Phoenix Gold's expense, an ALTA standard coverage
owner's policy of title insurance issued by the Title Company in the full amount
of the purchase price. The title policy shall contain only the Permitted
Exceptions, the 6710 Lease, the Bushwacker Lease, the Easement, and any liens or
encumbrances created or suffered by 6710.
6. EXPENSES. 6710 and Phoenix Gold shall each pay one-half of the
escrow fee. Phoenix Gold shall pay the cost of recording the Deed and a
memorandum of the 6710 Lease, and any transfer, excise or documentary stamp
taxes, and 6710 shall pay the cost of recording any financing instruments.
Phoenix Gold shall pay the cost of the title insurance policy. Each party shall
bear its own attorney fees, if any.
7. POSSESSION. 6710 shall be entitled to possession of the Property
immediately upon closing, subject to Phoenix Gold's rights under the 6710 Lease
and Bushwacker's rights under the Bushwacker Lease.
8. DEFAULT; REMEDIES. TIME IS OF THE ESSENCE OF THIS AGREEMENT AND
EACH PROVISION HEREOF. If Phoenix Gold has performed each and every one of its
obligations under this Agreement and the transaction provided for herein fails
to close, through no fault of Phoenix Gold, on or before the closing date
specified in Section 4.1 above, 6710 shall forfeit the Earnest Money to Phoenix
Gold as liquidated damages as Phoenix Gold's sole remedy, and this Agreement
shall thereupon be null and void. If Phoenix Gold cannot furnish at closing the
Deed and a commitment for the title insurance policy described in Sections 4.2
and 5 or otherwise fails to complete this transaction on or before the closing
date specified in Section 4.1 above, the Earnest Money shall be returned to
6710, but 6710's acceptance of the Earnest Money shall not constitute a waiver
of other remedies available to 6710, including the right to seek specific
performance.
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<PAGE>
9. PHOENIX GOLD'S REPRESENTATIONS AND WARRANTIES. In addition to any
other express agreements of Phoenix Gold contained in this Agreement, the
following constitute representations and warranties of Phoenix Gold to 6710:
(a) Representations Regarding Phoenix Gold's
Authority.
(i) Phoenix Gold has the legal power, right, and
authority to enter into this Agreement and the instruments
referred to in this Agreement and to consummate the
transactions contemplated in this Agreement.
(ii) All requisite action (corporate, trust,
partnership, or otherwise) has been taken by Phoenix Gold in
connection with entering into this Agreement, the instruments
referred to in this Agreement, and the consummation of the
transactions contemplated in this Agreement. No further
consent of any partner, shareholder, creditor, investor,
judicial or administrative body, governmental authority, or
other party is required.
(iii) The persons executing this Agreement and the
instruments referred to in this Agreement on behalf of Phoenix
Gold and the partners, officers, or trustees of Phoenix Gold,
if any, have the legal power, right, and actual authority to
bind Phoenix Gold to the terms and conditions of this
Agreement.
(iv) This Agreement and all documents required to be
executed by Phoenix Gold are and shall be valid, legally
binding obligations of and enforceable against Phoenix Gold in
accordance with their terms.
(v) Neither the execution and delivery of this
Agreement and documents referred to in this Agreement, nor the
incurring of the obligations set forth in this Agreement, nor
the consummation of the transactions in this Agreement
contemplated, nor compliance with the terms of this Agreement
and the documents referred to in this Agreement conflict with
or will result in the material breach of any terms,
conditions, or provisions of, or constitute a default under
any bond, note, or other evidence of indebtedness, or any
contract, indenture, mortgage, deed of trust, loan,
partnership agreement, lease, or other agreements or
instruments to which Phoenix Gold is a party or which affect
the Property.
(b) Warranties and Representations Pertaining to
Real Estate and Legal Matters. To Phoenix Gold's actual
knowledge:
(i) The information contained in the recitals is
true and correct.
(ii) Except as disclosed to 6710 in writing, Phoenix
Gold has no notice of any litigation, claim, or arbitration,
pending or threatened, with regard to the Property or its
operation.
PAGE 4 - PURCHASE AND SALE AGREEMENT
<PAGE>
(iii) Phoenix Gold has no notice of any attachments,
execution proceedings, assignments for the benefit of
creditors, insolvency, bankruptcy, reorganization, or other
proceedings pending or threatened against Phoenix Gold, nor
are any such proceedings contemplated by Phoenix Gold.
(iv) Phoenix Gold has no notice that the
construction, occupancy, and operation of the Leased Premises
do not materially conform to and comply with all applicable
city, county, state, and federal law, statutes, ordinances,
and regulations.
(v) There are no material structural defects in the
building, nor are there any major repairs required to operate
the building in a lawful, safe, and efficient manner, except
for the roof repairs that 6710 has agreed to undertake
pursuant to the 6710 Lease.
(vi) Upon closing of its option to purchase the
Property, Phoenix Gold will be the legal and beneficial fee
simple titleholder of the Property and have fee simple title
to the Property, free and clear of all liens, encumbrances,
claims, covenants, conditions, restrictions, easements, rights
of way, options, judgments, or other matters, except as
disclosed by the Title Report and in Section 5.
(vii) The electrical, plumbing, heating, and air
conditioning systems and any other utility systems will be in
substantially the same or better condition at closing as when
6710 conducted its inspection.
(viii) Phoenix Gold has not entered into any other
contracts for the sale of the Property, nor do there exist any
rights of first refusal or options to purchase the Property,
except as set forth in the 6710 Lease.
(ix) Phoenix Gold has not received any notices from
any insurance company of any defects or inadequacies in the
Property.
(x) Any licenses and permits obtained by Phoenix Gold
regarding the operation of its business or the Leased Premises
have been fully paid for and are not subject to any liens,
encumbrances, or claims of any kind.
(xi) Phoenix Gold has not sold, transferred,
conveyed, or entered into any agreement regarding "air rights"
or other development rights or restrictions relating to the
Property.
(xii) Phoenix Gold has not received any notice that
the Property is not materially in compliance with applicable
state and federal environmental standards and requirements
affecting it.
(xiii) Phoenix Gold has not received any notices of
violation or advisory action by regulatory agencies regarding
environmental control matters or permit compliance with
respect to the Property.
PAGE 5 - PURCHASE AND SALE AGREEMENT
<PAGE>
(xiv) Phoenix Gold has not transferred hazardous
waste from the Leased Premises to another location that is not
in compliance with applicable environmental laws, regulations,
or permit requirements. To Phoenix Gold's actual knowledge, no
other person has transferred hazardous waste from the Property
to another location that is not in compliance with applicable
environmental laws, regulations, or permit requirements.
(xv) Phoenix Gold has no notice of any proceedings,
governmental administrative actions, or judicial proceedings
pending or contemplated against Phoenix Gold under any
federal, state, or local laws regulating the discharge of
hazardous or toxic materials or substances into the
environment.
(xvi) Phoenix Gold has not, during its ownership of
the Property, stored, produced, or disposed of any hazardous
substance, including asbestos, on the Property, except in
compliance with applicable laws.
(c) Representations, Warranties, and Covenants
Regarding Operation of the Property Through the Close of Escrow.
(i) Phoenix Gold further represents and warrants that
until this transaction is closed or escrow is terminated,
whichever comes earlier, it shall:
A. Operate and maintain the Leased Premises in a
manner consistent with Phoenix Gold's past
practices;
B. Comply with the insurance provisions in the BB&S
Lease;
C. Make all regular payments of interest and
principal on any existing financing by Phoenix
Gold;
D. Comply with all government regulations;
E. Keep 6710 timely advised of any repair or
improvement required to keep the Leased
Premises in substantially the same condition
as when inspected by 6710 and that costs
more than $50,000.
(d) General Representation. Phoenix Gold's
representations and warranties contained in this Agreement are true and
accurate, and are not misleading. Phoenix Gold's representations and warranties
contained in this Agreement shall be true and correct as of the closing date
with the same force and effect as if remade by Phoenix Gold in a separate
certificate at that time. Phoenix Gold's representations and warranties
contained in this Agreement shall survive the close of escrow for ten years and
shall not merge into the deed and the recordation of the deed in the official
records.
