EXHIBIT 10.1
LOAN AGREEMENT
--------------
This Loan Agreement is made as of this 4th day of February, 1997, by and
among Phoenix Gold International, Inc., an Oregon corporation ("Borrower"), and
United States National Bank of Oregon, a national banking association ("Bank").
BACKGROUND
Borrower has requested Bank to lend it up to the sum of Five Million Five
Hundred Thousand Dollars ($5,500,000) in the form of a revolving loan and
letters of credit and Bank is willing to do so upon the terms and conditions
hereinafter set forth.
TERMS AND CONDITIONS
For valuable consideration, including the mutual covenants reflected in
this Agreement, the parties agree as follows:
1. Definitions. In addition to other terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth below. Terms
not otherwise defined in this Agreement shall have the meanings provided in
Article 9 of the Uniform Commercial Code as enacted in the state of Oregon on
the date of this Agreement.
1.1 This "Agreement" means this Loan Agreement, including any and all
exhibits, schedules, and supplements made a part hereof and any and all
amendments, modifications, restatements, extensions, renewals, and replacements
hereof, whenever executed.
1.2 "Assets" means all assets and property of every nature, real and
personal, tangible and intangible, wherever located and whether now owned or
hereafter acquired.
1.3 "Bank" means United States National Bank of Oregon.
1.4 "Borrower" means Phoenix Gold International, Inc.
1.5 "Business Day" means any day other than a Saturday, Sunday, or
other day that commercial banks in Portland, Oregon, are authorized or required
by law to close.
1.6 "Capital Expenditures" means, for any period, the aggregate of all
cash funded expenditures (including such portion of Capitalized Lease
Obligations as would be capitalized in accordance with GAAP) for any Fixed
Assets (including replacements, substitutions, and additions) that have a useful
life of one year or more, where such expenditures are or would, in accordance
with GAAP, be capitalized on the balance sheet of the Person in question.
1.7 "Capitalized Lease Obligation" means any lease obligation that, in
accordance with GAAP, is required to be shown as a liability on the financial
statement of the lessee. The amount of a Capitalized Lease Obligation shall be
the amount required by GAAP to be so shown.
1.8 "Cash Flow" means, for any period, Net Income for such period
after tax; plus, to the extent deducted in computing Net Income, depreciation of
Fixed Assets, amortization of intangible assets, and net depletion of any other
assets.
1.9 "Collateral" means all accounts, chattel paper, general
intangibles, inventory, and equipment of Borrower, together with (a) all
attachments, accessions, accessories, tools, parts, supplies, increases, and
additions to and all replacements of and substitutions for any property
described herein, (b) all products and produce of any of the property described
herein, (c) all accounts, general intangibles, instruments, rents, monies,
payments, and all other rights arising out of a sale, lease, or other
disposition of any of the property described herein, (d) all proceeds (including
insurance proceeds) from the sale, destruction, loss, or other disposition of
any of the property described herein, and (e) all records and data relating to
any of the property described herein, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together with all of
Borrower's right, title, and interest in and to all computer software required
to utilize, create, maintain, and process any such records and data on
electronic media.
1.10 "Current Assets" means all assets of a Person classified as
current assets in accordance with GAAP.
1.11 "Current Liabilities" means all liabilities of a Person
classified as current liabilities in accordance with GAAP.
1.12 "Current Ratio" means the ratio of Current Assets to Current
Liabilities.
1.13 "Debt Service" means for any period the sum of current payments
of principal due with respect to any term debt (including principal payments to
Xxxxxx Corporation), plus Capital Expenditures, plus current principal payments
due with respect to any Capitalized Lease Obligation, plus any dividends. The
foregoing is not intended as a waiver or limitation of the prohibition on
dividends set forth in Section 10.6 hereof.
1.14 "Debt Service Coverage Ratio" means the ratio of (a) Cash Flow
for any period to (b) Debt Service for the period.
1.15 "Debt-to-Worth Ratio" means at any date the ratio of a Person's
(a) Liabilities to (b) its Tangible Net Worth.
1.16 "Default Rate" means the rate of interest after default specified
in the Note.
1.17 "Eligible Accounts" means all accounts receivable of Borrower
except as hereinafter set forth:
(a) All accounts aged beyond 90 days after date of invoice are
excluded.
(b) Cash or "COD" sales are allowed only to an aggregate limit of
$150,000 at any one time.
(c) Progress billing, prebillings, retainages or holdbacks, and
datings are all excluded.
(d) Accounts arising from intercompany or related company sales and
sales to employees or officers are excluded.
(e) Accounts arising from sales to U.S. federal government agencies
are excluded.
(f) Accounts arising from sales exceeding the limit imposed by Bank
with respect to any particular account debtor are excluded.
(g) All accounts from a debtor as to which 25 percent of the debtor's
accounts are unpaid 90 days after date of invoice are excluded.
(h) Foreign accounts not backed by a letter of credit, credit
insurance, or cash against documents, shall be limited to $75,000 per
account unless a specific limit has been assigned to the account debtor.
With respect to foreign debtors as to which no specific dollar limit has
been assigned, no more than $1,000,000 in the aggregate at any one time
shall be included. Foreign accounts backed by acceptable letters of credit,
credit insurance, or cash against documents are eligible for advance rates
of 90 percent, 90 percent, and 60 percent, respectively. Total eligibility
for all foreign accounts (including those with a specific dollar limit and
those without) shall not exceed $2,500,000 at any one time.
