U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 33-960-70-LA
THANKSGIVING COFFEE COMPANY, INC.
(Exact name of small business issuer
as specified in its charter)
California 94-2823626
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
19100 South Harbor Drive
Fort Bragg, California 95437
(Address of principal executive officers) (Zip Code)
Issuer's telephone number, including area code: (707) 964-0118
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes \X\ No \ \
As of November 11, 1997, there were issued and outstanding
1,236,744 shares of common stock of the issuer.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1997 and
September 30, 1996 and for the Nine
Months Ended September 30, 1997 and
September 30, 1996 . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1997
and September 30, 1996 . . . . . . . . . 4
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . 10
Item 3. Defaults upon Senior Securities . . . . . 10
Item 4. Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . 10<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Balance Sheets
ASSETS
September 30, 1997 December 31, 1996
(unaudited) (audited)
CURRENT ASSETS
Cash $ 85,080 $399,038
Accounts Receivable 473,796 296,006
Employee Receivable 8,014 6,031
Inventory 813,750 486,797
Commodities Options
Account 7,264 0
Other Receivables &
Prepaids 210,715 158,664
_________ _________
Total Current Assets 1,598,619 1,346,536
PROPERTY AND EQUIPMENT
Property Fixtures &
Equipment 2,029,558 1,806,155
Accumulated Depreciation (1,005,636) (891,205)
___________ __________
Total Property &
Equipment 1,023,922 914,950
OTHER ASSETS
Deposits And Other Assets 71,167 30,585
Intangibles, Net Of
Amortization 284,017 293,111
___________ __________
Total Other Assets 355,184 323,696
___________ __________
Total Assets $2,977,726 $2,585,182
=========== ===========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1997 December 31, 1996
(unaudited) (audited)
CURRENT LIABILITIES
Accounts Payable $522,680 $206,417
Notes Payable - Banks 601,635 50,000
Notes Payable - Shareholder 108,548 31,038
Accrued Liabilities 47,383 52,952
Current Portion of Long Term
Debt 133,406 91,414
_________ ________
Total Current Liabilities 1,413,651 431,821
LONG TERM DEBT
Notes Payable 433,348 515,080
_________ ________
Total Long-Term Debt 433,348 515,080
OTHER LIABILITIES
Deferred Income Taxes 51,429 51,429
_________ ________
Total Other Liabilities 51,429 51,429
_________ ________
Total Liabilities 1,898,428 998,330
STOCKHOLDERS' EQUITY
Common Stock - No Par Value
1,960,000 Shares
Authorized;
1,236,744 Shares Issued
And Outstanding At
September 30, 1997 872,829 874,666
Additional Paid-In Capital 24,600 24,600
Retained Earnings 181,868 687,586
_________ _________
Total Stockholders' Equity 1,079,297 1,586,852
_________ _________
Total Liabilities And $2,977,726 $2,585,182
Stockholders' Equity ========== ==========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Statements Of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
Net Sales $1,607,749 $1,046,384 $4,591,555 $3,125,039
Cost of Sales 997,129 556,928 2,509,225 1,680,744
_________ _________ _________ _________
Gross Profit 610,621 489,555 2,082,330 1,444,295
OPERATING EXPENSES
Selling, General &
Administrative 836,492 437,434 2,330,132 1,230,129
Depreciation &
Amortization 33,219 24,550 106,097 69,693
_________ _________ _________ _________
Total Operating
Expenses 869,711 461,984 2,436,228 1,299,822
_________ _________ _________ _________
Operating Income (259,090) 27,571 (353,898) 144,473
OTHER INCOME (EXPENSE)
Interest Income (1,703) 4,090 1,275 5,844
Interest Expense (39,605) (26,952) (96,134) (60,527)
Miscellaneous Income 4,430 3,750 7,099 4,627
_________ _________ _________ _________
Total Other Income
(Expense) (36,877) (19,112) (87,761) (50,056)
_________ _________ _________ _________
Income (Loss) Before
Taxes (295,968) 8,459 (441,659) 94,417
Tax Refund (Expense) 6,239 (6,633) 6,239 (36,473)
_________ _________ ________ _________
Net Income (Loss) $ (289,729) $ 1,828 $ (435,420) $ 57,944
========== ========= ========= =========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Consolidated Statements Of Cash Flow (Unaudited)
Nine Months Ended
September 30
1997 1996
CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES
Net Income (Loss) $(435,420) $ 57,944
Non Cash Items Included In Net
Income (Loss)
Depreciation & Amortization 123,525 86,123
(Increase) Decrease In:
Short Term Investments - -
Receivables (179,773) 85,529
Inventory (326,953) (119,753)
Commodities Options Account (7,264) (4,029)