(e) Actual Knowledge. For the purpose of this
Agreement, "actual knowledge" means information actually known by Timothy C.
Johnson, Executive Vice President and Chief Operations Officer and Keith A.
PAGE 6 - PURCHASE AND SALE AGREEMENT
<PAGE>
Peterson, President and Chief Executive Officer of Phoenix Gold, without any
additional investigation or inquiry.
10. 6710's REPRESENTATIONS AND WARRANTIES. In addition to any
other express agreements of 6710 contained in this Agreement, the following
constitute representations and warranties of 6710 to Phoenix Gold:
(a) Representations Regarding 6710's Authority.
(i) 6710 has the legal power, right, and authority to
enter into this Agreement and the instruments referred to in
this Agreement and to consummate the transactions contemplated
in this Agreement.
(ii) All requisite action (corporate, trust,
partnership, limited liability company, or otherwise) has been
taken by 6710 in connection with entering into this Agreement,
the instruments referred to in this Agreement, and the
consummation of the transactions contemplated in this
Agreement. No further consent of any partner, shareholder,
member, creditor, investor, judicial or administrative body,
governmental authority, or other party is required.
(iii) The persons executing this Agreement and the
instruments referred to in this Agreement on behalf of 6710
and the partners, officers, members, or trustees of 6710, if
any, have the legal power, right, and actual authority to bind
6710 to the terms and conditions of this Agreement.
(iv) This Agreement and all documents required to be
executed by 6710 are and shall be valid, legally binding
obligations of and enforceable against 6710 in accordance with
their terms.
(v) Neither the execution and delivery of this
Agreement and documents referred to in this Agreement, nor the
incurring of the obligations set forth in this Agreement, nor
the consummation of the transactions in this Agreement
contemplated, nor compliance with the terms of this Agreement
and the documents referred to in this Agreement conflict with
or will result in the material breach of any terms,
conditions, or provisions of, or constitute a default under
any bond, note, or other evidence of indebtedness, or any
contract, indenture, mortgage, deed of trust, loan,
partnership agreement, lease, or other agreements or
instruments to which 6710 is a party or which affect the
Property.
(b) General Representation. 6710's representations
and warranties contained in this Agreement are true and accurate, and are not
misleading. 6710's representations and warranties contained in this Agreement
shall be true and correct as of the closing date with the same force and effect
as if remade by 6710 in a separate certificate at that time. 6710's
representations and warranties contained in this Agreement shall survive the
close of escrow for ten years and shall not merge into the deed and the
recordation of the deed in the official records.
PAGE 7 - PURCHASE AND SALE AGREEMENT
<PAGE>
11. DAMAGE OR DESTRUCTION; CONDEMNATION. Until close of
escrow, the risk of loss shall be retained by Phoenix Gold. Phoenix Gold shall
comply with the insurance provisions of the BB&S Lease.
In the event all or any material portion of the Property is
damaged, destroyed, or condemned or threatened with condemnation before the
close of escrow, 6710 may terminate this Agreement. In such event, escrow will
be terminated, the Earnest Money and accrued interest thereon will be promptly
returned to 6710, and this Agreement shall have no further force or effect
whatsoever. If a nonmaterial portion of the Property is destroyed or condemned,
this Agreement shall remain in full force and effect, including, without
limitation, 6710's obligation to close this transaction as provided for here and
to pay the full purchase price to Phoenix Gold. In such event, 6710 shall be
assigned all insurance proceeds or condemnation proceeds payable to or for the
account of Phoenix Gold.
12. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of Phoenix Gold, 6710 and their respective heirs,
personal representatives, successors and assigns.
13. ATTORNEY FEES. In the event of any action to enforce or
interpret this Agreement, or for any remedy on account of any breach of this
Agreement, the prevailing party in such action shall be entitled to recover from
the other party its costs, disbursements and reasonable attorney fees as
determined by the court in such action and in any appeal therefrom.
14. NOTICE. All notices and communications in connection with
this Agreement shall be given in writing and shall be transmitted by certified
or registered mail, return receipt requested, to the appropriate party at its
address set forth at the outset of this Agreement. Any notice so transmitted
shall be deemed effective on the date it is placed in the United States mail,
postage prepaid. Either party may, by written notice, designate a different
address for purposes of this Agreement.
15. FURTHER ACTS. The parties agree to execute and deliver
such additional documents, and perform such additional acts, as may be
reasonably required to carry out the transaction provided for in this Agreement.
16. BROKER. Phoenix Gold and 6710 represent to each other that
no broker or finder has been engaged by Phoenix Gold or 6710 in connection with
any of the transactions contemplated by this Agreement, or to Phoenix Gold's
knowledge is in any way connected with any of such transactions.
17. ENTIRE AGREEMENT. This written Agreement sets forth the
entire understanding of the parties with respect to the purchase and sale of the
Property. This Agreement supersedes any and all prior negotiations, discussions,
agreements and understandings between the parties, including but not limited to
the Letter of Intent. This Agreement may not be modified or amended except by a
written agreement executed by both parties.
PAGE 8 - PURCHASE AND SALE AGREEMENT
<PAGE>
18. ACCEPTANCE. This offer shall automatically expire at
5 p.m. on July 15, 1999 if not mutually accepted, executed, and delivered prior
to such time.
19. STATUTORY DISCLAIMER. THE PROPERTY DESCRIBED IN THIS
INSTRUMENT MAY NOT BE WITHIN A FIRE PROTECTION DISTRICT PROTECTING STRUCTURES.
THE PROPERTY IS SUBJECT TO LAND USE LAWS AND REGULATIONS, WHICH, IN FARM OR
FOREST ZONES, MAY NOT AUTHORIZE CONSTRUCTION OR SITING OF A RESIDENCE AND WHICH
LIMIT LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930 IN
ALL ZONES. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE
TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING
DEPARTMENT TO VERIFY APPROVED USES AND EXISTENCE OF FIRE PROTECTION FOR
STRUCTURES.
20. OREGON LAW. The laws of the state of Oregon shall govern
the interpretation and enforcement of this Agreement.
21. RECITALS. The statements set forth in Recitals A through
E at the beginning of this Agreement are agreed to be true and correct by
Phoenix Gold and 6710.
IN WITNESS WHEREOF, Phoenix Gold and 6710 have made and entered into
this Purchase and Sale Agreement as of the date first above written.
SELLER: PHOENIX GOLD INTERNATIONAL, INC.
By: /s/ Timothy C. Johnson
-------------------------------
Its: Executive Vice President
PURCHASER: 6710 L.L.C.
By: /s/ Howard N. Dietrich
-------------------------------
Its: Manager
PAGE 9 - PURCHASE AND SALE AGREEMENT
<PAGE>
Order No: 196950
EXHIBIT A
LEGAL DESCRIPTION
PARCEL I:
Lots 1, 2, 3, 16, 17, 18 and the Southeasterly 15 feet of Lots 4 and 15, Block
3; Lots 6, 7, 8, 9, 10 and 11, Block 4; Lots 6, 7, 8, 9, 10 and 11, Block 5; and
Lots 1, 2, 3 and the Southeasterly 15 feet of Lot 4, Block 6, all in BYAR'S
ADDITION TO ST. JOHNS, in the City of Portland, County of Multnomah and State of
Oregon.
TOGETHER WITH those portions of North Crawford Street and North Trumbull Avenue
which accrued to said property by reason of vacation proceedings.
PARCEL II:
A tract of land located in the Northwest 1/4 of Section 12, Township 1 North,
Range 1 West of the Willamette Meridian, in the City of Portland, County of
Multnomah and State of Oregon, more particularly described as follows:
All of Lots 1 through 5, and Lots 12 through 16, Block 4, BYAR'S ADDITION TO ST.
JOHNS.