(i) All service charges are excluded.
1.18 "Eligible Inventory" means all inventory of Borrower, including
raw materials, packaging, and finished goods, but "Eligible Inventory" shall not
include work in process and inventory in transit.
1.19 "Environmental Laws" means any and all laws, statutes, rules,
regulations, orders, consent decrees, permits, or licenses relating to
prevention, remediation, reduction, or control of pollution, or to protection of
the environment, natural resources, or human health and safety, including
without limitation those relating to the treatment, storage, transportation,
release, and disposal of Hazardous Substances.
1.20 "Expiration Date" means December 31, 1997, or such later date as
to which the same is extended or renewed pursuant to a writing signed on behalf
of Bank.
1.21 "Fixed Assets" means property, plant, fixtures, and equipment.
1.22 "GAAP" means generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants, and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be approved by a significant segment of
the public accounting profession, which are applicable to the circumstances as
of the date of determination.
1.23 "Hazardous Substance" means any explosive material, petroleum
(including crude oil and its fractions), radioactive material, toxic substance,
polychlorinated biphenyls, friable asbestos, and any substance now or hereafter
at any time defined as a toxic or hazardous substance or waste in any
Environmental Law or included in any listing of toxic or hazardous substances or
wastes promulgated by the EPA, or other state, federal, or local governmental
agency pursuant to any Environmental Law.
1.24 "Inventory Borrowing Cap" means the following amounts as of the
following dates:
Date of this agreement through $3,000,000
April 30, 1997
May 1, 1997, through $2,500,000
May 31, 1997
June 1, 1997, and thereafter $2,000,000
1.25 "Inventory Borrowing Cap Reduction Date" shall mean May 1, 1997,
or such earlier date upon which Borrower agrees to reduce the Inventory
Borrowing Cap permanently to $2,000,000.
1.26 "Insolvency Proceeding" means and includes any proceeding
commenced by or against any Person under any provision of the federal Bankruptcy
Code, as amended, or under any other bankruptcy, reorganization, or insolvency
law.
1.27 "Letter of Credit" shall have the definition set forth in Section
3.1 hereof.
1.28 "Letters of Credit Outstanding" means the sum of (a) the
aggregate Stated Amount of all outstanding Letters of Credit, plus (b) the
aggregate principal amount of all Unpaid Drawings.
1.29 "Liabilities" means all liabilities of a Person as determined in
accordance with GAAP, excluding all indebtedness subordinated to Obligations
owing to Bank (provided that the principal and interest of such indebtedness is
fully subordinated in payment and collateral to the Obligations and such
subordination is documented to the satisfaction of Bank).
1.30 "Loan Documents" means this Agreement, the Note, the Security
Agreement, and all other agreements, instruments, and documents (including
without limitation, security agreements, loan agreements, notes, fee agreements,
guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers
of attorney, consents, assignments, contracts, notices, leases, financing
statements, letter of credit applications, reimbursement agreements,
certificates, statements, reports, notices, and all other writings) heretofore,
now, or hereafter executed by, on behalf of, or for the benefit of Borrower and
delivered to or made for the benefit of Bank, together with any and all
amendments, modifications, and supplements thereto and any and all extensions,
renewals, replacements, and restatements thereof.
1.31 "Net Income" means, for any period, the net income for such
period determined in accordance with GAAP, provided, however, that in
determining Net Income, if the Person has acquired all or any substantial
portion of the assets and/or business of any other Person, any earnings properly
attributable to such assets and business to the date of such acquisition shall
not be included in Net Income.
1.32 "Net Worth" means Assets less Liabilities.
1.33 "Note" means the Revolving Note described in Section 2.
1.34 "Obligations" is used in its most comprehensive sense and
includes all debts, liabilities, obligations, covenants, agreements, and duties
of any kind and nature owing to Bank by Borrower, whether present or future;
whether or not evidenced by any Loan Document; whether liquidated or
unliquidated; whether absolute or contingent; whether due or to become due;
whether direct or indirect; whether primary or secondary; whether now existing
or hereafter arising; and including but not limited to all principal, interest,
charges, expenses, advances, fees, and any other sum payable under this
Agreement or any other Loan Document.
1.35 "Person" means any individual, corporation, partnership, limited
liability company, trust, association, or other entity or organization.
1.36 "Prime Rate" means as of any date the rate most recently
announced by Bank at its principal office in Portland, Oregon, as its "Prime
Rate." The Prime Rate is one of Bank's base rates and serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto. The Prime Rate is not necessarily the lowest rate at which
Bank makes commercial loans. Each and every change in the interest rate payable
in connection with any of the Obligations resulting from a change in the Prime
Rate shall become effective on the date such change is announced by Bank.
Interest on all obligations shall be calculated on the basis of a year of 360
days.
1.37 "Security Agreement" means the Security Agreement described in
Section 4.1 below.
1.38 "Stated Amount" means the maximum amount available to be drawn
under any Letter of Credit.
1.39 "Tangible Net Worth" means Net Worth, plus the aggregate amount
of all indebtedness subordinated to Obligations owing to Bank (provided that the
principal and interest of such indebtedness is fully subordinated in payment and
collateral to the Obligations and such subordination is documented to the
satisfaction of Bank), less the net book value of all intangible items.