Prepaid Expenses (52,051) (8,207)
Deposits (40,582) 5,894
Deferred Futures Contract - -
Increase (Decrease) In:
Accounts Payable 316,263 (92,441)
Accrued Liabilities (5,569) 15,445
Deferred Options Contract - -
Short Term Borrowing 671,137 (382,047)
________ ________
Net Cash Provided (Used) By 63,313 (355,543)
Operating Activities ________ ________
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase Of Equipment (223,403) (256,042)
Purchase Of Intangible Assets 6,113 0
Increase In Stock Offering
Costs 0 1,040,806
Adjustment to Retained Earnings (72,135) (962)
_________ _________
Net Cash Provided (Used) By (289,425) 783,801
Investing Activities _________ _________
CASH FLOWS FROM FINANCING
ACTIVITIES
(Increase) Decrease In Notes
Receivable (10,001) 0
(Repayment) Proceeds Of Notes (77,844) 78,391
Payable _________ _________
Net Cash Provided (Used) By (87,845) 78,391
Financing Activities _________ _________
Net Increase (Decrease) In Cash (313,958) 506,649
Cash, As Of January 1, 1997 And 399,038 128,259
1996 _________ _________
Cash, As Of September 30, 1997 $ 85,080 $ 634,908
And 1996 ========= =========
See accompanying notes to financial statements.<PAGE>
THANKSGIVING COFFEE COMPANY, INC.
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and reflect all adjustments necessary for a fair
presentation of the information reported (which consist only of
normal recurring adjustments). Historically, fourth quarter
sales have accounted for 28% to 35% of the Company's yearly net
sales and the fourth quarter is the most profitable quarter; in
contrast, the Company historically has generally experienced net
losses during the first and second quarters of the year. Because
of the seasonality of the Company's business, the results of
operations for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results
to be expected for the full year. The consolidated financial
statements should be read in conjunction with the financial
statements, including notes thereto, for the fiscal years ended
December 31, 1996 and 1995, which are included in the Company's
Form 8-K filed on May 15, 1997.
At September 30, 1997, there were total borrowings of $1,276,937,
including $601,635 outstanding under the Company's line of credit
agreement. The Company's line of credit agreement was renewed
during the reporting period and is now due to expire on August
10, 1998. <PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Form 10-QSB contains certain forward looking statements,
which are subject to risks and uncertainties, including but not
limited to fluctuations in the availability and costs of green
coffee beans, availability and sufficiency of trade credit and
other financing sources, competition in the Company's businesses,
delivery disruptions associated with labor disputes, and other
risks identified in the Company's Prospectus dated October 10,
1995.
On October 10, 1996, the Company completed its public offering of
common stock. 235,744 shares were sold for an aggregate of
$1,178,720. The Company currently has 1,236,744 shares issued
and outstanding.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared With Three Months
Ended September 30, 1996
Net sales for the three months ended September 30, 1997 were
$1,607,749, an increase of 54% over net sales of $1,046,384 for
the three months ended September 30, 1996. This increase was
primarily due to sales by the Company's cafe/bakery and
Sustainable Harvest subsidiary, which did not exist in the
comparable period in 1996, and to a 14% increase in wholesale and
direct consumer sales over comparable sales in the three months
ended September 30, 1996.
Gross margin (gross profit as a percentage of net sales) declined
from 47% for the three months ended September 30, 1997 to 38% in
the same period of 1997. Gross margins declined by approximately
5% as a result of higher costs of specialty green beans
(primarily organics, Asian and African coffee beans), which were
unhedged and purchased on the spot market, to meet increased
green bean demand. The higher costs could not be offset by
corresponding retail and wholesale price increases. Gross margin
also declined as a result of one-time accounting adjustments of
$54,000 for formerly posted commodity gains and $19,000 in
inventory values, which added to cost of sales and thereby
reduced gross margin by approximately 4%. Management expects
that gross margins will increase in the fourth quarter of 1997
and the first quarter of 1998 due to the availability of lower-
cost green beans for which the Company has already contracted.