EXCEPTING THEREFROM the Southwesterly 31 feet of Lots 12 through 16, Block 4,
BYAR'S ADDITION, more particularly described as follows:
Beginning at the Northwesterly corner of Lot 12, Block 4; thence along the
Northwesterly line of said Lot 12, North 57(degree)23'19" East, 31.00 feet to a
5/8" iron rod with yellow plastic cap marked "ACS&P 668-3151"; thence
Southeasterly and parallel to Northeasterly line of vacated N. Crawford Street,
South 32(degree)36'41" East 250.00 feet to a 5/8" iron rod with yellow plastic
cap marked "ACS&P 668-3151" on the Northwesterly right-of-way line of North St.
Louis Avenue and being on the Southeasterly line of Lot 16, Block 4, BYAR'S
ADDITION; thence Southwesterly along said Northwesterly right-of-way line South
57(degree)23'19" West 31.00 feet to the Southwesterly corner of said Lot 16 and
being on the Northerly right-of-way line of vacated N. Crawford Street; thence
Northwesterly along said Northerly right-of-way line North 32(degree)36'41" West
250.00 feet to the point of beginning.
FIRST AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT, dated for reference
purposes only, June 30, 1999, is by and between PHOENIX GOLD INTERNATIONAL,
INC., an Oregon corporation ("Phoenix Gold") and 6710 LLC, an Oregon limited
liability company ("6710").
RECITALS
A. Pursuant to a Purchase and Sale Agreement dated June 15, 1999, Phoenix
Gold agreed to sell to 6710 certain real property located in Multnomah County,
Oregon and more particularly described in the Agreement.
B. The parties desire to amend the Agreement on the terms and conditions
set forth below:
NOW, THEREFORE, for valuable consideration, the parties agree as follows:
1. SECTION 9, PHOENIX GOLD'S REPRESENTATIONS AND WARRANTIES. A new
subparagraph (f) is hereby added to Section 9 as follows:
Notwithstanding the provisions of this Section 9, neither the
"actual knowledge limitation" set forth in subparagraph (e)
nor the ten-year warranty limitation set forth in subparagraph
(d), shall limit, abridge or otherwise waive any rights or
remedies which 6710 may have against Phoenix Gold (i) under
Federal, state or local laws relating to the presence of
hazardous or toxic materials or substances, whether in
contribution or otherwise, or (ii) under common law for fraud,
material misrepresentation or withholding of material
information, it being the intention of Phoenix Gold and 6710
that 6710 is entitled to the same rights and remedies against
Phoenix Gold that Phoenix Gold may have against BB&S
Development Co. under common law, all as more particularly
described in that certain letter from Gregory G. Harris to
Jeffrey H. Keeney dated June 29, 1999.
2. FULL FORCE AND EFFECT. Except as amended by this First Amendment, the
Agreement shall remain in full force and effect.
PHOENIX GOLD INTERNATIONAL, INC. 6710 LLC
By /s/ Timothy C. Johnson By /s/ Howard N. Dietrich
- -------------------------- ---------------------------
Its Executive Vice President Its Manager
6710 LLC COMMERCIAL LEASE
Date: June 30, 1999
Between: 6710 LLC, ("Landlord")
an Oregon Limited Liability Company
P O Box 82448
Portland, Oregon 97282
And: Phoenix Gold International, Inc., ("Tenant")
an Oregon Corporation
9300 N. Decatur
Portland, Oregon __________
Landlord leases to Tenant and Tenant leases from Landlord the following
described property (the "Premises") on the terms and conditions stated below:
SEE EXHIBIT "A " ATTACHED HERETO AND MADE A PART HEREOF
SECTION 1. OCCUPANCY
1.1 ORIGINAL TERM. The term of this lease shall commence July 1, 1999, and
continue through June 30, 2009 (the "Original Term"), unless sooner terminated
as hereinafter provided.
1.2 POSSESSION. Tenant is currently in possession of the property.
1.3 RENEWAL OPTION. If the lease is not in default at the time the option
is exercised or at the time the renewal term is to commence, Tenant shall have
the option to renew this lease for one (1) term of ten (10) years, as follows:
(1) The renewal term shall commence immediately following expiration
of the Original Term.
(2) The option may be exercised by written notice to Landlord given
not less than 120 days prior to the last day of the Original Term. The giving of
such notice shall be sufficient to make the lease binding for the renewal term
without further act of the parties. Landlord and Tenant shall then be bound to
take the steps required in connection with the determination of rent as
specified below.
(3) The terms and conditions of the lease for the renewal term shall
be identical with the Original Term except for rent and except that Tenant will
no longer have any option to renew this lease. Rent for the renewal term shall
be the greater of (a) the rental during the Original Term or (b) fair market
rental for the ensuing term.
(4) If the parties do not agree on the rent within 30 days after the
notice of election to renew, the rent shall be determined by a qualified,
independent real property appraiser familiar with commercial rental values in
the area. The appraiser shall be chosen by Tenant from a list of not fewer than
five such individuals submitted by landlord. If Tenant does not make the choice
within five (5) days after submission of the list, Landlord may do so. If
Landlord does not submit such a list within ten (10) days after written request
from Tenant to do so, Tenant may name as an appraiser any individual with such
Page 1 - LEASE: 6710 LLC to Phoenix Gold International, Inc.
<PAGE>
qualifications. Within thirty (30) days after the appraiser's decision, which
shall be final and binding upon both parties. The cost of the appraisal shall be
borne equally by both parties. In determining fair market rental, the appraiser
shall not assign any value to the then existing improvements in the Premises.
SECTION 2. RENT
2.1 BASE RENT. Tenant hereby agrees to pay base monthly rental (herein
called the "Base Rental") in the sums and at the times as follows:
Month Base Rent Annual Rent
1-12 $43,400 $520,800
13-24 $44,485 $533,820
25-36 $45,597 $547,165
37-48 $46,737 $560,845
49-60 $47,905 $574,866
61-72 $49,103 $589,236
73-84 $50,331 $603,972
85-96 $51,589 $619,068
97-108 $52,879 $634,548
109-120 $54,201 $650,412
Rent shall be payable on the first day of each month in advance at such place
as may be designated by Landlord except that rent for the first and last months
has been paid upon the execution of this lease, and Landlord acknowledges
receipt of this sum.
2.2 SECURITY DEPOSIT. To secure Tenant's compliance with all terms of this
lease, Tenant has paid Landlord the sum of $43,400.00 as a deposit. The deposit
shall be a debt from Landlord to Tenant, refundable within thirty (30) days
after expiration of the lease term or other termination not caused by Tenant's
default. Landlord may commingle the deposit with its funds and Tenant shall not
be entitled to interest on the deposit. Landlord shall have the right to offset
against the deposit any sums owing from Tenant to Landlord and not paid when
due, any damages caused by Tenant's default, the cost of curing any default by
Tenant should Landlord elect to do so, and the cost of performing any repair or
cleanup that is Tenant's responsibility under this lease. Offset against the
deposit shall not be an exclusive remedy in any of the above cases, but may be
invoked by Landlord, at its option, in addition to any other remedy provided by
law or this lease for Tenant's nonperformance. Landlord shall give notice to
Tenant each time an offset is claimed against the deposit, and, unless the lease
is terminated, Tenant shall within ten (10) days after such notice deposit with
Landlord a sum equal to the amount of the offset so that the total deposit
amount, not of offset, shall remain constant throughout the lease term.
2.3 ADDITIONAL RENT. All taxes, insurance costs, utility charges that
Tenant is required to pay by this lease, and any other sum that Tenant is
required to pay to Landlord or third parties shall be additional rent.
SECTION 3. USE OF THE PREMISES.
3.1 PERMITTED USE. The Premises shall be used for office, warehouse and
manufacturing. Tenant shall also have the right to sublease up to 30% of the
facility to any other tenant as long as that tenant's occupancy does not
increase the wear and tear on the facility, does not increase the cost of
property insurance, and complies with all other terms and requirements of this
Page 2 - LEASE: 6710 LLC to Phoenix Gold International, Inc.
