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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 0-20330
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GARDENBURGER, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0886359
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1411 SW Morrison Street, Suite 400 Portland, Oregon 97205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-205-1500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock without par value 8,640,920
(Class) (Outstanding at May 8, 1998)
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<PAGE>
GARDENBURGER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - March 31, 1998 and December 31, 1997 2
Statements of Operations - Quarters Ended March 31, 1998
and 1997 3
Statements of Cash Flows - Quarters Ended March 31, 1998
and 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II - OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds 9
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------ --------------------
GARDENBURGER, INC.
BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 31,
1998 1997
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,310 $ 2,602
Accounts receivable, net of
allowances of $324 and $275 7,873 8,848
Inventories, net 6,659 3,203
Prepaid expenses 3,017 2,321
Income taxes receivable 499 475
Deferred income tax benefit 713 713
-------- --------
Total Current Assets 28,071 18,162
Property, Plant and Equipment, net of
accumulated depreciation of $2,269
and $2,005 9,453 7,822
Other Assets, net of accumulated amortization
of $282 and $250 2,266 1,261
Deferred Tax Asset 2,400 -
-------- --------
Total Assets $ 42,190 $ 27,245
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term note payable $ 2,000 $ -
Accounts payable 4,437 3,165
Payroll and related liabilities payable 730 948
Accrued employee bonuses 255 668
Accrued brokers' commissions 483 469
Accrued slotting fees 1,211 679
Other current liabilities 1,772 729
-------- --------
Total Current Liabilities 10,888 6,658
Convertible Notes Payable 15,000 -
Deferred Income Tax Liability 438 438
Other Long-Term Liabilities 252 310
Shareholders' Equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; none issued - -
Series A Junior Participating Preferred Stock,
no par value, 250,000 shares authorized;
none issued - -
Common Stock, no par value, 25,000,000 shares
authorized; shares issued and outstanding:
8,626,988 and 8,608,254 8,725 8,651
Additional paid-in capital 4,219 4,203
Retained earnings 2,668 6,985
-------- --------
Total Shareholders' Equity 15,612 19,839
-------- --------
Total Liabilities and Shareholders' Equity $ 42,190 $ 27,245
======== ========
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended March 31,
1998 1997
-------- ---------
Net sales $ 13,040 $ 10,304
Cost of goods sold 6,887 5,188
--------- --------
Gross margin 6,153 5,116
Operating expenses:
Sales and marketing 11,421 4,663
General and administrative 1,440 1,114
--------- --------
12,861 5,777
--------- --------
Operating loss (6,708) (661)
Other income (expense):
Interest income - 67
Interest expense (30) -
Other, net - (4)
--------- --------
(30) 63
--------- --------
Loss before benefit from income taxes (6,738) (598)
Benefit from income taxes 2,420 243
--------- --------
Net loss $ (4,318) $ (355)
========= ========
Basic and diluted net loss per share $ (0.50) $ (0.04)
========= ========
The accompanying notes are an integral part of these statements.
3
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GARDENBURGER, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
1998 1997
------------ ------------
Cash flows from operating activities:
Net loss $ (4,318) $ (355)
Effect of exchange rate on operating accounts 1 (3)
Deferred income taxes (2,400) -
Adjustments to reconcile net loss to net cash
flows used in operating activities:
Depreciation and amortization 299 247
Other non-cash (income) expense (58) 5
Loss on sale of fixed assets 1 4
(Increase) decrease in:
Accounts receivable, net 975 (1,144)
Inventories, net (3,456) (637)
Prepaid expenses (696) (449)
Income taxes receivable (24) (170)
Increase (decrease) in:
Accounts payable 1,272 (195)
Payroll and related liabilities
payable (218) (23)
Accrued liabilities and other 1,176 163
-------- --------
Net cash used in operating
activities (7,446) (2,557)
Cash flows from investing activities:
Payments for purchase of property and equipment (1,903) (1,156)
Proceeds from sale of property and equipment 4 -
Other assets, net (51) (23)
-------- --------
Net cash used in investing activities (1,950) (1,179)
Cash flows from financing activities:
Proceeds from line of credit 2,000 -
Proceeds from issuance of convertible
long-term debt 15,000 -
Financing fees related to issuance of convertible
long-term debt (986)
Proceeds from exercise of common stock options 74 -
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 16 -
-------- --------
Net cash provided by financing
activities 16,104 -
-------- --------
Increase (decrease) in cash and cash equivalents 6,708 (3,736)
Cash and cash equivalents:
Beginning of period 2,602 7,755
-------- --------
End of period $ 9,310 $ 4,019
======== ========
The accompanying notes are an integral part of these statements.