Selling, general and administrative expenses increased 91%, from
$437,434 (42% of net sales) in the three months ended September
30, 1996 to $836,492 (52% of net sales) in the three months ended
September 30, 1997. The increase in selling, general and
administrative expenses reflects the hiring of additional
management personnel following the completion of the offering in
the fall of 1996, overhead attributable to the Company's new
retail and grean bean operations, increased promotional activity
in support of the Company's major fall marketing efforts, higher
mail order sales costs, and new product development expenses. <PAGE>
Sales growth required additional equipment purchases which
increased depreciation for the three months ended September 30,
1997 by $8,669 over the comparable period of 1996.
Interest expense increased 47%, from $26,952 for the three months
ended September 30, 1996 to $39,605 for the three months ended
September 30, 1997, as a result of increased borrowing to finance
the acquisition of beans. Interest expense as a percentage of
net sales declined slightly from 2.3% for the three months ended
September 30, 1996 to 2.1% for the three months ended September
30, 1997.
Because the Company incurred a loss for the three months ended
September 30, 1997, it did not incur any tax expense. The
Company received a non-recurring tax refund of $6,239 during the
three months ended September 30, 1997 for overpayment in prior
periods.
As a result of the foregoing factors, the Company incurred a net
loss of $289,729 for the three months ended September 30, 1997
compared with net income of $1,826 for the three months ended
September 30, 1996.
Nine Months Ended September 30, 1997 Compared With Nine Months
Ended September 30, 1996
Net sales for the nine months ended September 30, 1997 were
$4,951,555, an increase of 47% over net sales of $3,125,039 for
the nine months ended September 30, 1996. This increase was
primarily due to sales by the Company's cafe/bakery and
Sustainable Harvest subsidiary, which did not exist in the
comparable period in 1996, and to a 10% increase in wholesale and
direct consumer sales over comparable sales in the nine months
ended September 30, 1996.
Gross margin (gross profit as a percentage of net sales)
decreased from 46% for the nine months ended September 30, 1996
to 45% for the nine months ended September 30, 1997. This
decrease was primarily due to an increased proportion of sales
represented by relatively lower-margin sales of green coffee
beans to other roasters.
Selling, general and administrative expenses increased 87%, from
$1,299,822 (42% of net sales) in the nine months ended
September 30, 1996 to $2,436,228 (49% of net sales) in the nine
months ended September 30, 1997. The increase in selling,
general and administrative expenses reflects the hiring of
additional management personnel following the completion of the
offering in the fall of 1996, overhead attributable to the
Company's new retail operations and green bean division,
increased promotional activity in support of the Company's major
fall marketing efforts, higher mail order sales costs, and new
product development expenses. Sales growth required additional
fixed asset purchases which increased depreciation for the nine
months ended September 30, 1997 by $36,404 as compared to the
comparable period in 1996.<PAGE>
Because the Company incurred a loss in each of the three-month
periods in the nine months ending September 30, 1997, it did not
incur any tax expense. The Company received a non-recurring tax
refund of $6,239 during the three months ended September 30, 1997
for overpayment in prior periods.
As a result of the foregoing factors, the Company incurred a net
loss of $435,420 for the nine months ended September 30, 1997
compared with net income of $57,944 for the nine months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of
$184,968. Net cash provided by operating activities was $63,313
for the nine months ended September 30, 1997, compared to
$(355,543) for the nine months ended September 30, 1996. The
increase in net cash provided by operating activities was
primarily due to increased short-term borrowings under the
Company's line of credit. Accounts payable and inventory
increased by $316,263 and $326,953, respectively, during the nine
months ended September 30, 1997, primarily as a result of
increased sales. In the corresponding period in 1996, accounts
payable decreased by $92,441 and inventory increased by $119,753.
Net cash used in investing activities, which primarily consists
of expenditures for equipment to service new accounts and sales
growth, was $289,425 for the nine months ended September 30, 1997
as compared to $783,801 in cash provided by investing activities
during the same period last year. Net cash provided by investing
activities for the nine months ended September 30, 1996 was
primarily attributable to receipts from the Company's public
offering of common stock, offset in part by equipment purchases
of $256,042.
The Company maintains a revolving line of credit of up to
$650,000. The credit agreement was renewed during the reporting
period for a one-year term and will expire on August 10, 1998.