1.40 "Unpaid Drawing" has the definition set forth in Section 3.3 of
this Agreement.
2. Revolving Loan.
2.1 Revolving Line of Credit. Upon the satisfaction of the conditions
precedent contained in this Agreement, Bank, at its option, shall lend to
Borrower up to Five Million Five Hundred Thousand Dollars ($5,500,000) in the
aggregate subject to the terms and conditions of this Agreement (the "Revolving
Loan"). Such indebtedness shall be evidenced by the execution by Borrower of a
promissory note in form acceptable to Bank (the "Revolving Note").
2.2 Advances. Borrower agrees not to make a request for an advance
unless, as of the date of request and disbursement, (a) the representations and
warranties contained herein are true and correct in all material respects, and
(b) no event shall have occurred and be continuing or would result from the
requested borrowing which constitutes, or with the passage of time or giving of
notice or both, would constitute, an Event of Default under this Agreement.
2.3 Limit on Advances. Borrower may repay advances and may reborrow
from time to time under the Revolving Note, but total advances outstanding under
the Revolving Note plus Letters of Credit Outstanding shall not exceed the
lesser of (a) $5,500,000 or (b) the sum of (i) 80 percent of Eligible Accounts,
plus (ii) the lesser of (x) the Inventory Borrowing Cap or (y) 50 percent of the
remainder of Eligible Inventory, less all trade payables owed to inventory
vendors.
2.4 Interest Rate. Each advance under the Revolving Loan shall bear
interest from the date of the advance until repaid (unless the Default Rate
shall become applicable) at a per annum rate equal to the sum of the Prime Rate
plus 2 percent (200 basis points). After the Inventory Borrowing Cap Reduction
Date, the applicable rate of interest shall be based on Borrower's Tangible Net
Worth as set forth below in the following schedule. Adjustments to the rate
shall be made five business days after receipt from Borrower of the Compliance
Certificate required by subsection 9(d) of this Agreement and the financial
information required by subsection 9(b) of this Agreement.
Tangible Net Worth Interest Rate
------------------ -------------
Greater than or equal to Prime Rate
$12,800,000
Greater than or equal to Prime Rate plus
$12,000,000 but less than .5 percent
$12,800,000
Greater than or equal to Prime Rate plus
$10,800,000 but less than 1.25 percent
$12,000,000
Greater than or equal to Prime Rate plus
$9,775,000 but less than 2.0 percent
$10,800,000
Less than $9,775,000 Default Rate
2.5 Payment of Interest. Interest on outstanding advances shall be
paid monthly in arrears on the first day of each and every month and at
maturity.
2.6 Repayment of Principal and Termination. All of Bank's obligations
under Section 2 and Section 3 of this Agreement shall terminate and all amounts
loaned or advanced to Borrower under the Revolving Note, together with accrued
interest thereon, shall be immediately due and payable on the earlier of the
occurrence of an Event of Default, on demand for payment as specified in the
Revolving Note, or the Expiration Date.
2.7 Loan Fee. Borrower agrees to pay Bank on demand a loan fee of
$20,625.
3. Letters of Credit.
3.1 Commitment to Issue. Subject to and upon the terms and conditions
set forth herein, Bank will issue, within five (5) Business Days after receipt
of a written application of Borrower, in such form as Bank may designate, at any
time and from time to time on or prior to the Expiration Date, for the account
of Borrower, one or more documentary (commercial or import) or standby letters
of credit which will not exceed $500,000 in the aggregate at any time (each a
"Letter of Credit").
3.2 Maximum Amounts. Notwithstanding the foregoing, (i) no Letter of
Credit will be issued the Stated Amount of which, when added to the sum of the
outstanding aggregate principal amount of the Revolving Loan and Letters of
Credit Outstanding at such time, would exceed the limit on advances set forth in
Section 2.3, (ii) each Letter of Credit will by its terms terminate, or provide
an opportunity for prospective cancellation, not later than the Expiration Date,
and (iii) each Letter of Credit request will be subject to separate approval by
Bank prior to issuance of the Letter of Credit.
3.3 Agreement to Repay Letter of Credit Drawings. Borrower hereby
agrees to reimburse Bank, by making payment in immediately available funds, for
any payment or disbursement made by Bank under any Letter of Credit (each such
amount, so paid or disbursed until reimbursed, an "Unpaid Drawing") immediately
after, and in any event on the date of, such payment or disbursement, with
interest on the amount so paid or disbursed by Bank, to the extent not
reimbursed (including a reimbursement pursuant to an advance made in accordance
with the last sentence of this Section 3.3 on the date of such payment or
disbursement, from and including the date paid or disbursed to but not including
the date Bank is reimbursed therefor at a rate per annum equal to the Default
Rate, such interest also to be payable on demand. At the time that any drawing
under a Letter of Credit (each a "Drawing") is made, Bank shall automatically
and without notice but subject to the satisfaction of the conditions specified
in Section 5, make an advance in the amount of such Drawing (to the extent such
advance is then permitted to be outstanding pursuant to Section 2.3), the
proceeds of which will be applied directly by Bank to reimburse such Drawing.