4
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GARDENBURGER, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR AS OTHERWISE INDICATED)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
- ------------------------------
The financial information included herein for the quarterly periods ended March
31, 1998 and 1997 and the financial information as of March 31, 1998 is
unaudited; however, such information reflects all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The financial information as
of December 31, 1997 is derived from Gardenburger, Inc.'s (the Company's) 1997
Annual Report on Form 10-K. The interim financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1997 Annual Report on Form 10-K.
The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. INVENTORIES
- --------------------
Inventories are valued at standard cost, which approximates the lower of cost
(using the first-in, first-out (FIFO) method), or market, and include materials,
labor and manufacturing overhead.
March 31, 1998 December 31, 1997
-------------------- --------------------
Raw materials $ 1,395 $ 1,148
Work in process 45 -
Supplies 348 193
Finished goods 4,871 1,862
------- -------
$ 6,659 $ 3,203
======= =======
NOTE 3. ISSUANCE OF CONVERTIBLE NOTES
- --------------------------------------
During March 1998, the Company completed a private placement of $15 million of 7
percent Convertible Senior Subordinated Notes (the "Notes") with Dresdner
Kleinwort Benson Private Equity Partners LP ("Dresdner"). The Notes are
convertible into shares of the Company's Common Stock at the option of Dresdner
until maturity in 2003, at which time they will be due in full if not previously
converted. The Company may also elect to redeem the Notes, if not previously
converted, at any time after two years from the date of issuance. The initial
conversion price is $12.90 based on a conversion premium of 120 percent of the
market price of the Company's Common Stock at the time the transaction was
negotiated. Under certain circumstances, the conversion price may be adjusted to
120 percent of the alternative market price (as defined) of the Company's Common
Stock on July 1, 1998, but will not be less than $11.40 or more than $12.90.
5
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NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH ACTIVITY
- ----------------------------------------------------------------
Supplemental disclosure of cash flow information is as follows:
Quarterly periods ended March 31,
1998 1997
------------- ----------
Cash paid during the period for income taxes $ 4 $ 4
Cash paid during the period for interest 56 -
NOTE 5. EARNINGS PER SHARE
- ---------------------------
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Since the prior period amount was
a loss, there is no restatement required in order to conform with the
presentation requirements of SFAS 128. In addition, basic EPS and diluted EPS
are the same for both periods presented since the Company was in a loss position
in both periods.
Potentially dilutive securities that are not included in the diluted EPS
calculation because they would be antidilutive include 2,752 shares issuable
pursuant to stock options and 1,163 shares issuable pursuant to the Company's
convertible notes.
NOTE 6. SUBSEQUENT EVENT
- -------------------------
In April 1998, the Company entered into a Business Loan Agreement (the
"Agreement") with Bank of America NT & SA for a $10.0 million revolving line of
credit, which expires July 1, 1999. Interest is at the bank's reference rate, or
at the option of the Company, at LIBOR plus 1.0 percentage point or the Offshore
Rate plus 1.0 percentage point. This facility also contains a provision for a
$0.4 million letter of credit with a maximum maturity of March 31, 2000. The
Agreement also provides for a separate $5.0 million revolving line of credit,
which expires December 1, 1998. Interest is at the bank's reference rate plus
3.0 percentage points. The Agreement is secured by all equipment, inventory,
receivables and other personal property owned by the Company. The Agreement
contains certain covenants relating to the availability of financial information
from the Company, as well as the maintenance of certain financial ratios and
tests.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
- ---------------------
Net sales increased 26.6 percent to $13.0 million for the first quarter of 1998
from $10.3 million for the first quarter of 1997. The increase is primarily
related to increased sales in the Company's club store and grocery channels as a
result of the Company's marketing emphasis.
Gross margins increased to $6.2 million (47.2 percent of net sales) for the
first quarter of 1998 from $5.1 million (49.7 percent of net sales) for the
first quarter of 1997. The decrease in the gross margin percentage is primarily
a result of start-up costs associated with the Company's new manufacturing
facility in Clearfield, Utah.