<PAGE>
lease. Tenant shall provide Landlord with an executed copy of any sublease
entered into between Tenant and any other tenant, and shall notify Landlord when
any other tenant comes into possession or vacates any portion of the Premises.
3.2 RESTRICTIONS ON USE. In connection with the use of the Premises,
Tenant shall:
(1) Conform to all applicable laws and regulations of any public
authority affecting the premises and the use, and correct at Tenant's own
expense any failure of compliance created through Tenant's fault or by reason of
Tenant's use, but Tenant shall not be required to make any structural changes to
effect such compliance unless such changes are required because of Tenant's
specific use.
(2) Refrain from any activity that would make it impossible to insure
the Premises against casualty, would increase the insurance rate, or would
prevent Landlord from taking advantage of any ruling of the Oregon Insurance
Rating Bureau, or its successor, allowing Landlord to obtain reduced premium
rates for long-term fire insurance policies, unless Tenant pays the additional
cost of the insurance.
(3) Refrain from any use that would be reasonably offensive to other
tenants or owners or users of neighboring premises or that would tend to create
a nuisance or damage the reputation of the premises.
(4) Refrain from loading the electrical system or floors beyond the
point considered safe by a competent engineer or architect selected by Landlord.
(5) Refrain from making any marks on or attaching any sign, insignia,
antenna, aerial, or other device to the exterior or interior walls, windows, or
roof of the premises without the written consent of Landlord, which consent
shall not be unreasonably withheld or delayed
(6) Tenant shall not cause or permit any Hazardous Substance to be
spilled, leaked, disposed of, or otherwise released on or under the Premises.
Tenant may use or otherwise handle on the Premises only those Hazardous
Substances typically used or sold in the prudent and safe operation of the
business specified in Section 3.1. Tenant may store such Hazardous Substances on
the Premises only in quantities necessary to satisfy Tenant's reasonably
anticipated needs. Tenant shall comply with all Environmental Laws and exercise
the highest degree of care in the use, handling, and storage of Hazardous
Substances and shall take all practicable measures to minimize the quantity and
toxicity of Hazardous Substances used, handled, or stored on the Premises. Upon
the expiration or termination of this Lease, Tenant shall remove all Hazardous
Substances from the Premises. The term Environmental Law shall mean any federal,
state, or local statute, regulation, or ordinance or any judicial or other
governmental order pertaining to the protection of health, safety or the
environment. The term Hazardous Substance shall mean any hazardous, toxic,
infectious or radioactive substance, waste, and material as defined or listed by
any Environmental Law and shall include, without limitation, petroleum oil and
its fractions.
SECTION 4. REPAIRS AND MAINTENANCE
4.1 LANDLORD'S OBLIGATIONS. The following shall be the responsibility of
Landlord:
Page 3 - LEASE: 6710 LLC to Phoenix Gold International, Inc.
<PAGE>
(1) Other than maintenance and repair of the roof membrane (not
including the concrete roof used to park vehicles), Landlord shall be under no
obligation to make or perform any repairs, maintenance, replacement,
alterations, or improvements on or to the Premises or the building of which the
Premises are a part.
(2) Notwithstanding the provisions of subsection (1) above, within
one (1) year from the commencement date of this lease, Landlord shall repair the
roof of the Premises substantially in accordance with the specifications set
forth in the proposals dated May 18, 1999, from Interstate Roofing Inc., copies
of which are attached hereto as Exhibit "B". It is expressly understood and
agreed that Landlord need not contract with Interstate Roofing Inc. for such
repairs but may use a roofing contractor of Landlord's choosing to perform the
work.
4.2 TENANT'S OBLIGATIONS. The following shall be the responsibility of
Tenant:
(1) Except for Landlord's obligation under Section 5.1, Tenant, at
its expense, shall keep the Premises (including, without limitation, the
exterior paint) in first-class repair, operating condition, working order, and
appearance.
4.3 LANDLORD'S INTERFERENCE WITH TENANT. In performing any repairs,
replacements, alterations, or other work performed on or around the Premises,
Landlord shall not cause unreasonable interference with use of the Premises by
Tenant. Tenant shall have no right to an abatement of rent nor any claim against
Landlord for any inconvenience or disturbance resulting from Landlord's
activities performed in conformance with the requirement of this provision.
4.4 REIMBURSEMENT FOR REPAIRS ASSUMED. If Tenant fails or refuses to make
repairs that are required by this Section 4, Landlord may make the repairs and
charge the actual costs of repairs to Tenant. Such expenditures by Landlord
shall be reimbursed by Tenant on demand together with interest at the rate of
12% per annum from the date of expenditure by Landlord. Except in an emergency
creating an immediate risk of personal injury or property damage, Landlord may
not perform repairs which are the obligation of Tenant and charge Tenant for the
resulting expense unless at least 20 days before work is commenced, Tenant is
given notice in writing outlining with reasonable particularity the repairs
required, and Tenant fails within that time to initiate such repairs in good
faith.
4.5 INSPECTION OF PREMISES. Landlord shall have the right to inspect the
Premises at any reasonable time or times to determine the necessity of repair.
Whether or not such inspection is made, the duty of Landlord to make repairs
shall not mature until a reasonable time after Landlord has received from Tenant
written notice of the repairs that are required. Landlord shall attempt to
schedule its inspections with Tenant so as to minimize disruption of Tenant's
business operations at the Premises.
SECTION 5. ALTERATIONS.
5.1 ALTERATIONS PROHIBITED. Tenant shall make no improvements or
alterations on the Premises of any kind costing over $50,000 without first
obtaining Landlord's written consent, which consent shall not be unreasonably
withheld or delayed. Tenant shall present to Landlord plans and specifications
for such work at the time consent is sought. Landlord may require Tenant to
provide Landlord with a performance and payment bond prior to commencing any
work. All alterations shall be made in a good
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and workmanlike manner, and in compliance with applicable laws and building
codes. As used herein, "alterations" includes the installation of computer and
telecommunications wiring, cables, and conduit.
5.2 OWNERSHIP AND REMOVAL OF ALTERATIONS. All improvements and alterations
performed on the Premises by either Landlord or Tenant shall be the property of
Landlord when installed unless the applicable Landlord's consent or work sheet
specifically provides otherwise. Improvements and alterations installed by
Tenant shall, at Landlord's option, be removed by Tenant and the Premises
restored unless the applicable Landlord's consent or work sheet specifically
provides otherwise.
SECTION 6. INSURANCE
6.1 INSURANCE REQUIRED. Tenant shall keep the Premises insured against
fire and other risks covered by a standard fire insurance policy with an
endorsement for extended coverage naming Landlord as an additional insured.
Tenant shall carry similar insurance insuring the property of Tenant on the
Premises against such risks. Tenant shall also carry employer's liability and
workers compensation insurance as required by law, and rent loss insurance in an
amount sufficient to compensate Landlord for rent abated pursuant to Section 8
of this lease or otherwise for a period of up to twelve months. Certificates
evidencing such insurance and bearing endorsements requiring ten (10) days'
written notice to Landlord prior to any change or cancellation shall be
furnished to Landlord prior to Tenant's occupancy of the Premises.
6.2 WAIVER OF SUBROGATION. Neither party shall be liable to the other (or
to the other's successors or assigns) for any loss or damage caused by fire or
any of the risks enumerated in a standard fire insurance policy with an extended
coverage endorsement, and in the event of insured loss, neither party's
insurance company shall have a subrogated claim against the other. This waiver
shall be valid only if the insurance policy in question expressly permits waiver
of subrogation or if the insurance company agrees in writing that such a waiver
will not affect coverage under the policies. Each party agrees to use best
efforts to obtain such an agreement from its insurer if the policy does not
expressly permit a waiver of subrogation.
SECTION 7. TAXES; UTILITIES.