Borrowings under the line of credit are secured by the Company's
accounts receivable, inventory, equipment, fixtures and
improvements. The terms of this facility contain certain
limitations and covenant restrictions, including limits on the
incurrence of additional indebtedness, which if violated could be
used as a basis for termination of the agreement. There were
total borrowings of $1,276,937, including $601,635 outstanding
under the credit agreement at September 30, 1997.
The Company expects to be able to fund its working capital
requirements and expansion plans with a combination of cash flows
from operations, normal trade credit, financing arrangements and
continued use of lease financing. If the Company is not able to
renew or replace its credit agreement on comparable terms or at
all, the Company's liquidity and results of operations could be
adversely affected.
The seasonal availability of green bean coffee in the first two
quarters of the year and increased sales in the last quarter<PAGE>
historically creates a high use of cash and a build-up in
inventories in the first two quarters, with a corresponding
decrease in inventory and increase in cash in the last quarter.
Past seasonal patterns are not necessarily indicative of future
results. There can be no assurance that sales will increase in
future quarters. <PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- Not Applicable -
ITEM 2. CHANGES IN SECURITIES
- Not Applicable -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- Not Applicable -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on
September 26, 1997, its shareholders voted upon the following
proposals:
Proposal No. 1 - Election of Four Directors:
Shares Against
Shares For or Withheld Abstentions
Roy Doughty 994,095 600 800
Joan Katzeff 994,095 600 800
Paul Katzeff 994,095 600 800
Larry Leigon 994,095 600 800
Proposal No. 2 - Ratification of Sallmann, Yang and Alameda, An
Accountancy Corporation, as Independent Public Accountants for
the Company.
Shares For Shares Against Abstentions
995,195 0 300
ITEM 5. OTHER INFORMATION
- Not Applicable -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.i. Business Loan Agreement dated as of September 5,
1995, by and between Company and Wells Fargo
Bank, N.A., as amended on August 11, 1997.
27.i. Financial Data Schedule (electronic only).
b. Forms 8-K.
No reports on Form 8-K were filed during the period
from July 1, 1997 through September 30, 1997.<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THANKSGIVING COFFEE COMPANY, INC.
Name Title Date
/s/ Paul Katzeff Chief Executive November 14, 1997
__________________ Officer
Paul Katzeff
/s/ Joan Katzeff President November 14, 1997
__________________
Joan Katzeff<PAGE>
EXHIBIT INDEX
10.i. Business Loan Agreement dated as of September 5, 1995 by
and between Company and Wells Fargo Bank, N.A., as
amended on August 11, 1997.
27.i. Financial Data Schedule (electronic only).<PAGE>
Exhibit 10.i.
Business Loan Agreement dated
as of September 5, 1995 by and between Company
and Wells Fargo Bank, N.A., as amended on August 11, 1997.
BUSINESS LOAN AGREEMENT
Principal Loan Date Maturity Loan No.
$450,000.00 09-05-1995 09-10-1996 SJ01977671
Call Collateral Account Officer Initials
824 7732628502 WHH
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: THANKSGIVING COFFEE Lender: Wells Fargo Bank,
COMPANY, INC. National Association
P. O. BOX 1918 Business Loan Division
FORT BRAGG, CA 95437-1918 84 W. Santa Clara St.
0552-023
San Jose, CA 96113
___________________________________________________________________________
THIS BUSINESS LOAN AGREEMENT between THANKSGIVING COFFEE COMPANY, INC.
("Borrower") and Wells Fargo Bank, National Association ("Lender") is made
and executed on the following terms and conditions. Borrower has received
prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans and other financial accommodations, including
those which may be described on any exhibit or schedule attached to this
Agreement. All such loans and financial accommodations, together with all
future loans and financial accommodations from Lender to Borrower, are
referred to in this Agreement individually as the "Loan" and collectively
as the "Loans." Borrower understands and agrees that: (a) in granting,
renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender
at all times shall be subject to Lender's sole judgment and discretion; and
(c) all such Loans shall be and shall remain subject to the following terms
and conditions of this Agreement.