6
<PAGE>
Sales and marketing expenses increased to $11.4 million (87.6 percent of net
sales) for the first quarter of 1998 from $4.7 million (45.3 percent of net
sales) for the first quarter of 1997, primarily as a result of costs associated
with the Company's aggressive 1998 advertising plan and the introduction of new
products into the retail grocery channel.
General and administrative expenses increased to $1.4 million (11.0 percent of
net sales) for the first quarter of 1998 compared to $1.1 million (10.8 percent
of net sales) for the first quarter of 1997, primarily as a result of an
insurance settlement received in the first quarter of 1997 that effectively
lowered that period's expenses.
Operating loss increased to $6.7 million for the first quarter of 1998 from
$661,000 for the first quarter of 1997 as a result of the individual line item
changes discussed above.
Income taxes are based on an estimated rate of 35.9 percent for the quarter
ended March 31, 1998 compared to the 32.1 percent rate used throughout 1997.
Net loss was $4.3 million for the first quarter of 1998 compared to net loss of
$355,000 for the first quarter of 1997. Loss per share, both basic and diluted,
was $0.50 (on 8,612,973 shares) for the first quarter of 1998 compared to loss
per share, both basic and diluted, of $0.04 (on 8,566,456 shares) for the first
quarter of 1997.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1998 working capital was $17.2 million, including $9.3 million of
cash and cash equivalents. In the first quarter of 1998, working capital
increased by $5.7 million compared to December 31, 1997 and the current ratio
decreased to 2.6:1 from 2.7:1.
Cash and cash equivalents increased $6.7 million from December 31, 1997
primarily due to the issuance of $15.0 million of convertible senior
subordinated debt and receipt of $2.0 million in proceeds from the Company's
line of credit, offset by $7.4 million used in operations and $1.9 million used
for the purchase of property and equipment.
Accounts receivable decreased $1.0 million to $7.8 million at March 31, 1998
from $8.8 million at December 31, 1997 due primarily to significant sales at the
end of 1997 that were collected during the first quarter of 1998, offset by an
increase in days sales outstanding to 49 at March 31, 1998 from 34 at December
31, 1997.
Inventories increased $3.5 million to $6.7 million at March 31, 1998 from $3.2
million at December 31, 1997 in order to support the increased level of sales
expected in the second quarter of 1998. Inventory turned 5.6 times on an
annualized basis for the first quarter of 1998 compared to 9.6 times on an
annualized basis for the fourth quarter of 1997.
Capital expenditures of $1.9 million during the first quarter of 1998 primarily
resulted from expenditures for equipment for the Company's new Clearfield, Utah
production facility. Additional capital expenditures are estimated to total
approximately $3.0 million for 1998, primarily for information systems
infrastructure.
7
<PAGE>
During March 1998, the Company completed a private placement of $15 million of 7
percent Convertible Senior Subordinated Notes (the "Notes") with Dresdner
Kleinwort Benson Private Equity Partners LP ("Dresdner"). The Notes are
convertible into shares of the Company's Common Stock at the option of Dresdner
until maturity in 2003, at which time they will be due in full if not previously
converted. The Company may also elect to redeem the Notes, if not previously
converted, at any time after two years from the date of issuance. The initial
conversion price is $12.90 based on a conversion premium of 120 percent of the
market price of the Company's Common Stock at the time the transaction was
negotiated. Under certain circumstances, the conversion price may be adjusted to
120 percent of the alternative market price (as defined) of the Company's Common
Stock on July 1, 1998, but will not be less than $11.40 or more than $12.90.
In April 1998, the Company entered into a Business Loan Agreement (the
"Agreement") with Bank of America NT & SA for a $10.0 million revolving line of
credit, which expires July 1, 1999. Interest is at the bank's reference rate, or
at the option of the Company, at LIBOR plus 1.0 percentage point or the Offshore
Rate plus 1.0 percentage point. This facility also contains a provision for a
$0.4 million letter of credit with a maximum maturity of March 31, 2000. The
Agreement also provides for a separate $5.0 million revolving line of credit,
which expires December 1, 1998. Interest is at the bank's reference rate plus
3.0 percentage points. The Agreement is secured by all equipment, inventory,
receivables and other personal property owned by the Company. The Agreement
contains certain covenants relating to the availability of financial information
from the Company, as well as the maintenance of certain financial ratios and
tests.
