December 1, 1999
Mr. Joe O'Brien, CFO
Phoenix Gold International, Inc.
9300 North Decatur
Portland, OR 97203
Dear Joe:
I am pleased to advise you that U.S. Bank National Association has renewed your
revolving line of credit subject to the following terms and conditions:
BORROWER: Phoenix Gold International, Inc.
GUARANTOR(S): None.
REVOLVING LINE OF CREDIT:
-------------------------
MAXIMUM LOAN AMOUNT: $5,000,000.
PURPOSE: Operating funds.
INTEREST RATE: Borrower will have the option of:
1) Fully floating variable interest rate equal
to Lender's Prime Rate (currently 8.50%),
2) London Inter-Bank Offering Rate
(LIBOR)+ 1.75%(currently 7.18%, based on a
30-day LIBOR rate of 5.43%).
LIBOR advances are subject to:
------------------------------
a) Minimum advance of $500,000, increments of $100,000
thereafter.
b) No prepayment is permitted.
c) Contracts may be fixed for 1, 2, or 3 months (not to
extend past
expiry date).
d) Two business days' notice required with rates set
between 8:00 AM and 12:00 PM Pacific Coast Time.
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PHOENIX GOLD INTERNATIONAL, INC.
DECEMBER 1, 1999
THE INTEREST RATE CHARGED TO BORROWER IS TIED TO THE
PRIME RATE OF U.S. BANK NATIONAL ASSOCIATION, COMPUTED
ON THE BASIS OF A 360-DAY YEAR AND THE ACTUAL NUMBER OF
DAYS ELAPSED. BORROWER IS ADVISED THAT U.S BANK NATIONAL
ASSOCIATION'S PRIME RATE IS THE RATE OF INTEREST WHICH
THE BANK FROM TIME TO TIME IDENTIFIES AND PUBLICLY
ANNOUNCES AS ITS PRIME RATE, AND IS NOT NECESSARILY, FOR
EXAMPLE, THE LOWEST RATE OF INTEREST WHICH THE BANK
COLLECTS FROM ANY BORROWER OR GROUP OF BORROWERS.
MATURITY DATE: Payable on demand.
REVIEW DATE: December 31, 2000.
REPAYMENT: Optional advance note; interest payable monthly,
principal payable upon demand, automated credit
sweep on prime based borrowings.
REPAYMENT OF EACH ADVANCE RECEIVED BY THE
BORROWER UNDER THE LINE OF CREDIT IS SUBJECT TO
THE TERMS OF THE PROMISSORY NOTE EVIDENCING THAT
ADVANCE AS WELL AS ALL TERMS AND CONDITIONS OF
THIS LETTER. IN THE EVENT OF ANY CONFLICT
BETWEEN THE TWO, THE TERMS AND CONDITIONS
OF THE PROMISSORY NOTE SHALL CONTROL.
LOAN FEE: Upfront annual loan fee of 1/8th of 1% ($6,250),
plus all out of pocket expenses.
COLLATERAL: Perfected first priority security interest in
all of Borrower's now owned and hereafter
acquired accounts receivable and inventory.
COSTS: Borrower shall be responsible for all of the
Banks costs, expenses, fees, including attorneys
fees, associated with the negotiation and
documentation of these credit facilities.
FINANCIAL REPORTING
-------------------
1. Annual CPA audited financial statement to be provided within 90 days of the
end of each fiscal year.
2. Monthly company prepared financial statements to be provided within 30 days
of the end of each month.
3. Quarterly compliance certificate to be provided within 30 days of the end of
each quarter.
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PHOENIX GOLD INTERNATIONAL, INC.
DECEMBER 1, 1999
FINANCIAL COVENANTS
-------------------
As long as indebted to Bank, Borrower is to be in compliance with the following
financial benchmarks, as described below. All covenants to be tested on a
quarterly basis.
CURRENT RATIO: Maintain a ratio of Current Assets to Current
Liabilities equal to or greater than 2.0:1.
Current Ratio is defined as Current Assets
divided by Current Liabilities
TANGIBLE NET WORTH: Maintain a Tangible Net Worth in excess of
$9,500,000. Tangible Net Worth is defined as
Net Worth minus any intangible assets. The
Bank will exclude net treasury stock
purchases totaling up to $2,000,000 during
the period beginning December 1st, 1999
through December 31st, 2000 from the Tangible
Net Worth covenant calculation.
PERMITTED STOCK
REPURCHASE: Beginning December 1st, 1999, through
December 31st, 2000 up to a maximum of
$2,000,000 worth of publicly traded, common
stock can be repurchased without prior
written bank approval as long as the Borrower
remains in compliance with all financial
covenants. Limited purchases of stock held
by the Borrower's management or the board of
directors is permitted. Total purchases of
management and board member stock not exceed
$250,000.
MAXIMUM FUNDED
DEBT TO TANGIBLE NET
WORTH: Maintain a Total Funded Debt to Tangible Net
Worth ratio of less than 0.25. Total Funded
Debt is defined as all interest-bearing debt.
Tangible Net Worth is defined at Net Worth
minus any intangible assets.