Borrower's obligations under this Section 3.3 to reimburse Bank with respect to
Unpaid Drawings (including, in each case, interest thereon) will be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim, or defense to payment which Borrower may have or have had against
Bank, including, without limitation, any defense based upon the failure of any
Drawing to conform to the terms of the Letter of Credit or any nonapplication or
misapplication by the beneficiary of the proceeds of such Drawing.
3.4 Letter of Credit Fee. Upon issuance and during the term of each
Letter of Credit, Borrower shall pay Bank on demand such standard fees as may be
charged by Bank to its customers in connection with such Letters of Credit.
4. Collateral.
4.1 Security Agreement. All of the Obligations shall be secured by a
first priority security interest in the Collateral. Borrower has heretofore
executed and delivered a security agreement dated January 1, 1997, granting a
security interest in the Collateral together with certain financing statements.
Said security agreement and financing statements shall remain effective to
secure the Obligations.
4.2 Cash Collateral Account. All proceeds from the collection of
accounts receivable and the sale of inventory of Borrower shall, at the option
of Bank, be immediately delivered to Bank for placement in a cash collateral
account for Borrower. Proceeds received by Bank will be applied on the day of
receipt to principal owing to Bank under the Note. Borrower shall be charged on
a monthly basis for activity fees for account maintenance and use and for any
negative collected balance resulting from the time required to collect funds
through normal banking channels on items deposited in the cash collateral
account.
4.3 Partial Subordination. Bank will consider subordinating its
security interest in a portion of Borrower's Fixed Assets to a term loan of up
to $1,000,000 from a third party lender. Prior to Bank considering
subordination, Borrower will deliver to Bank a third party independent appraisal
(from an appraiser and in a form acceptable to Bank) covering each item of Fixed
Assets with a net book value exceeding $10,000. Bank approves Maynards
Industries, Inc., as an appraiser and approves a valuation of such Fixed Assets
at "orderly liquidation value" or "auction value" as appropriate. The terms and
conditions of the loan from the third party lender, including the specific items
of equipment to which subordination will apply, must be approved by Bank. Bank
agrees not to unreasonably withhold such approval so long as following
implementation of the subordination all aspects of the credit extended to
Borrower by Bank shall be in compliance with Bank's then effective underwriting
standards for comparable credits. Borrower agrees that upon any such
subordination, the Inventory Borrowing Cap shall be permanently reduced by an
amount equal to 50 percent of the net loan proceeds, but the Inventory Borrowing
Cap shall not be less than $2,000,000. Upon such subordination, Bank shall also
be entitled to modify the advance rates against inventory and accounts set forth
in Section 2.3 hereof upon providing Borrower with reasonable advance notice not
to exceed 60 days.
5. Conditions Precedent to Lending. The obligation of Bank to advance any
loan funds to Borrower or to issue a Letter of Credit pursuant to this Agreement
is subject to the conditions that Bank shall have received in form and substance
satisfactory to Bank all of the following (to the extent such items have not
previously been delivered to Bank), and that no Event of Default, or event which
with the giving of notice or the passage of time or both would constitute an
Event of Default has occurred and is continuing:
5.1 This Agreement and the Note each duly executed by Borrower.
5.2 Satisfactory evidence of required insurance on the Collateral.
5.3 A certificate from the secretary of Borrower in form reasonably
acceptable to Bank, certifying resolutions of Borrower's board of directors
authorizing this Agreement, the other Loan Documents and the borrowing and
furnishing of collateral provided for in this Agreement and the other Loan
Documents; and a certificate bearing the true signatures of officers authorized
to sign this Agreement and any of the other Loan Documents. Bank may
conclusively rely on such certificates until Bank receives further certificates
from an officer of Borrower canceling or amending the prior certificates and
bearing the signatures of the officers named in such further certificates.
5.4 A certificate from the Secretary of State for the State of Oregon
for Borrower certifying that Borrower is an Oregon corporation in active status.
5.5 A copy of Borrower's articles of incorporation certified by an
officer of Borrower that as of the date of this Agreement such articles of
incorporation remain in full force and effect.
5.6 A copy of Borrower's bylaws certified by an officer of Borrower
that as of the date of this Agreement such bylaws remain in full force and
effect.
5.7 All documents granting Bank a lien on or a security interest in
the Collateral have been granted and perfected by the filing, recording, or
registering of financing statements in the appropriate governmental offices or
by such other action as is necessary to perfect any such lien or security
interest, and Bank shall have received evidence satisfactory to it that all such
liens and security interests are of first priority, subject only to encumbrances
permitted under the Security Agreement.
5.8 Such other documents and information Bank may reasonably require.
In addition, the obligation of Bank to advance any loan funds or to issue any
Letter of Credit to Borrower is subject to receipt of the borrowing certificate
required under subsection 9(e) hereof.
6. Representations and Warranties. Borrower warrants and represents as of
the date hereof, and shall be deemed to continuously warrant and represent for
so long as the Agreement shall remain in effect and until full and final payment
of all Obligations that:
6.1 Existence. Borrower is a corporation, duly organized, validly
existing, and in good standing under the laws of the state of Oregon, and is
authorized to do business and is in good standing under the laws of all states
in which it is doing business.