New Accounting Pronouncement
- ----------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of 1998. Comprehensive loss did not differ from currently reported net loss in
the periods presented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
None.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ------- -----------------------------------------
On March 27, 1998, the Company sold $15,000,000 aggregate principal amount of 7%
Convertible Senior Subordinated Notes (the "Notes") at par to Dresdner Kleinwort
Benson Private Equity Partners LP ("Dresdner") pursuant to a Note Purchase
Agreement dated as of March 27, 1998. The Company paid a closing fee of $150,000
to Dresdner Kleinwort Benson North America LLC and paid the Company's placement
agent, Hambrecht & Quist LLP, a placement fee of $750,000 in connection with the
transaction. The following summary of the terms of the Notes, the Note Purchase
Agreement, and a related Registration Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the actual provisions
of the documents, which are attached as exhibits to this report.
The Notes will mature on April 1, 2003. Interest is payable semi-annually. The
Notes may be converted at any time prior to maturity, in whole or in part, into
shares of the Company's Common Stock. The initial conversion price is $12.90 per
share, subject to adjustment for changes in capitalization and other
antidilution provisions. If the Alternative Market Price of the Common Stock is
below $10.75 per share on July 1, 1998, the conversion price will be reduced to
a price which is 120 percent of the Alternative Market Price on that date, but
not less than $11.40 per share. The Alternative Market Price is the average of
the bid prices of the Common Stock as quoted in the Nasdaq System as of 4:00
p.m., New York time, on each of the 30 consecutive business days prior to and
including July 1, 1998. As a result of the convertibility of the Notes, Dresdner
is deemed to beneficially own approximately 1,162,800 shares of Common Stock, or
11.6 percent of the outstanding shares (including shares issuable upon
conversion of the Notes).
The Company may prepay the principal amount of the Notes, in whole or in part,
at any time prior to maturity, subject to a prepayment premium of 2.8 percent of
the principal amount if the prepayment occurs between April 1, 2000, and March
31, 2001, and 1.4 percent if the prepayment occurs between April 1, 2001, and
March 31, 2002. If the Company prepays any portion of the Notes on or before
March 31, 2000, or as a result of an event of default under the Notes, the
Company is required to issue warrants to purchase shares of Common Stock in the
same number as the repaid principal amount of Notes was convertible into and
with an exercise price equal to the then applicable conversion price. The Notes
are also subject to special prepayment provisions (including a 20 percent
prepayment premium) in the event of a change in control or sale of more than 50
percent of the assets of the Company or if a management change (defined as the
cessation of employment of Lyle G. Hubbard, President and Chief Executive
Officer, or Richard C. Dietz, Executive Vice President and Chief Financial
Officer, of the Company where a successor reasonably satisfactory to the holders
of a majority of the shares of Common Stock issued or issuable upon conversion
of the Notes (the "Majority Holders") is not employed by the Company within 60
days of such cessation of employment) has occurred.
Pursuant to the Note Purchase Agreement, the Company may not, without the prior
written consent of the Majority Holders, (i) amend the Company's Articles of
Incorporation, Bylaws or the Rights Agreement between the Company and First
Chicago Trust Company of New York in a manner materially adverse to Dresdner's
9
<PAGE>
rights and preferences under the Note Purchase Agreement and the Notes, (ii)
create a new class or series of securities on a par with or senior to the Notes,
or (iii) engage in certain significant corporate transactions, including, but
not limited to, a merger or sale of the Company or its business, liquidation or
dissolution of the Company, certain business acquisitions, and the incurrence of
indebtedness or lease obligations in excess of specified thresholds. So long as
at least $5,000,000 in principal amount of the Notes remains outstanding and
Dresdner and its affiliates own at least a majority of the principal amount of
Notes outstanding, the Company may not declare any dividends or make any
distributions with respect to its capital stock or redeem or purchase any of its
capital stock without the prior written consent of the Majority Holders. In
addition, so long as any Notes remain outstanding, Paul F. Wenner, Lyle G.
Hubbard and the Company have agreed to take all reasonably necessary and
desirable actions within their control so that an individual designated by the
Majority Holders is elected as a director of the Company (a "Designated
Director"). If at any time a Designated Director is not a member of the Board of
Directors, the Majority Holders have the right to appoint a representative to
attend and observe board meetings at the Company's expense.