All computations made to determine compliance with the covenant requirements
shall be made in accordance with generally accepted accounting principles,
applied on a consistent basis and certified by Borrower as being true and
correct.
GENERAL TERMS AND CONDITIONS
----------------------------
1. PRIME RATE: U.S. Bank's prime rate is the rate of interest which Lender
from time to time establishes as its prime rate and is not, for example,
the lowest rate of interest which Lender collects from any borrower or
class of borrowers.
2. LOAN ADVANCES: Advances may be requested by Borrower from time to time in
accordance with the terms of the promissory note. All advances shall be
made at the sole option of Lender. Lender may decline to make any advance
and may terminate the availability of advances at any time.
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PHOENIX GOLD INTERNATIONAL, INC.
DECEMBER 1, 1999
3. INSURANCE: Borrower shall maintain insurance in such amounts and covering
such risks as Lender shall require.
4. FINANCIAL REPORTING: At any time requested by Lender, Borrower shall
furnish any additional information regarding Borrower's financial condition
and business operations that Lender reasonably requests. This information
may include, but is not limited to, financial statements, tax returns,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets and forecasts.
5. LOAN DOCUMENTATION: Borrower shall deliver to Lender duly executed
promissory notes, deeds of trust, mortgages, security agreements, financing
statements, loan agreements, guaranties, borrower authorizations, attorney
opinion letters and other documents ("Loan Documents") as required by
Lender in form and substance satisfactory to Lender and its counsel.
6. NON-ASSIGNABLE: This credit accommodation may not be assigned by
Borrower. No guarantor or any third party is intended as a third-party
beneficiary or has any right to rely hereon.
7. ARBITRATION: Borrower and Lender hereby agree to be bound by the terms of
the Arbitration clause attached hereto as Exhibit A.
8. EXPENSES: Borrower shall reimburse Lender for all out-of-pocket expenses
incurred in connection with this credit accommodation upon demand, whether
or not this transaction closes or is funded. Such expenses shall include,
without limitation, attorney fees, title insurance fees, travel costs,
examination expenses, and filing fees.
9. EXPIRATION DATE: This offer will expire on December 31, 1999 and the
revolving credit facility contemplated by this letter must be documented
and closed on or before January 15, 2000.
10. ACCESS LAWS: Without limiting the generality of any provision of this
agreement requiring Borrower to comply with applicable laws, rules, and
regulations, Borrower agrees that it will at all times comply with
applicable laws relating to disabled access including, but not limited to,
all applicable titles of the Americans with Disabilities Act of 1990.
This letter summarizes certain principal terms and conditions relating to the
loan and supersedes all prior oral or written negotiations, understandings,
representations and agreements with respect to the loan. However, the Loan
Documents will include additional terms, conditions, covenants, representations,
warranties and other provisions which Lender customarily includes in similar
transactions or which Lender determines to be appropriate to this transaction.
Except to the extent modified by any other agreement, all terms, condition,
covenants and other provisions of this letter shall remain in effect until the
revolving line of credit (including any renewals, extensions or modifications)
is terminated and the loan balance is paid in full, and by signing below,
Borrower agrees to comply with all such provisions.
In addition to the events of default in any Loan Document, any failure to comply
with any term, condition or obligation in this letter shall constitute an event
of default under each of the Loan Documents. The provisions of this letter shall
survive the closing of the loan and the execution and delivery of the Loan
Documents. In the event of a conflict between this letter and the Loan
Documents, the terms of the Loan Documents shall control.
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PHOENIX GOLD INTERNATIONAL, INC.
DECEMBER 1, 1999
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER
TO BE ENFORCEABLE.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER OREGON LAW.
If the above terms and conditions are acceptable to you, please sign, date and
return the acknowledgment copy of this letter on or before the Expiration Date.
Sincerely,
/s/ Jeffery Swift
Jeffery Swift
Vice President
275-5175
Borrower hereby accepts Lender's offer to extend credit on terms and conditions
stated above. Borrower hereby agrees to the Arbitration clause set forth in
Exhibit A attached hereto.
PHOENIX GOLD INTERNATIONAL, INC.
- --------------------------------
By: /s/ Joseph K. O'Brien
---------------------
Title: Chief Financial Officer and Secretary
----------------------------------------
Date: December 6, 1999
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PAGE 6
PHOENIX GOLD INTERNATIONAL, INC.
DECEMBER 1, 1999
EXHIBIT A
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this letter or the revolving line of credit or otherwise, including
without limitation contract and tort disputes, shall be arbitrated pursuant to
the Rules of the American Arbitration Association, upon request of either party.
No act to take or dispose of any collateral securing any loan shall constitute a
waiver of this arbitration agreement or be prohibited by this arbitration
agreement. This includes, without limitation, obtaining injunctive relief or a
temporary restraining order; foreclosing by notice and sale under any deed of
trust or mortgage; obtaining a writ of attachment or imposition of a receiver;
or exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness or any act, or exercise of any
right, concerning any collateral securing any loan, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing any loan, shall also be arbitrated, provided however that no arbitrator
shall have the right or other power to enjoin or restrain any act of any party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing herein shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.