6.2 Authority. The execution, delivery, and performance by Borrower of
this Agreement and the other Loan Documents have been duly authorized by all
necessary action and will not violate any provision of law or of its articles of
incorporation or bylaws or result in the breach of or constitute a default of
any lien, charge, or encumbrance upon any Assets of Borrower or under any
indenture or other agreement or instrument to which Borrower is a party or by
which Borrower or any of its Assets may be bound or affected, other than as
specifically provided herein. The officers of Borrower executing this Agreement
and any other Loan Document are and were duly and properly in office and fully
authorized to execute such instruments.
6.3 Binding Loan Documents. This Agreement and the Loan Documents,
when and as executed and delivered, shall be and are valid and legally binding
on Borrower.
6.4 Pending Litigation. There is no litigation, proceeding, or dispute
pending or, to the knowledge of Borrower, threatened that, if adversely
determined, would have a material adverse effect on the Assets or the financial
condition of Borrower.
6.5 Title to Assets and Peaceful Possession. Borrower has good title
to all properties included in assets shown on its financial statement most
recently provided to Bank and enjoys peaceful and undisturbed possession under
all material leases. None of the leases of Borrower contains any unusual or
burdensome provisions which will materially affect or impair the operation of
Borrower.
6.6 Tax Returns. All federal, state, and other tax returns have been
filed by Borrower as required by law and the taxes in connection therewith have
been paid except those which are not yet due and payable.
6.7 Financial Statements. All financial statements submitted by
Borrower to Bank, whether previously or in the future, are and will be true and
correct. Such financial statements have been and will be prepared in accordance
with GAAP.
6.8 Compliance with ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended from time to time, including (unless
the context otherwise requires) any rules or regulations promulgated thereunder,
and no Reportable Event (as defined in Section 4043(b) of ERISA or any successor
act or acts) has occurred or is occurring.
7. Affirmative Covenants. Borrower covenants and agrees that so long as
this Agreement shall remain in effect and so long as any of the Obligations are
outstanding, Borrower will:
7.1 Preservation of Existence. Maintain and preserve Borrower's
existence and its rights, franchises, and privileges and qualify and remain
qualified and in good standing in each jurisdiction in which such qualification
is necessary to Borrower's business and operations or ownership of its Assets.
7.2 Maintenance of Insurance. Maintain and keep in force insurance of
the types and in the amounts customarily carried in similar lines of business,
including, in adequate amounts, fire, liability, property damage, workmen's
compensation, and such other insurance as Bank shall reasonably require. All
insurance shall be carried in companies and amounts satisfactory to Bank and, if
required by Bank, such policies shall be made payable to Bank as its interest
may appear. Upon request, Borrower will deliver to Bank a current schedule
setting forth all insurance in effect.
7.3 Payment of Taxes, Etc. Pay and discharge all taxes, assessments,
and governmental charges prior to the date on which penalties attach thereto,
except to the extent such taxes, assessments, or governmental charges are being
contested in good faith and are adequately reserved against to the satisfaction
of Bank.
7.4 Compliance with Laws, Etc. Comply in all material respects with
the requirements of all applicable laws, rules, regulations, and orders of any
governmental authority, including without limitation Environmental Laws.
7.5 Keeping of Records and Inspection Rights. Maintain adequate
records and books of account on a consistent basis in accordance with GAAP,
reflecting all financial transactions of Borrower, and permit any representative
of Bank, at any reasonable time, to examine, inspect, and audit Borrower's
books, records, and Assets, and arrange for verification of accounts receivable,
either directly with the Account Debtor or by other methods.
7.6 Notice of Default. Promptly notify Bank, in writing, of the
occurrence of any Event of Default hereunder or of any event which would become
an Event of Default hereunder upon giving of notice, the lapse of time, or both.
7.7 Bank Expenses. Pay to Bank, in addition to all other sums due
hereunder or provided for in this Agreement, all costs incurred by Bank pursuant
to any state or federal government investigation or proceeding arising out of or
in connection with this Agreement, its negotiation, or otherwise concerning
Borrower or its Assets. Borrower shall also pay Bank all sums covering
reasonable costs incurred in performing periodic inspections of the Collateral.
Such inspections can be requested as reasonably determined by Bank.
7.8 Further Assurances. Borrower shall execute, acknowledge, deliver,
file, and register, at its expense, all such further agreements, instruments,
certificates, documents, and assurances and perform such acts as Bank deems
necessary or appropriate to effect the purposes of this Agreement and other Loan
Documents.