On April 21, 1998, the Board of Directors acted to increase the number of
positions on the Board to eight and elected Alexander Coleman, who is Vice
President of Dresdner Kleinwort Benson North America LLC and an Investment
Partner in Dresdner Bank's U.S.-based SBIC, Dresdner Kleinwort Benson Private
Equity LLC, as a director in accordance with the terms of the Note Purchase
Agreement. Ronald C. Kesselman, Executive Vice President of Borden Holdings,
Inc., Chairman of Wise Foods, and Chairman of Elmer's Products, was also elected
as a director of the Company. The terms of Messrs. Coleman and Kesselman will
expire at the 1999 annual meeting of shareholders of the Company.
Pursuant to a separate Registration Rights Agreement, the Company has agreed to
register the shares of Common Stock into which the Notes are convertible for
resale by the holders thereof within 120 days after March 27, 1998, and to keep
such registration in effect until March 31, 2004.
The Company relied on the exemption from registration provided by Section 4(2)
under the Securities Act of 1933 with respect to the sale of the Notes.
Pursuant to the Business Loan Agreement dated as of April 28, 1998, between the
Company and Bank of America NT & SA, the Company is required to maintain a ratio
of current assets to current liabilities of at least 2.0 to 1.0, a ratio of
total liabilities to tangible net worth not exceeding 1.0 to 1.0, and a minimum
fixed charge coverage ratio of 1.2 to 1.0.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) The exhibits filed as a part of this report are listed below and this list
is intended to comprise the exhibit index:
Exhibit No.
-----------
3 1995 Restated Bylaws of Gardenburger, Inc., as amended April
21, 1998.
10.1 Second Amendment dated January 1, 1998 to lease agreement
dated January 1, 1993, between Paul F. Wenner and Frank S.
Card (lessors) and Gardenburger, Inc. (lessee).
10.2 Business Loan Agreement, dated April 28, 1998, between Bank of
America NT & SA and Gardenburger, Inc.
10.3 Amendment No. 1 dated as of March 26, 1998, to Rights
Agreement dated as of April 25, 1996, between Gardenburger,
Inc. and First Chicago Trust Company of New York.
10.4 Note Purchase Agreement dated as of March 27, 1998, between
Gardenburger, Inc. and Dresdner Kleinwort Benson Private
Equity Partners LP.
10.5 Gardenburger, Inc. Convertible Senior Subordinated Note dated
March 27, 1998.
10.6 Registration Rights Agreement dated as of March 27, 1998,
between Gardenburger, Inc. and
Dresdner Kleinwort Benson Private Equity Partners LP.
27 Financial Data Schedule.
99 Description of Common Stock of Gardenburger, Inc.
(b) Reports on Form 8-K Filed During the Quarter:
A report on Form 8-K dated February 3, 1998, was filed on February 10,
1998, containing an analysis of the Company's 1997 year-end results and
its strategic plans and goals for 1998 under Item 5.
Other Events.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1998 GARDENBURGER, INC.
By: /s/ Lyle G. Hubbard
-------------------------------------
Lyle G. Hubbard
Director, President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ Richard C. Dietz
-------------------------------------
Richard C. Dietz
Executive Vice President, Chief
Financial Officer Treasurer
and Secretary
(Principal Financial and Accounting
Officer)
12
1995 RESTATED BYLAWS
OF
GARDENBURGER, INC.