7.1 PROPERTY TAXES. Tenant shall pay as due all taxes on its personal
property located on the Premises. Landlord shall pay as due all real property
taxes and special assessments levied against the Premises. As used herein, real
property taxes includes any fee or charge relating to the ownership, use, or
rental of the Premises, other than taxes on the net income of Landlord or
Tenant. Tenant shall reimburse Landlord for all real property taxes and special
assessments within 30 days of billing therefore by Landlord.
7.2 SPECIAL ASSESSMENTS. If an assessment for a public improvement is made
against the Premises, Landlord may elect to cause such assessment to be paid in
installments, in which case all of the installments payable with respect to the
lease term shall be treated the same as general real property taxes for purposes
of Section 7.1.
7.3 CONTEST OF TAXES. Tenant shall be permitted to contest the amount of
any tax or assessment as long as such contest is conducted in a manner that does
not cause any risk that Landlord's interest in the Premises will be foreclosed
for nonpayment.
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7.4 PRORATION OF TAXES. Tenant's share of real property taxes and
assessments for the years in which this lease commences or terminates shall be
prorated based on the portion of the tax year that this lease is in effect.
7.5 NEW CHARGES OR FEES. If a new charge or fee relating to the ownership
or use of the Premises or the receipt of rental therefrom or in lieu of property
taxes is assessed or imposed, then, to the extent permitted by law, Tenant shall
pay such charge or fee. Tenant, however, shall have no obligation to pay any
income, profits, or franchise tax levied on the net income derived by Landlord
from this lease.
7.6 PAYMENT OF UTILITIES CHARGES. Tenant shall pay when due all charges
for services and utilities incurred in connection with the use, occupancy,
operation, and maintenance of the Premises, including (but not limited to)
charges for fuel, water, gas, electricity, sewage disposal, power,
refrigeration, air conditioning, telephone, and janitorial services. If any
utility services are provided by or through Landlord, charges to Tenant shall be
comparable with prevailing rates for comparable services. If the charges are not
separately metered or stated, Landlord shall apportion the charges on an
equitable basis, and Tenant shall pay its apportioned share on demand.
SECTION 8. DAMAGE AND DESTRUCTION
8.1 PARTIAL DAMAGE. If the Premises are partly damaged and Section 8.2
does not apply, the Premises shall be repaired by Landlord at Landlord's
expense. Repairs shall be accomplished with all reasonable dispatch subject to
interruptions and delays from labor disputes and matters beyond the control of
Landlord and shall be performed in accordance with the provisions of 4.3;
provided, however, that the rent shall be abated as set forth in Section 8.3
below.
8.2 DESTRUCTION. If the Premises are destroyed or damaged such that the
cost of repair exceeds 50% of the value of the structure before the damage,
either party may elect to terminate the lease as of the date of the damage or
destruction by notice given to the other in writing not more than forty-five
(45) days following the date of damage. In such event all rights and obligations
of the parties shall cease as of the date of termination, and Tenant shall be
entitled to the reimbursement of any prepaid amounts paid by Tenant and
attributable to the anticipated term. If neither party elects to terminate,
Landlord shall proceed to restore the Premises to substantially the same form as
prior to the damage or destruction. Work shall be commenced as soon as
reasonably possible and thereafter shall proceed without interruption except for
work stoppages on account of labor disputes and matters beyond Landlord's
reasonable control; provided, however, that the rent shall be abated as set
forth in Section 8.3 below.
8.3 RENT ABATEMENT. Rent shall be abated during the repair of any damage
to the extent the premises are untenantable, except that there shall be no rent
abatement where the damage occurred as the result of the fault of Tenant.
8.4 DAMAGE LATE IN TERM. If damage or destruction to which Section 8.2
would apply occurs within one (1) year before the end of the then-current lease
term, Tenant may elect to terminate the lease by written notice to Landlord
given within thirty (30) days after the date of the damage. Such termination
shall have the same effect as termination by Landlord under Section 8.2.
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SECTION 9. EMINENT DOMAIN
9.1 PARTIAL TAKING. If a portion of the Premises is condemned and Section
9.2 does not apply, the lease shall continue on the following terms:
(1) Landlord shall be entitled to all of the proceeds of
condemnation, and Tenant shall have no claim against Landlord as a result of the
condemnation.
(2) Landlord shall proceed as soon as reasonably possible to make
such repairs and alterations to the Premises as are necessary to restore the
remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation.
(3) After the date on which title vests in the condemning authority
or an earlier date on which alterations or repairs are commenced by Landlord to
restore the balance of the Premises in anticipation of taking, the rent shall be
reduced in proportion to the reduction in value of the Premises as an economic
unit on account of the partial taking. If the parties are unable to agree on the
amount of the reduction of rent, the amount shall be determined by arbitration
in the manner provided in Section 17.
(4) If a portion of Landlord's property not included in the Premises
is taken, and severance damages are awarded on account of the Premises, or an
award is made for detriment to the Premises as a result of activity by a public
body not involving a physical taking of any portion of the Premises, this shall
be regarded as a partial condemnation to which Sections 9.1(1) and 9.1(3) apply,
and the rent shall be reduced to the extent of reduction in rental value of the
Premises as though a portion had been physically taken.
(5) Notwithstanding any contrary provision in this lease, Tenant
shall be entitled to negotiate for and retain condemnation compensation for the
value of Tenant's improvements to the Premises taken in connection with the
condemnation.
9.2 TOTAL TAKING. If a condemning authority takes all of the Premises or a
portion sufficient to render the remaining premises reasonably unsuitable for
the use that Tenant was then making of the premises, the lease shall terminate
as of the date the title vests in the condemning authorities. Such termination
shall have the same effect as a termination under Section 9.1(1). Landlord shall
be entitled to all of the proceeds of condemnation, and Tenant shall have no
claim against Landlord as a result of the condemnation. Notwithstanding any
contrary provision in this lease, Tenant shall be entitled to negotiate for and
retain condemnation compensation for the value of Tenant's improvements to the
Premises taken in connection with the condemnation.
9.3 SALE IN LIEU OF CONDEMNATION. Sale of all or part of the premises to a
purchaser with the power of eminent domain in the face of a threat or
probability of the exercise of the power shall be treated for the purposes of
this Section 9 as a taking by condemnation.
SECTION 10. LIABILITY AND INDEMNITY.
10.1 LIENS
(1) Except with respect to activities for which Landlord is
responsible, Tenant shall pay as due all claims for work done on and for
services rendered or material furnished to the Premises, and shall keep the
Premises free from any liens. If Tenant fails to pay any such claims or to
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discharge any lien, Landlord may do so and collect the cost as additional rent.
Any amount so added shall bear interest at the rate of 12% per annum from the
date expended by Landlord shall not constitute a waiver of any right or remedy
which Landlord may have on account of Tenant's default.
(2) Tenant may withhold payment of any claim in connection with a
good-faith dispute over the obligation to pay, as long a Landlord's property
interests are not jeopardized. If a lien is filed as a result of nonpayment,
Tenant shall, within ten (10) days after knowledge of the filing, secure the
discharge of the lien or deposit with Landlord cash or sufficient corporate
surety bond or other surety satisfactory to Landlord in an amount sufficient to
discharge the lien plus any costs, attorney fees, and other charges that could
accrue as a result of a foreclosure or sale under the lien.
10.2 INDEMNIFICATION. Tenant shall indemnify and defend Landlord from any
claim, loss, or liability arising out of or related to any activity of Tenant on
the Premises or any condition of the Premises in the possession or under the
control of Tenant. Landlord shall have no liability to Tenant for any injury,
loss, or damage caused by third parties, or by any condition of the Premises.