TERM. This Agreement shall be effective as of September 5, 1995, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. All references to dollar amounts shall mean amounts in lawful money
of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement,
as this Business Loan Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.<PAGE>
Borrower. The word "Borrower" means THANKSGIVING COFFEE COMPANY,
INC. The word "Borrower" also includes, as applicable, all
subsidiaries and affiliates of Borrower as provided below in the
paragraph titled"Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security for
a Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a security interest
in any Collateral for the indebtedness, including without limitation
all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one of more of them;
whether now or hereafter existing, voluntary or involuntary, due or
not due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise;
whether recovery upon such Indebtedness may be or hereafter may become
barred by any statute of limitations; and whether such Indebtedness
may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means Wells Fargo Bank, National
Association, its successors and assigns.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial accommodations<PAGE>
from Lender to Borrower, whether now or hereafter existing, and
however evidenced, including without limitation those loans and
financial accommodations described herein or described on any exhibit
or schedule attached to this Agreement from time to time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefore.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, dead of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender
as of the date of this Agreement and as of the date of each disbursement of
Loan proceeds:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
California. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly
qualified as a foreign corporation and is in good standing in all
states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower; do not require the<PAGE>
consent or approval of any other person, regulatory authority or
governmental body, and do not conflict with, result in a violation of,
or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied
to Lender truly and completely disclosed Borrower's financial
condition as of the date of the statement, and there has been no
material adverse change in Borrower's financial condition subsequent
to the date of the most recent financial statement supplied to
Lender. Borrower has no material contingent obligations except as
disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled
in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five
(5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 49 U.S.C. Section 6901, et seq., Chapters 6.6 through 7.7 of
Division 20 of the California Health and Safety Code, Section 25100,
et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under,
or about any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substances by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such<PAGE>
matters. (c) Neither Borrower nor any tenant, contractor, agent or
other authorized user of any of the properties shall use, generate,
manufacture, store, treat, dispose of, or release any hazardous waste
or substance on, under, or about any of the properties; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties
to make such inspections and tests as Lender may deem appropriate to
determine compliance of the properties with this section of the
Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of
Lender to Borrower or to any other persons. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity
or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section
of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties,
whether or not the same was or should have been known to Borrower.
The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Indebtedness
and the termination or expiration of this Agreement and shall not be
affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other
event has occurred which may materially adversely effect Borrower's
financial condition or properties, other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by
Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have
been paid in full, except those presently being or to be contested by
Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
<PAGE>
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance
with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects with
all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA) has
occurred with respect to any such plan, (ii) Borrower has not
withdrawn from any said plan or initiated steps to do so, and (iii) no
steps have been taken to terminate any such plan.
Location of Borrower's Offices and Records. The chief place of
business of Borrower and the office or offices where Borrower keeps
its records concerning the Collateral is located at P.0. BOX 1918,
FORT BRAGG, CA 95437-1918.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representation and Warranties. Borrower understands and
agrees that Lender is relying upon the above representations and
warranties in extending Loan Advances to Borrower. Borrower further
agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and affect until
such time as Borrower's Loan and Note shall be paid in full, or until
this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that,
while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all
litigation and claims and all threatened litigation and claims
affecting Borrower or any Guarantor which could materially affect the
financial condition of Borrower or the financial condition of any
Guarantor.<PAGE>
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis, and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with, respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to
time the policies or certificates of insurance in form satisfactory to
Lender, including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person.
In connection with all policies covering assets in which Lender holds
or is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, on Lenders forms,
and in the amounts and by the guarantors named below:
Guarantors Amounts
JOAN KATZEFF $649,999.96
PAUL KATZEFF $649,999.96
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and<PAGE>
any other party and notify Lender immediately in writing of any
default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
Indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish
to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in all other instruments
and agreements between Borrower and Lender in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any
event which constitutes an Event of Default under this Agreement.
Operations. Substantially maintain its present executive and
management personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state
and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts, and records and to make copies and memoranda of Borrower's
books, accounts, and records. If Borrower now or at any time
hereafter maintains any records (including without limitation computer
generated records and computer software programs for the generation of
such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free<PAGE>
access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) sell, transfer, mortgage, assign,
pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, dissolve or
transfer or sell Collateral out of the ordinary course of business,
(c) pay any dividends on Borrower's stock (other than dividends
payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower
is a "Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its
stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income
tax payments to satisfy their liabilities under federal and state law<PAGE>
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower,
or (d) purchase or retire any of Borrower's outstanding shares of
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surely or
guarantor other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (a) Borrower or any Guarantor is in default under the terms
of this Agreement or any of the Related Documents or any other agreement
that Borrower or any Guarantor has with Lender; (b) Borrower becomes
insolvent, files a petition in bankruptcy or similar proceedings, or is
adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; (d) any
Guarantor seeks, claims of otherwise attempts to limit, modify or revoke
such Guarantor's guaranty of the Loan or any other loan with Lender; or
(e) Lender in good faith deems itself insecure, even though no Event of
Default shall have occurred.