(as amended April 21, 1998)
<PAGE>
CONTENTS
SECTION 1. OFFICES..................................................... 1
SECTION 2. SHAREHOLDERS................................................ 1
2.1 Annual Meeting........................................ 1
2.2 Special Meetings...................................... 1
2.3 Place of Meeting...................................... 1
2.4 Notice of Meeting..................................... 1
2.5 Waiver of Notice ..................................... 2
2.6 Fixing of Record Date for Determining Shareholders.... 2
2.7 Shareholders' List.................................... 3
2.8 Quorum................................................ 3
2.9 Manner of Acting...................................... 3
2.10 Proxies............................................... 4
2.11 Voting of Shares...................................... 4
2.12 Voting for Directors.................................. 4
2.13 Action by Shareholders Without a Meeting.............. 4
2.14 Voting of Shares by Corporation....................... 4
2.14.1 Shares Held by Another Corporation........... 4
2.14.2 Shares Held by the Corporation............... 4
2.15 Acceptance or Rejection of Shareholder Votes,
Consents, Waivers and Proxy Appointments................. 5
2.15.1 Documents Bearing Name of Shareholders....... 5
2.15.2 Documents Bearing Name of Third Parties...... 5
2.15.3 Rejection of Documents....................... 5
2.16 Subject of Meetings................................... 5
SECTION 3. BOARD OF DIRECTORS.......................................... 6
3.1 General Powers........................................ 6
3.2 Number, Tenure and Qualifications..................... 7
3.3 Nominations of Directors.............................. 7
3.4 Annual and Regular Meetings........................... 8
3.5 Special Meetings...................................... 8
3.6 Meetings by Telecommunications........................ 8
3.7 Notice of Special Meetings............................ 8
3.7.1 Personal Delivery............................ 9
3.7.2 Delivery by Mail............................. 9
3.7.3 Delivery by Telegraph........................ 9
3.7.4 Oral Notice.................................. 9
3.7.5 Notice by Facsimile Transmission............. 9
<PAGE>
3.7.6 Notice by Private Courier.................... 9
3.8 Waiver of Notice...................................... 9
3.8.1 Written Waiver............................... 9
3.8.2 Waiver by Attendance......................... 9
3.9 Quorum................................................ 9
3.10 Manner of Acting...................................... 10
3.11 Presumption of Assent................................. 10
3.12 Action by Board or Committees Without a Meeting....... 10
3.13 Resignation........................................... 10
3.14 Removal .............................................. 10
3.15 Vacancies............................................. 10
3.16 Minutes............................................... 11
3.17 Executive and Other Committees........................ 11
3.17.1 Creation of Committees....................... 11
3.17.2 Authority of Committees...................... 11
3.17.3 Quorum and Manner of Acting.................. 11
3.17.4 Minutes of Meetings.......................... 12
3.17.5 Resignation.................................. 12
3.17.6 Removal...................................... 12
3.18 Compensation.......................................... 12
SECTION 4. OFFICERS..................................................... 12
4.1 Number................................................ 12
4.2 Appointment and Term of Office........................ 12
4.3 Resignation........................................... 12
4.4 Removal............................................... 13
4.5 Vacancies............................................. 13
4.6 Chair of the Board.................................... 13
4.7 President............................................. 13
4.8 Vice President........................................ 13
4.9 Secretary............................................. 13
4.10 Treasurer............................................. 14
4.11 Salaries.............................................. 14
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS........................ 14
5.1 Contracts............................................. 14
5.2 Loans to the Corporation.............................. 14
5.3 Loans to Directors.................................... 14
5.4 Checks, Drafts, Etc................................... 15
5.5 Deposits.............................................. 15
<PAGE>
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................... 15
6.1 Issuance of Shares.................................... 15
6.2 Escrow for Shares..................................... 15
6.3 Certificates for Shares............................... 15
6.4 Stock Records......................................... 15
6.5 Restriction on Transfer............................... 16
6.5.1 Securities Laws.............................. 16
6.5.2 Other Restrictions........................... 16
6.6 Transfer of Shares.................................... 16
6.7 Lost or Destroyed Certificates........................ 16
6.8 Transfer Agent and Registrar.......................... 16
6.9 Officer Ceasing to Act................................ 16
6.10 Fractional Shares..................................... 16
SECTION 7. BOOKS AND RECORDS.................................... 16
SECTION 8. FISCAL YEAR.......................................... 17
SECTION 9. SEAL................................................. 17
SECTION 10. INDEMNIFICATION............................................. 17
10.1 Directors and Officers............................... 17
10.2 Employees and Other Agents........................... 17
10.3 No Presumption of Bad Faith.......................... 17
10.4 Advances of Expenses................................. 17
10.5 Enforcement.......................................... 17
10.6 Nonexclusivity of Rights............................. 18
10.7 Survival of Rights................................... 18
10.8 Insurance............................................ 18
10.9 Amendments to Law.................................... 18
10.10 Savings Clause....................................... 19
10.11 Certain Definitions.................................. 19
SECTION 11. AMENDMENTS.................................................. 20
<PAGE>
1995 RESTATED BYLAWS
OF
WHOLESOME & HEARTY FOODS, INC.