10.3 LIABILITY INSURANCE. Before going into possession of the Premises,
Tenant shall procure and thereafter during the term of the lease shall continue
to carry the following insurance at Tenant's costs: comprehensive general
liability insurance in a responsible company with limits of not less than
$1,000,000 for injury to one person, $2,000,000 for injury to two or more
persons in one occurrence, and $2,000,000 for damage to property. Such insurance
shall cover all risks arising directly or indirectly out of Tenant's activities
on or any condition of the premises whether or not related to an occurrence
caused or contributed to by Landlord's negligence. Such insurance shall cover
all risks arising directly or indirectly out of Tenant's activities on or any
condition of the premises whether or not related to an occurrence caused or
contributed to by Landlord's negligence. Such insurance shall protect Tenant
against the claims of Landlord on account of the obligations assumed by Tenant
under Section 10.2, and shall name Landlord as an additional insured.
Certificates evidencing such insurance and bearing endorsements requiring ten
(10) days' written notice to Landlord prior to any change or cancellation shall
be furnished to Landlord prior to Tenant's occupancy of the Premises.
SECTION 11. QUIET ENJOYMENT; MORTGAGE PRIORITY
11.1 LANDLORD'S WARRANTY. Landlord warrants that it is the owner of the
Premises and has the right to lease them free of all encumbrances except those
set forth on the attached schedule entitled "Exceptions to Title." Subject to
these exceptions, Landlord will defend Tenant's right to quiet enjoyment of the
Premises from the lawful claims of all persons during the lease term.
11.2 MORTGAGE PRIORITY. The Premises are subject to real estate mortgage
given to Ronald and Heather Killough as mortgagee. This lease is conditioned
upon its approval by the mortgagee and upon agreement by the mortgagee that the
rights of Tenant under the lease will be recognized so that in the event of
foreclosure of the mortgage this lease will remain in effect according to its
terms and Tenant's possession will not be disturbed as long as Tenant is in
compliance with this lease.
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This lease is and shall be prior to any mortgage or deed of trust
("Encumbrance") recorded after the date of this lease and affecting the
Premises. However, if any lender holding such an Encumbrance requires that this
lease be subordinate to the Encumbrance, then Tenant agrees that the lease shall
be subordinate to the Encumbrance if the holder thereof agrees in writing with
Tenant that as long as tenant performs its obligations under this lease no
foreclosure, deed given in lieu of foreclosure, or sale pursuant to the terms of
the Encumbrance, or other steps or procedures taken under the Encumbrance shall
affect Tenant's rights under this lease. If the foregoing condition is met,
Tenant shall execute the written agreement and any other documents required by
the holder of the Encumbrance to accomplish the purposes of this paragraph. If
the Premises are sold as a result of foreclosure of any Encumbrance thereon, or
otherwise transferred by Landlord or any successor, Tenant shall attorn to the
purchaser or transferee.
11.3 ESTOPPEL CERTIFICATE. Either party will, within twenty (20) days
after Notice from the other, execute and deliver to the other party a
certificate stating whether or not this lease has been modified and is in full
force and effect and specifying any modifications or alleged breaches by the
other party. The certificate shall also state the amount of monthly base rent,
the dates to which rent has been paid in advance, and the amount of any security
deposit or prepaid rent. Failure to deliver the certificate within the specified
time shall be conclusive upon the party from whom the certificate was requested
that the lease is in full force and effect and has not been modified
except as represented in the notice requesting the certificate.
SECTION 12. ASSIGNMENT AND SUBLETTING.
Except as provided in Section 3.1, no part of the Premises may be
assigned, mortgaged, or subleased, nor may a right of use of any portion of the
property be conferred on any third person by any other means, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. This provision shall apply to mergers and all transfers by operation of
law. If Tenant is a corporation or partnership, this provision shall apply to
any transfer of a majority voting interest in stock or partnership interest of
Tenant. No consent in one instance shall prevent the provision from applying to
a subsequent instance. In determining whether to consent to assignment Landlord
may consider the following factors; financial ability of assignee; business
experience of assignee; and credit worthiness of assignee. Landlord shall be
required to consent when the assignee's use is allowed by this lease and the
assignee's net worth exceeds that of Tenant.
SECTION 13. DEFAULT
The following shall be events of default:
13.1 DEFAULT IN RENT. Failure of Tenant to pay any rent or other charge
within twenty (20) days following written notice to Tenant that rent has not
been received. Notwithstanding the foregoing, if Landlord has given the notice
provided in this Section 13.1 twice within any 12 consecutive month period, then
Landlord need not give such notice in the event of any further default within
that 12 month period and Tenant shall be in default if Tenant fails to pay any
rent or other charge within ten (10) days after it is due.
13.2 DEFAULT IN OTHER COVENANTS. Failure of Tenant to comply with any term
or condition or fulfill any obligation of the lease (other than the payment of
rent or other charges) within twenty (20) days after written notice by Landlord
specifying the nature of the default with reasonable particularity. If the
default is of such a nature that it cannot be completely remedied within the
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20-day period, this provision shall be complied with if Tenant begins correction
of the default within the 20-day period and thereafter proceeds with reasonable
diligence and in good faith to effect the remedy as soon as practicable.
13.3 INSOLVENCY. Insolvency of Tenant; an assignment by Tenant for the
benefit of creditors; the filing by Tenant of a voluntary petition in
bankruptcy; an adjudication that Tenant is bankrupt or the appointment of a
receiver of the properties of Tenant; the filing of any involuntary petition of
bankruptcy and the failure of Tenant to secure a dismissal of the petition
within ninety (90) days after filing; attachment of or the levying of execution
on the leasehold interest and failure of Tenant to secure discharge of the
attachment or release of the levy of execution within thirty (30) days shall
constitute a default. If Tenant consists of two or more individuals or business
entities, the events of default specified in this Section 13.3 shall apply to
each individual unless within ten (10) days after an event of default occurs,
the remaining individuals produce evidence satisfactory to Landlord that they
have unconditionally acquired the interest of the one causing the default. If
the lease has been assigned, the events of default so specified shall apply only
with respect to the one then exercising the rights of Tenant under the lease.
13.4 ABANDONMENT. Failure of Tenant for ten (10) days or more to occupy
the Premises for one or more of the purposes permitted under this lease, unless
such failure is excused under other provisions of this lease. The foregoing
failure to occupy shall not constitute an event of default if, prior to vacating
the Premises, Tenant delivers to Landlord a surety bond in an amount equal to
the rent payable under this lease for the 12 months next succeeding the month in
which the abandonment will occur, guaranteeing payment of rent during that
period, issued by a reputable company licensed to issue surety bonds in Oregon.
SECTION 14. REMEDIES ON DEFAULT
14.1 TERMINATION. In the event of a default the lease may be terminated at
the option of Landlord by written notice to Tenant. Whether or not the lease is
terminated by the election of landlord or otherwise, Landlord shall be entitled
to recover damages from Tenant for the default, and Landlord may reenter, take
possession of the premises, and remove any persons or property by legal action
or by self-help with the use of reasonable force and without liability for
damages and without having accepted a surrender.
14.2 RELETTING. Following reentry or abandonment, Landlord may relet the
Premises and in that connection may make any suitable alterations or refurbish
the Premises, or both, or change the character or use of the Premises, but
Landlord shall not be required to relet for any use or purpose other than that
specified in the lease or which Landlord may reasonably consider injurious to
the Premises, or to any tenant that Landlord may reasonably consider
objectionable. Landlord may relet all or part of the Premises, alone or in
conjunction with other properties, for a term longer or shorter than the term of
this lease, upon any reasonable terms and conditions, including the granting of
some rent-free occupancy or other rent concession.
14.3 DAMAGES. In the event of termination or retaking of possession
following default, Landlord shall be entitled to recover immediately, without
waiting until the due date of any future rent or until the date fixed for
expiration of the lease term, the following amounts as damages:
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(1) The loss of rental from the date of default until a new tenant
is, or with the exercise of reasonable efforts could have been, secured and
paying out.
(2) The reasonable costs of reentry and reletting including, without
limitation, the cost of any cleanup, refurbishing, removal of Tenant's property
and fixtures, costs incurred under Section 14.5, or any other expense occasioned
by Tenant's default including, but not limited to, any remodeling or repair
costs, attorney fees, court costs, broker commissions, and advertising costs.