FINANCIAL INFORMATION. So long as the Loan remains available or any
indebtedness of Borrower to Lender under the Loan remains outstanding,
Borrower shall provide to Lender each of the following, in form and detail
satisfactory to Lender:
(a) not later than one hundred twenty (120) days after and as of the end
of each of Borrower's fiscal years, (i) a reviewed or audited financial
statement of Borrower, prepared by an independent certified public
accountant, to include balance sheet, income statement and reconciliation
of net worth, or (ii) if Borrower's annual financial statement is not a
reviewed or audited financial statement prepared by an independent
certified public accountant, a financial statement prepared by Borrower or
other party satisfactory to Lender, to include the same exhibits as
required in (i), and complete copies of Borrower's filed federal and state
income tax returns for such fiscal year;
(b) not later than one hundred twenty (120) days after and as of the end
of each fiscal year of each guarantor of the Loan, and if Borrower is a
partnership, of each general partner a financial statement from each
guarantor and/or general partner, together with complete copies of each
such guarantor's and/or general partner's filed federal and state income
tax returns for such fiscal year; and
(c) from time to time such current financial and other information as
Lender may reasonably request.<PAGE>
ADDITIONAL EVENTS OF DEFAULT. In addition to the Events of Default
described below, it shall be an Event of Default; (a) upon the resignation
or expulsion of any general partner with an ownership interest of twenty-
five percent (25%) or more in any Borrower which is a partnership or (b) if
Borrower or any general partner in Borrower is generally not paying its
debts as they become due.
DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to,
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with
someone else and all accounts Borrower may open in the future, excluding
however all IRA, Keogh, and trust accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
Default of Indebtedness. Failure of Borrower to make any payment when
due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or
to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of
the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as
a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Borrower.<PAGE>
Creditor or Foreclosure Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent or any Guarantor revokes any guaranty of
the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's
option, all Loans immediately will become due and payable, all without
notice of any kind to Borrower, except that in the case of an Event of
Default of the type described in the "Insolvency" subsection above, such
acceleration shall be automatic and not optional.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of California. It there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of
the courts of any County, the State of California. This Agreement
shall be governed by and construed in accordance with the laws of the
State of California.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of<PAGE>
the persons signing below is responsible for all obligations in this
Agreement.
Consent to Loan Participation. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one of more purchasers,
whether related or unrelated to Lender. Lender may provide, without
any limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower
hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of
such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as
the absolute owners of such interests in the Loans and will have all
the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that it may have now or
later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loans
irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of
any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Alternative Dispute Resolution. It is understood that, upon request
of any party to this Agreement, any dispute, claim, or controversy of
any kind, whether in contract or in tort, statutory or common law,
legal or equitable now existing or hereafter arising between the
parties, in any way arising out of, pertaining to or in connection
with this Agreement, or any related agreements, documents, or
instruments shall be resolved through a two-step dispute resolution
process administered by Judicial Arbitration and Mediation Services,
Inc. (JAMS) involving first, mediation before a retired judge from the
JAMS panel followed, if necessary, by final and binding arbitration
(conducted at a location determined by the arbitrator in a city
located within 150 miles of the Borrower's business address)
administered by and in accordance with the then existing JAMS' Rules
or Practice and Procedure. Judgment upon any award rendered by the
arbitrator(s) may be entered by any state or federal court having
jurisdiction thereof. Borrower understands that by signing this
Agreement, Borrower is giving up any rights Borrower might possess to
have any dispute, claim, or controversy litigated in a court or jury
trial.
As soon as practicable after selection of the arbitrator, the
arbitrator or his (her) designated representatives shall determine a
reasonable estimate of anticipated fees and costs of the arbitrator,
and render a statement to each party setting forth that party's pro-<PAGE>
rata share of said fees and costs. Thereafter, each party shall,
within ten (1O) days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit
shall result in a forfeiture by the non-depositing party of the right
to prosecute or defend the claim which is the subject of the
arbitration, but shall not otherwise serve to abate, stay or suspend
the arbitration proceedings.
The arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorney fees and costs.