<PAGE>
SECTION 1
OFFICES
The principal office of the Corporation shall be located at the
principal place of business or such other place as the Board of Directors (the
"Board") may designate. The Corporation may have such other offices, either
within or without the State of Oregon, as the Board may designate or as the
business of the Corporation may require from time to time.
SECTION 2
SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be
held in the month of May each year, or in such other month as fixed by the
Board, on such date and at such time as fixed by the Board, at the principal
office of the Corporation or at such other place as fixed by the Board, for the
purpose of electing Directors and transacting such other business as may
properly come before the meeting.
2.2 SPECIAL MEETINGS. The Board, the President or the Chair of the
Board may call special meetings of the shareholders for any purpose. The holders
of not less than one-tenth of all the outstanding shares of the Corporation
entitled to vote on any issue proposed to be considered at the proposed special
meeting, if they date, sign and deliver to the Corporation's Secretary a written
demand for a special meeting describing the purpose(s) for which it is to be
held, may call a special meeting of the shareholders for such stated purpose(s).
2.3 PLACE OF MEETING. All meetings shall be held at the principal
office of the Corporation or at such other place as designated by the Board, by
any persons entitled to call a meeting hereunder, or in a waiver of notice
signed by all of the shareholders entitled to vote at the meeting.
2.4 NOTICE OF MEETING.
2.4.1 The Corporation shall cause to be delivered to each
shareholder entitled to notice of or to vote at an annual or special meeting of
shareholders, either personally or by mail, not less than ten (10) nor more than
sixty (60) days before the meeting, written notice stating the date, time and
place of the meeting and, in the case of a special meeting, the purpose(s) for
which the meeting is called.
2.4.2 Notice to a shareholder of an annual or special
shareholder meeting shall be in writing. Such notice, if in comprehensible form,
is effective (a) when mailed, if it is mailed postpaid and is correctly
addressed to the shareholder's address shown in the Corporation's current record
of shareholders; or (b) when received by the shareholder, if it is delivered by
telegraph, facsimile transmission or private courier.
2.4.3 If an annual or special shareholders' meeting is
adjourned to a different date, time, or place, notice need not be given of the
new date, time, or place if the new date, time, or place is announced at the
meeting before adjournment, unless a new record date for the adjourned meeting
is or must be fixed under Section 2.6.1 of these Bylaws or the Oregon Business
Corporation Act.
2.5 WAIVER OF NOTICE.
2.5.1 Whenever any notice is required to be given to any
shareholder under the provisions of these Bylaws, the Articles of Incorporation
or the Oregon Business Corporation Act, a waiver thereof in writing, signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, and delivered to the Corporation for inclusion in the minutes
for filing with the corporate records, shall be deemed equivalent to the giving
of such notice.
2.5.2 The attendance of a shareholder at a meeting waives
objection to lack of, or defect in, notice of such meeting or of consideration
of a particular matter at the meeting, unless the shareholder, at the beginning
of the meeting or prior to consideration of such matter, objects to holding the
meeting, transacting business at the meeting, or considering the matter when
presented at the meeting.
2.6 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS.
2.6.1 For the purpose of determining shareholders entitled to
notice of, or to vote at, any meeting of shareholders or any adjournment
thereof, or shareholders entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other purpose, the Board
may fix in advance a date as the record date for any such determination. Such
record date shall be not more than seventy (70) days, and in case of a meeting
of shareholders, not less than ten (10) days, prior to the date on which the
particular action requiring such determination is to be taken. If no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting, or to receive payment of a dividend, the date on which the notice
of meeting is mailed or on which the resolution of the Board declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination. Such determination shall apply to any adjournment of the meeting,
provided such adjournment is not set for a date more than 120 days after the
date fixed for the original meeting.
2.6.2 The record date for the determination of shareholders
entitled to demand a special shareholder meeting shall be the date the first
shareholder signs the demand.
2.7 SHAREHOLDERS' LIST.
2.7.1 Beginning two (2) business days after notice of a
meeting of shareholders is given, a complete alphabetical list of the
shareholders entitled to notice of such meeting shall be made, arranged by
voting group, and within each voting group by class or series, with the address
of and number of shares held by each shareholder. This record shall be kept on
file at the Corporation's principal office or at a place identified in the
meeting notice in the city where the meeting will be held. On written demand,
this record shall be subject to inspection by any shareholder at any time during
normal business hours. Such record shall also be kept open at such meeting for
inspection by any shareholder.