8. Financial Covenants. Until all of the Obligations have been fully paid
and satisfied, Borrower shall strictly comply with each and every one of the
financial covenants set forth below. The following covenants shall be determined
on a fully combined basis with respect to any present or future subsidiaries of
Borrower:
(a) Borrower shall maintain as of each month-end set forth below, a
Current Ratio of at least the ratios set forth below:
Month-End Current Ratio
--------- -------------
February 1997 1.55:1
March, April, 1.75:1
and May 1997
June, July, August, September, 2.00:1
October, November, and
December 1997
(b) Borrower shall maintain as of each month-end set forth below
Tangible Net Worth of at least the amounts set forth below:
Month-End Tangible Net Worth
--------- ------------------
February and March 1997 $ 9,775,000
April 1997 10,050,000
May 1997 10,400,000
June 1997 12,200,000
July 1997 12,400,000
August, September, October, 12,600,000
November, and December 1997
(c) Borrower shall maintain as of each fiscal quarter year-end set
forth below a Debt-to-Worth Ratio of no greater than the ratios set forth
below:
Quarter-End Debt-to-Worth Ratio
----------- -------------------
March 1997 0.90:1
June 1997 0.75:1
September 1997 0.75:1
December 1997 0.75:1
(d) Borrower shall maintain as of each fiscal quarter year-end set
forth below a minimum Debt Service Coverage Ratio commencing October 1,
1996, measured quarterly on a cumulative basis through the fiscal quarter
ending September 1997 and thereafter on a rolling four-quarter basis, of at
least the ratios set forth below:
Quarter-End Debt Service Coverage Ratio
----------- ---------------------------
March 1997 Not Applicable
June 1997 1.25:1
September 1997 1.25:1
December 1997 1.25:1
9. Reporting Requirements. Borrower shall provide, at its expense and in
form and detail satisfactory to Bank and in such number of copies as Bank may
require:
(a) As soon as is available, and in any event within 90 days after the
close of each fiscal year, the balance sheet, profit and loss statement,
and statement of shareholders' equity of Borrower on a combined and
combining basis, in reasonable detail and stating in comparative form the
figures as at the close of and for the previous fiscal year, accompanied by
an unqualified opinion letter from a certified public accounting firm
satisfactory to Bank.
(b) As soon as is available, and in any event within 30 days after the
end of each month, a balance sheet, profit and loss statement, and
statement of shareholders' equity for Borrower, on a combined and combining
basis. Monthly statements shall include cumulative figures indicating
operating results for the fiscal year to date.
(c) Within 20 days after the end of each month, a listing and aging
after date of invoice of all accounts payable and a listing and aging after
date of invoice of all accounts receivable.
(d) Within 30 days after the end of each month, a compliance
certificate for Borrower in form acceptable to Bank ("Compliance
Certificate") attesting to Borrower's compliance or noncompliance with the
terms of this Agreement.
(e) By 4:00 p.m. each Business Day a borrower's certificate in form
sufficient to allow Bank to determine the amount of credit available under
the Revolving Loan.
(f) By 4:00 p.m. on the first Business Day of each week a cash flow
projection for Borrower's operations over the 12-week period commencing the
first day of the second week immediately prior to the week in which the
projection is submitted, together with management's analysis of and
commentary on any variance for past projections.
10. Negative Covenants. Borrower agrees and covenants that, so long as this
Agreement shall remain in effect and until full and final payment of all
Obligations, Borrower will not:
10.1 Dissolution or Merger. Liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other combination, or
sell, lease or dispose of all of its Assets or of such portion as in the
reasonable opinion of Bank constitutes a substantial portion thereof, or acquire
the assets of another business in a transaction analogous to a merger or other
consolidation.
10.2 Third Party Indebtedness. Create, incur, or become liable for any
indebtedness, or become liable as a surety, guarantor, accommodation endorser or
otherwise for any other person, partnership, corporation, or business except:
(a) Borrowings under this Agreement.
(b) Extensions or renewals of indebtedness existing on the date of
this Agreement (including rescheduled payments of trade accounts payable
agreed to by vendors).
(c) Obligations incurred in the usual course of Borrower's business by
purchasing on credit goods, supplies, or merchandise, or by executing
bonds, contracts, or by endorsing negotiable instruments received in the
normal course of business.
(d) Term indebtedness approved by Bank under Section 4.3 hereof.
(e) All indebtedness subordinated to Obligations owing to Bank
(provided that the principal and interest of such indebtedness is fully
subordinated in payment and collateral to the Obligations and such
subordination is documented to the satisfaction of Bank).
10.3 Loans or Extension of Credit. Make any loans, advances, or
extension of credit to any person, partnership, corporation, or business except
such as are made in the ordinary course of Borrower's business.
10.4 Liens and Encumbrances. Create, incur, assume, or permit to exist
any mortgage, deed of trust, security interest, or other encumbrance of any kind
upon or on any of its Assets now owned or hereafter acquired, other than:
(a) Liens for taxes not delinquent or being contested in good faith by
appropriate proceedings.
(b) Liens in connection with worker's compensation, unemployment
insurance, or other social security obligations.
(c) Mechanic's, worker's, materialmen's, landlord's, carrier's, or
other like liens arising in the ordinary and normal course of business with
respect to obligations which are not due or which are being contested in
good faith.
(d) Mortgages, deeds of trust, or other security interests which were
executed, delivered and recorded prior to the date of this Agreement and
which encumber real property or mineral rights.
(e) Liens securing the indebtedness identified under Section 10.2(d)
and (e).
10.5 Business Activity. Engage in any significant business activity
substantially different from or unrelated to Borrower's present business
activities and operations, or cease to engage in any portion of Borrower's
business activities and operations which, in Bank's reasonable opinion,
constitutes a material portion thereof.
10.6 Distributions. Declare, pay, or make any dividend or other
distribution on any ownership interest of Borrower.
10.7 Hazardous Use and Materials. Permit any hazardous or dangerous
use to be made of any property owned or leased by it ("Property") and shall keep
all Property in a safe condition and in full compliance with all Environmental
Laws. Borrower agrees to defend, indemnify, and hold Bank harmless from and
defend it against any and all costs, damages, or losses arising from or related
to the breach of any warranty or covenant in this paragraph, and for any lien
imposed against any Property or any portion thereof to secure the payment of any
costs relating to the removal of Hazardous Substance and/or any resulting
restoration of the Property. This indemnification shall be secured by the
Security Agreement. The creation of or filing of any lien against the Property
or any portion thereof as a result of the actual or alleged presence on the
Property of any Hazardous Substance, any misrepresentation of Borrower herein,
or the failure of Borrower to make any payment or promptly or continuously
pursue any action referred to in this paragraph shall constitute an Event of
Default under this Agreement.