If for any reason JAMS is not able to provide, or is legally precluded
from providing, a judge in accordance with any of the provisions
above, or if the parties stipulate, the mediation or the arbitration
will be conducted by a mediator or arbitrator selected by the American
Arbitration Association, and in accordance with its procedures. All
of the above provisions not in conflict with the procedures of AAA
would remain in effect to the extent allowed by law in any such
proceedings.
This section applies only to disputes involving $250,000 or more in
value, including claim(s) asserted on behalf of others or a class of
$250,000 or
more in value when aggregated.
This section does not apply to the Lender's exercise of any judicial
or non-judicial remedies in the event of a default under this
Agreement or any security agreement, deed of trust or other security
instrument securing the Agreement. The Lender's exercise of such a
remedy shall not be deemed to waive the Lender's right to enforce the
terms of this section.
Telephone Transfer. Borrower authorizes Lender to make transfers, up
to the available balance or credit limit, between designated accounts
specified in writing, upon Lender's receipt of instructions from any
of Borrowers Owners/Principals. Lender will have no liability for any
transfer made upon the written or verbal request of any person
believed by Lender in good faith to be an authorized representative of
Borrower. Borrower will indemnify and hold Lender harmless from and
against any damages, liabilities, costs or expenses (including
attorney's fees) arising out of any claim by Borrower or any third
party against Lender in connection with Lender's performance of
transfers as described above.
Split Borrowings. Notwithstanding the negative covenant prohibiting
other indebtedness and liens contained herein or in any Related
Documents, Borrower may, without Lender's prior written consent, incur
indebtedness to others for borrowed money, and mortgage, assign,
pledge, lease, grant a security interest in, or encumber any of
Borrower's assets as security for such indebtedness, except that such
consent shall be required if such other indebtedness is a working<PAGE>
capital line of credit and Borrower's indebtedness to Lender is not
fully secured.
Research and Photocopy Fees. Except in connection with a billing
error inquiry, Borrower shall pay to Lender fees for any research or
photocopies for documents requested or authorized by Borrower with
respect to the Loan, with such fees determined in accordance with
Lender's standard fees in effect for such activities at the time any
such request is made.
Costs and Expenses. Borrower agrees to pay upon demand all of
Lender's out-of-pocket expenses, including without limitation
attorneys' fees incurred in connection with the preparation,
execution, enforcement and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Lender may
pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject
to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay
any court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall
be given in writing and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there
is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower agrees to keep
Lender informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.<PAGE>
Wells Fargo
* * * * Renewal Notice * * * *
Business Lending Division
P.O. Box 1060
San Jose, CA 95108
August 11, 1997
Thanksgiving Coffee
Company, Inc.
P.O. Box 1918
Fort Bragg, CA 95437-1918
Dear Thanksgiving Coffee:
Wells Fargo Bank is pleased to inform you that your Business PrimeLine
#7732628502, in the amount of $650,000.00, was renewed on August 11, 1997.
The new maturity date is August 10, 1998.
Your PrimeLine remains subject to all terms and conditions of the Business
Loan Agreement, as modified by this Renewal Notice. The interest rate to
be applied to the unpaid Principal balance of the Note will be at a rate of
1.oo% over the Index.
A non-refundable renewal fee of $2,500.00 will be charged to your account
#0451028112.
If you have any questions, please do not hesitate to call us at our toll
free number 1-800-372-8242 press 1, press 3. We appreciate your business
and look forward to continuing to serve as your business bank.
Sincerely,
Liela Alemania
Documentation Representative<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME, WHICH ARE
INCLUDED IN THE COMPANY'S FORM 10-QSB FILED HEREWITH, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 85
<SECURITIES> 7
<RECEIVABLES> 503
<ALLOWANCES> (21)
<INVENTORY> 814
<CURRENT-ASSETS> 1,599
<PP&E> 2,030
<DEPRECIATION> (1,006)
<TOTAL-ASSETS> 2,978
<CURRENT-LIABILITIES> 1,414
<BONDS> 433
0
0
<COMMON> 873
<OTHER-SE> 1,079
<TOTAL-LIABILITY-AND-EQUITY> 2,978
<SALES> 4,592
<TOTAL-REVENUES> 4,592
<CGS> 2,509
<TOTAL-COSTS> 2,509
<OTHER-EXPENSES> 2,416
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> (441)
<INCOME-TAX> (6)
<INCOME-CONTINUING> (435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (435)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