(3) Any excess of the value of the rent and all of Tenant's other
obligations under this lease over the reasonable expected return from the
premises for the period commencing on the earlier of the date of trial or the
date the premises are relet, and continuing through the end of the term. The
present value of future amounts will be computed using a discount rate equal to
the prime loan rate of major Oregon banks in effect on the date of trial.
14.4 RIGHT TO SUE MORE THAN ONCE. Landlord may sue periodically to recover
damages during the period corresponding to the remainder of the lease term, and
no action for damages shall bar a later action for damages subsequently
accruing.
14.5 LANDLORD'S RIGHT TO CURE DEFAULTS. If Tenant fails to perform any
obligation under this lease, Landlord shall have the option to do so after
thirty (30) days' written notice to Tenant. All of Landlord's expenditures to
correct the default shall be reimbursed by Tenant on demand with interest at the
rate of 12% annum from the date of expenditure by Landlord. Such action by
Landlord shall not waive any other remedies available to Landlord because of
default.
14.6 REMEDIES CUMULATIVE. The foregoing remedies shall be in addition to
and shall not exclude any other remedy available to Landlord under applicable
law.
SECTION 15. SURRENDER AT EXPIRATION
15.1 CONDITION OF PREMISES. Upon expiration of the lease term or earlier
termination on account of default, Tenant shall deliver all keys to Landlord and
surrender the Premises in as good a condition as exists on the lease
commencement date, reasonable wear and tear excepted. Alterations constructed by
Tenant with permission from Landlord shall not be removed or restored to the
original condition unless the terms of permission for the alteration so require.
Depreciation and wear from ordinary use for the purpose for which the Premises
are leased shall be excepted but repairs for which Tenant is responsible shall
be completed to the latest practical date prior to such surrender. Tenant's
obligations under this section shall be subordinate to the provisions of Section
8 relating to destruction.
15.2 FIXTURES
(1) All fixtures placed upon the Premises during the term, other than
Tenant's trade fixtures, shall, at Landlord's option, become the property of
Landlord. If Landlord so elects, Tenant shall remove any or all fixtures that
would otherwise remain the property of Landlord, and shall repair any physical
damage resulting from the removal. If Tenant fails to remove such fixtures,
Landlord may do so and charge the cost to Tenant with interest at the legal rate
from the date of expenditure.
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(2) Prior to expiration or other termination of the lease term Tenant
shall remove all furnishings, furniture, and trade fixtures that remain its
property. If tenant fails to do so, this shall be an abandonment of the
property, and Landlord may retain the property and all rights of Tenant with
respect to it shall cease or, by notice in writing given to Tenant within twenty
(20) days after removal was required, Landlord may elect to hold Tenant to its
obligation of removal. If Landlord elects to require Tenant to remove, Landlord
may effect a removal and place the property in public storage for Tenant's
account. Tenant shall be liable to Landlord for the cost of removal,
transportation to storage, and storage, with interest at the legal rate on all
such expenses from the date of expenditure by Landlord.
15.3 HOLDOVER
(1) If Tenant does not vacate the Premises at the time required,
Landlord shall have the option to treat Tenant as a tenant from month to month,
subject to all of the provisions of this lease except the provisions for term
and renewal and at a rental rate equal to 200 percent of the rent last paid by
Tenant during the original term, or to eject tenant from the Premises and
recover damages caused by wrongful holdover. Failure of tenant to remove
fixtures, furniture, furnishings, or trade fixtures that Tenant is required to
remove under this lease shall constitute failure to vacate to which this section
shall apply if the property not removed will substantially interfere with
occupancy of the Premises by another tenant or with occupancy by Landlord for
any purpose including preparation for a new tenant.
(2) If a month-to-month tenancy results from a holdover by Tenant
under this Section 15.3, the tenancy shall be terminable at the end of any
monthly rental period on written notice from Landlord given not less than thirty
(30) days prior to the termination date which shall be specified in the notice.
Tenant waives any notice that would otherwise be provided by law with respect to
a month-to-month tenancy.
SECTION 16. RIGHT OF FIRST REFUSAL
16.1 OFFER TO TENANT. Landlord agrees not to sell, transfer, exchange,
grant an option to purchase, or otherwise dispose of the Premises or any part
of, or interest in, the Premises without first offering the Premises to Grantee
on the terms and conditions set forth in this Section 16.
(1) When Landlord receives from a third party (the "Third Party
Offeror") a bona fide offer to purchase the Premises, or a part of it, or an
interest in it, Landlord shall give Tenant written notice (the "Notice") of the
price, terms, and conditions of the offer and deliver a copy of the executed
contract evidencing the offer (the "Offer") to Tenant.
(2) When Tenant receives the Notice and a copy of the Offer,
Tenant shall have the prior and preferential right to purchase the Premises (or
the part of or interest in the Premises covered by the Offer, as the case may
be) at the same price and on the same terms and conditions as are contained in
the Offer, except that if Tenant exercises the right of first refusal by
electing to purchase the Premises then (1) the closing of the transaction
contemplated by the Offer shall take place no earlier than 30 days after the
date that Tenant elects to exercise the right of first refusal, and (2) Tenant
shall receive a credit against the sale price of the Premises in an amount equal
to any brokerage commission that Landlord may save by selling the Property to
Tenant rather than the Third-Party Offeror.
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(3) Tenant shall have 20 days from the date Tenant receives the Notice
and a copy of the Offer to notify Landlord whether Tenant elects to purchase the
Premises pursuant to the terms of the Offer. If Tenant elects to exercise its
right to purchase the Premises, then, in addition to giving Landlord written
notice of its election within the 20-day period, Tenant also shall tender an
amount equal to the earnest money deposit, if any, specified in the Offer, which
will be held and used in accordance with the terms of the Offer.
(4) If Tenant fails to timely exercise its right to purchase the
Premises pursuant to the terms of this Section, then Landlord shall be entitled
to sell the Premises according to the terms of the Offer to the Third-Party
Offeror, subject to the terms of paragraph (5) below.
(5) If Tenant fails to timely exercise its right to purchase the
Premises pursuant to the terms of this Section, and for any reason Landlord
shall not sell or convey the Premises to the Third-Party Offeror on the terms
contained in the Offer, then Landlord must submit any other offer to Tenant
before selling the Premises, and such offers shall be subject to Tenant's right
of first refusal under this Section.
16.2 TERM. The term of this Right of First Refusal commences as of the
date of this lease and terminates on the earlier to occur of (1) the expiration
of the lease term or earlier termination in the event of default, or (2) the
consummation of the sale of the Premises to a third party after Tenant has
elected not to exercise its right of first refusal. Tenant shall cooperate in
providing Landlord with any instruments that Landlord reasonably may require for
the purpose of removing from the public record any cloud on title to the
Premises attributable in any manner to the grant or existence of this right of
first refusal.
16.3 EXCLUDED TRANSFERS. The right of first refusal created by this
Section shall not apply to:
(1) Any sale or conveyance of the Premises by Landlord to any
partnership, limited partnership, joint venture, corporation, limited liability
company, or other entity in which Landlord owns and controls at least a 33%
ownership interest; or
(2) Any sale, conveyance, or other transfer to any partnership,
limited partnership, joint venture, corporation, limited liability company, or
other entity in which one or more members of 6710 LLC and/or their descendants
owns and controls at least a 33% ownership interest.
16.4 REAL ESTATE COMMISSION. Landlord and Tenant each agree to pay any
commission or finder's fees that may be due on account of Tenant's purchase of
the Premises to any broker or finder employed by it and to indemnify the other
against any claims for commissions or fees asserted by any broker claiming by,
through, or under the indemnifying party.
16.5 STATUTORY DISCLAIMER. THIS INSTRUMENT WILL NOT ALLOW USE OF THE
PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS
AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON
ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR
COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES.
Page 13 - LEASE: 6710 LLC to Phoenix Gold International, Inc.