11. Events of Default. Each of the following shall constitute an Event of
Default.
11.1 Borrower shall fail to pay any portion of the Obligations when
due; or
11.2 Any representation or warranty by Borrower under or in connection
with this Agreement or the Loan Documents shall prove to be or have been
incorrect in any material respect; or
11.3 Any failure to comply with a financial covenant set forth in
Section 8 hereof; provided, however, failure to comply with the monthly
covenants set forth in subsections 8(a) and 8(b) shall not constitute an Event
of Default unless the failure exists in two of any three consecutive months; or
11.4 Borrower shall fail in any material respect to perform or observe
any other term, covenant, or agreement contained in this Agreement or in any
Loan Document; or
11.5 Borrower shall fail to pay or shall commit any material default
(any default which results in an attempted acceleration of the maturity of the
indebtedness is hereby deemed material) with respect to any indebtedness of
Borrower for borrowed money or with respect to any mortgage, indenture, or other
agreement with any lender, including, without limitation, any indebtedness now
existing or hereafter created and whether subordinated or senior to the
Obligations; or
11.6 Any Reportable Event which Bank determines in good faith might
constitute grounds for the termination of any employee benefit plan maintained
by Borrower for its employees and covered by Title IV of ERISA or to which
Section 412 of the Internal Revenue Code of 1986, as amended, applies (a "Plan")
or grounds for the appointment by the appropriate United States District Court
of a trustee to administer any Plan if the cause therefor shall remain
unremedied thirty (30) days after written notice to such effect shall have been
given to Borrower by Bank, or any Plan shall be terminated, or a trustee shall
be appointed by an appropriate United States District Court to administer any
Plan, or the United States Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or
11.7 Entry against Borrower of any judgment in excess of $50,000 on
any claim which is not covered by insurance satisfactory to Bank and which is
not discharged within sixty (60) days after such entry or within thirty (30)
days after notice of default from Bank, whichever first occurs; or
11.8 Any act of any governmental regulatory authority which, in the
reasonable opinion of Bank, impairs the prospect of payment by Borrower of its
Obligations to Bank and which remains in effect as of the earlier of sixty (60)
days after the act is initially taken or thirty (30) days after notice from
Bank; or
11.9 Borrower shall:
(a) Apply for or consent to the appointment of a receiver, trustee, or
liquidator of itself, or of all or a substantial part of its Assets, or
(b) Be unable to, or admit in writing its inability to, pay its debts
as they fall due (other than reschedules of trade accounts payable), or
(c) Make a general assignment for the benefit of its creditors, or
(d) Be adjudicated either bankrupt or insolvent, or
(e) File a voluntary petition in bankruptcy or a petition or an answer
seeking reorganization or an arrangement with creditors or to take
advantage of any insolvency law or an answer admitting the material
allegations of a petition filed against it in any bankruptcy,
reorganization, or insolvency proceeding, or any corporate action shall be
taken by it for the purpose of effecting any of the foregoing, or
(f) Have filed against it any petition in bankruptcy which continues
unstayed and in effect for any period of more than thirty (30) consecutive
days.
12. Bank's Remedies In Event of Default.
12.1 Specific Remedies. Upon the occurrence of any Event of Default,
Bank shall have the right, immediately and without notice, to:
(a) Cease making advances or extending credit to or for the benefit of
Borrower;
(b) Terminate this Agreement as to any future obligation of Bank to
Borrower, but without affecting any of Bank's rights and without affecting
the Obligations owing to Bank;
(c) Declare all Obligations immediately due and payable, without
presentment, demand, or other notice of any kind;
(d) Exercise the right of set off described in Section 13.7 below;
(e) Exercise all other remedies provided in the Loan Documents or
otherwise available under applicable law.
12.2 Covenant Violation Fee. Bank may impose a covenant violation fee
of $1,500 upon the violation of any covenant in this Agreement by Borrower. Such
fee is intended as liquidated damages to compensate Bank for costs incurred as a
result of such violations and represents the parties' reasonable estimate of
such costs. Imposing said fee shall not preclude Bank from declaring an Event of
Default.
12.3 Cumulative Remedies. All rights and remedies of Bank, either
under this Agreement, under the other Loan Documents, under law, or otherwise,
shall be cumulative and not exclusive, and any single or partial exercise of any
power or right shall not preclude the further exercise thereof, or the exercise
of any other power or right. The foregoing listing of Events of Default and
remedies shall not diminish or modify in any respect the provisions of the Note
which specify that all advances are optional with Bank and that demand for
payment may be made at any time.
13. Miscellaneous.
13.1 Limitation of Liability. Neither Bank, nor any of its officers,
employees or agents, shall have any liability to Borrower (whether in tort,
contract, or otherwise) for losses suffered by Borrower in connection with,
arising out of, or in any way related to the transactions or relationships
contemplated by this Agreement, or any act, omission or event occurring in
connection herewith, unless it is determined by final and nonappealable judgment
or order binding on Bank, that the losses were suffered as a result of acts or
omissions constituting gross negligence or willful misconduct. In any such
proceeding, Bank shall be entitled to the benefit of the rebuttable presumption
that it acted in good faith and with the exercise of ordinary care.
13.2 Indemnification. Borrower shall hold Bank and its directors,
officers, employees, agents and attorneys harmless from, and indemnify them
fully against, any and all claims, actions, damages, liabilities, losses, costs
and expenses imposed on, incurred by or asserted against any of them in
connection with any litigation, investigation, claim or proceeding commenced or
threatened related to the negotiation, preparation, execution, delivery,
enforcement, performance or administration of this Agreement and any of the
other Loan Documents, or related to any of the transactions contemplated hereby
or any act, omission, event or transaction related thereto, including, without
limitation, court costs and fees and expenses of counsel, but excluding any
claims and other liabilities arising solely as a result of Bank's gross
negligence or willful misconduct. The foregoing indemnification shall survive
payment of the Obligations and the termination or nonrenewal of this Agreement.
13.3 Amendments or Modifications. No amendment, modification, or
waiver of any provision of this Agreement or any other Loan Document, nor
consent to any departure by any of Borrower therefrom, shall, in any event, be
effective unless the same shall be in writing and signed by Bank, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
13.4 Notices. All notices, requests, and demands shall be in writing
and be given to or made upon the respective parties hereto as follows:
Borrower: Phoenix Gold International, Inc.
0000 Xxxxx Xxxxxxx
Xxxxxxxx, Xxxxxx 00000
Bank: United States National Bank of Oregon
Oregon Commercial Loan Servicing (PL-7)
000 X.X. Xxx Xxxxxx
Xxxxxxxx, Xxxxxx 00000
or to such other address as any party shall designate for itself in writing to
the other party.
13.5 Cost and Expense. Borrower agrees to pay on demand all costs and
expenses of Bank in connection with the arrangement of the financing hereunder
and the preparation, execution, and delivery of this Agreement and the other
Loan Documents including, without limitation, reasonable attorney's fees and
out-of-pocket expenses of counsel to Bank. In addition, Borrower agrees to pay
on demand all costs and expenses of Bank in connection with any amendment,
modification, or waiver of any of the terms of this Agreement or any of the Loan
Documents. Borrower further agrees to pay on demand all costs and expenses of
Bank in connection with the administration of this Agreement and any other Loan
Documents including, without limitation, costs and expenses sustained by Bank in
connection with collateral examinations.
13.6 No Waiver; Cumulative Remedies. No failure on the part of Bank to
exercise, and no delay in exercising, any right hereunder or under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
13.7 Right of Set Off. Upon the occurrence and during the continuance
of any Event of Default, Bank may, without notice (such notice being expressly
waived by Borrower), set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, Bank to or for the credit or the account of
any one or more of Borrower against any and all of the Obligations now or
hereafter existing under this Agreement and any other Loan Document,
irrespective of whether or not Bank shall have made any demand under this
Agreement or any other Loan Document and although such obligations may be
unmatured. Bank agrees promptly to notify Borrower after any such set-off and
application made by Bank, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Bank
under this section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which Bank may have.
13.8 Arbitration. Bank and Borrower agree that all disputes, claims,
and controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation contract
and tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or dispose
of any collateral securing any loan shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; foreclosing by notice and sale under any deed of trust or
mortgage; obtaining a writ of attachment of imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness or any act, or exercise of any
right, concerning any collateral securing any loan, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing any loan, shall also be arbitrated; provided, however, that no
arbitrator shall have the right or other power to enjoin or restrain any act of
any party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing herein shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.
13.9 Enforcement Costs. Borrower agrees to pay to Bank, on demand, all
out-of-pocket expenses and attorneys' fees (including allocated costs for
in-house legal services) incurred by Bank prior to the commencement of any legal
action or arbitration proceeding in connection with the enforcement of this
Agreement or any Loan Document. In the event of a legal action or arbitration
proceeding, including appellate proceedings and bankruptcy or reorganization
proceedings in which any party may appear to protect its interests, the
prevailing party shall be entitled to reasonable attorneys' fees (including
allocated costs for in-house legal services) and costs and necessary
disbursements incurred in connection with such action or proceeding, as
determined by the court or arbitrator.
13.10 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
successors, and assigns, except that Borrower shall not have the right to assign
its rights hereunder or any interest herein.
13.11 Governing Law; Jurisdiction. This Agreement and all other Loan
Documents shall in all respects be governed by, and construed in accordance
with, the substantive law of the state of Oregon.
13.12 Consents. Whenever this Agreement provides for Borrower to
obtain the approval or consent of Bank such consent may be granted or withheld
in the sole absolute discretion of Bank, unless this Agreement specifically
states that approval or consent shall not be unreasonably withheld.
13.13 Waiver of Default. By executing this Agreement, Bank waives that
certain default by Borrower which arose at the end of Borrower's 1996 fiscal
year pertaining to Borrower's Debt Service Coverage Ratio.
13.14 NO ORAL COMMITMENTS. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES, OR
SECURED SOLELY BY BORROWER'S RESIDENCE, MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Xxxxxx X. Xxxx
----------------------------------
Title: V.P.
------------------------------
PHOENIX GOLD INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Title: V.P.
-------------------------------