<PAGE>
SECTION 17. MISCELLANEOUS
17.1 NONWAIVER. Waiver by either party of strict performance of any
provision of this lease shall not be a waiver of or prejudice the party's right
to require strict performance of the same provision in the future or of any
other provision.
17.2 ATTORNEY FEES. If suit or action is instituted in connection with any
controversy arising out of this lease, the prevailing party shall be entitled to
recover in addition to costs such sum as the court may adjudge reasonable as
attorney fees at trial, on petition for review, and on appeal.
17.3 NOTICES. Any notice required or permitted under this lease shall be
given when actually delivered or 48 hours after deposited in United States mail
as certified mail addressed to the address first given in this lease or to such
other address as may be specified from time to time by either of the parties in
writing.
17.4 SUCCESSION. Subject to the above-stated limitations on transfer of
Tenant's interest, this lease shall be binding on and inure to the benefit of
the parties and their respective successors and assigns.
17.5 RECORDATION.
(1) Landlord shall execute and acknowledge a memorandum of this lease
in a form suitable for recording, and Tenant may record the memorandum.
(2) Tenant agrees that upon expiration of the lease term or upon
sooner termination of this lease, Tenant will execute and acknowledge a
memorandum of termination of this lease in a form suitable for recording, and
Landlord may record the memorandum.
17.6 ENTRY FOR INSPECTION. Landlord shall have the right to enter upon the
Premises at any time to determine Tenant's compliance with this lease, to make
necessary repairs to the building or to the Premises, or to show the Premises to
any prospective tenant or purchaser, and in addition shall have the right, at
any time during the last two (2) months of the term of this lease, to place and
maintain upon the Premises notices for leasing or selling of the Premises.
Landlord shall attempt to schedule its inspections with Tenant so as to minimize
disruption of Tenant's business operations at the Premises.
17.7 INTEREST ON RENT AND OTHER CHARGES. Any rent or other payment
required of Tenant by this lease shall, if not paid within ten (10) days after
it is due, bear interest at the rate of 12% per annum (but not in any event at a
rate greater than the maximum rate of interest permitted by law) from the due
date until paid. In addition, if tenant fails to make any rent or other payment
required by this lease to be paid to landlord within five days after it is due,
landlord may elect to impose a late charge of five (5) cents per dollar of the
overdue payment to reimburse Landlord for the costs of collecting the overdue
payment. Tenant shall pay the late charge upon demand by Landlord. Landlord may
levy and collect a late charge in addition to all other remedies available for
Tenant's default, and collection of a late charge shall not waive the breach
caused by the late payment.
Page 14 - LEASE: 6710 LLC to Phoenix Gold International, Inc.
<PAGE>
17.8 PRORATION OF RENT. In the event of commencement or termination of
this lease at a time other than the beginning or end of one of the specified
rental periods, then the rent shall be prorated as of the date of commencement
or termination and in the event of termination for reasons other than default,
all prepaid rent shall be refunded to Tenant or paid on its account.
17.9 TIME OF ESSENCE. Time is of the essence of the performance of each
of Tenant's obligations under this lease.
17.10 NO PARTNERSHIP. Landlord is not by virtue of this lease a partner or
joint venturer with Tenant in connection with the business carried on under this
lease, and shall have no obligation with respect to Tenant's debts or other
liabilities, and no interest in Tenant's profits.
SECTION 18. ARBITRATION
18.1 DISPUTES TO BE ARBITRATED. If any dispute arises between the parties,
either party may request arbitration and appoint as an arbitrator an independent
real estate appraiser having knowledge of valuation of rental properties
comparable to the Premises. The other party shall also choose an arbitrator with
such qualifications, and the two arbitrators shall choose a third. If the choice
of the second or third arbitrator is not made within ten (10) days of the
choosing of the prior arbitrator, then either party may apply to the presiding
judge of the judicial district where the premises are located to appoint the
required arbitrator.
18.2 PROCEDURE FOR ARBITRATION. The arbitrator shall proceed according to
the Oregon statutes governing arbitration, and the award of the arbitrators
shall have the effect therein provided except that the arbitrators' award shall
be binding. The arbitration shall take place in the county where the leases
premises are located. Costs of the arbitration shall be shared equally by the
parties, but each party shall pay its own attorney fees incurred in connection
with the arbitration.
SECTION 19. EXHIBITS. The following Exhibits are attached hereto and
incorporated herein as a part of this lease:
Exhibit "A". The Premises
LANDLORD:
6710 LLC,
an Oregon Limited Liability Company
By: /s/ Howard N. Dietrich
Title: Manager
TENANT:
PHOENIX GOLD INTERNATIONAL, INC.,
an Oregon Corporation
By: /s/ Timothy C. Johnson
Title: Executive Vice President
Page 15 - LEASE: 6710 LLC to Phoenix Gold International, Inc.
<PAGE>
Order No: 196950
EXHIBIT A
LEGAL DESCRIPTION
PARCEL I:
Lots 1, 2, 3, 16, 17, 18 and the Southeasterly 15 feet of Lots 4 and 15, Block
3; Lots 6, 7, 8, 9, 10 and 11, Block 4; Lots 6, 7, 8, 9, 10 and 11, Block 5; and
Lots 1, 2, 3 and the Southeasterly 15 feet of Lot 4, Block 6, all in BYAR'S
ADDITION TO ST. JOHNS, in the City of Portland, County of Multnomah and State of
Oregon.
TOGETHER WITH those portions of North Crawford Street and North Trumbull Avenue
which accrued to said property by reason of vacation proceedings.
PARCEL II: AMENDED
A tract of land located in the Northwest 1/4 of Section 12, Township 1 North,
Range 1 West of the Willamette Meridian, in the City of Portland, County of
Multnomah and State of Oregon, more particularly described as follows:
All of Lots 1 through 5, and Lots 12 through 16, Block 4, BYAR'S ADDITION TO ST.
JOHNS.
EXCEPTING THEREFROM the Southwesterly 31 feet of Lots 12 through 16, Block 4,
BYAR'S ADDITION, more particularly described as follows:
Beginning at the Northwesterly corner of Lot 12, Block 4; thence along the
Northwesterly line of said Lot 12, North 57(degree)23'19" East, 31.00 feet to a
5/8" iron rod with yellow plastic cap marked "ACS&P 668-3151"; thence
Southeasterly and parallel to Northeasterly line of vacated N. Crawford Street,
South 32(degree)36'41" East 250.00 feet to a 5/8" iron rod with yellow plastic
cap marked "ACS&P 668-3151" on the Northwesterly right-of-way line of North St.
Louis Avenue and being on the Southeasterly line of Lot 16, Block 4, BYAR'S
ADDITION; thence Southwesterly along said Northwesterly right-of-way line South
57(degree)23'19" West 31.00 feet to the Southwesterly corner of said Lot 16 and
being on the Northerly right-of-way line of vacated N. Crawford Street; thence
Northwesterly along said Northerly right-of-way line North 32(degree)36'41" West
250.00 feet to the point of beginning.
EXHIBIT A
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
FINANCIAL DATA SCHEDULE
<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 JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-END> JUN-27-1999
<CASH> 2,600
<SECURITIES> 0
<RECEIVABLES> 4,467,743
<ALLOWANCES> 0
<INVENTORY> 5,897,451
<CURRENT-ASSETS> 11,057,591
<PP&E> 6,298,711
<DEPRECIATION> 4,233,841
<TOTAL-ASSETS> 13,890,669
<CURRENT-LIABILITIES> 3,057,686
<BONDS> 0
<COMMON> 7,182,247
0
0
<OTHER-SE> 3,650,736
<TOTAL-LIABILITY-AND-EQUITY> 13,890,669
<SALES> 20,320,979
<TOTAL-REVENUES> 20,320,979
<CGS> 14,870,784
<TOTAL-COSTS> 14,870,784
<OTHER-EXPENSES> 4,165,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,638
<INCOME-PRETAX> 1,167,956
<INCOME-TAX> 466,000
<INCOME-CONTINUING> 701,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 701,956
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