2.7.2 A shareholder may, on written demand, copy the
shareholders' list at such shareholder's expense during regular business hours,
provided that:
(a) Such shareholder's demand is made in good faith and for a
proper purpose;
(b) Such shareholder has described with reasonable
particularity such shareholder's purpose in the written demand; and
(c) The shareholders' list is directly connected with such
shareholder's purpose.
2.8 QUORUM. A majority of the votes entitled to be cast on a matter at
a meeting by a voting group, represented in person or by proxy, shall constitute
a quorum of that voting group for action on that matter at a meeting of the
shareholders. If a quorum is not present for a matter to be acted upon, a
majority of the shares represented at the meeting may adjourn the meeting from
time to time without further notice. If the necessary quorum is present or
represented at a reconvened meeting following such an adjournment, any business
may be transacted that might have been transacted at the meeting as originally
called. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.9 MANNER OF ACTING.
2.9.1 If a quorum exists, action on a matter (other than the
election of Directors) by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the affirmative vote of a greater number is required by these Bylaws, the
Articles of Incorporation or the Oregon Business Corporation Act.
2.9.2 If a matter is to be voted on by a single group, action
on that matter is taken when voted upon by that voting group. If a matter is to
be voted on by two or more voting groups, action on that matter is taken only
when voted upon by each of those voting groups counted separately. Action may be
taken by one voting group on a matter even though no action is taken by another
voting group entitled to vote on such matter.
2.10 PROXIES. A shareholder may vote by proxy executed in writing by
the shareholder or by his or her attorney-in-fact. Such proxy shall be effective
when received by the Secretary or other officer or agent authorized to tabulate
votes at the meeting. A proxy shall become invalid eleven (11) months after the
date of its execution, unless otherwise expressly provided in the proxy. A proxy
for a specified meeting shall entitle the holder thereof to vote at any
adjournment of such meeting but shall not be valid after the final adjournment
thereof.
2.11 VOTING OF SHARES. Each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
2.12 VOTING FOR DIRECTORS. Each shareholder may vote, in person or by
proxy, the number of shares owned by such shareholder that are entitled to vote
at an election of Directors, for as many persons as there are Directors to be
elected and for whose election such shares have a right to vote. Unless
otherwise provided in the Articles of Incorporation, Directors are elected by a
plurality of the votes cast by shares entitled to vote in the election at a
meeting at which a quorum is present.
2.13 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action which could
be taken at a meeting of the shareholders may be taken without a meeting if a
written consent setting forth the action so taken is signed by all shareholders
entitled to vote with respect to the subject matter thereof. The action shall be
effective on the date on which the last signature is placed on the consent, or
at such earlier or later time as is set forth therein. Such written consent,
which shall have the same force and effect as a unanimous vote of the
shareholders, shall be inserted in the minute book as if it were the minutes of
a meeting of the shareholders.
2.14 VOTING OF SHARES BY CORPORATION.
2.14.1 SHARES HELD BY ANOTHER CORPORATION. Shares standing in
the name of another corporation may be voted by such officer, agent or proxy as
the bylaws of such other corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine;
provided, however, such shares are not entitled to vote if the Corporation owns,
directly or indirectly, a majority of the shares entitled to vote for directors
of such other corporation.
2.14.2 SHARES HELD BY THE CORPORATION. Authorized but unissued
shares shall not be voted or counted for determining whether a quorum exists at
any meeting or counted in determining the total number of outstanding shares at
any given time. Notwithstanding the foregoing, shares of its own stock held by
the Corporation in a fiduciary capacity may be counted for purposes of
determining whether a quorum exists, and may be voted by the Corporation.
2.15 ACCEPTANCE OR REJECTION OF SHAREHOLDER VOTES, CONSENTS, WAIVERS
AND PROXY APPOINTMENTS.
2.15.1 DOCUMENTS BEARING NAME OF SHAREHOLDERS. If the name
signed on a vote, consent, waiver or proxy appointment corresponds to the name
of a shareholder, the Secretary or other agent authorized to tabulate votes at
the meeting may, if acting in good faith, accept such vote, consent, waiver or
proxy appointment and give it effect as the act of the shareholder.
2.15.2 DOCUMENTS BEARING NAME OF THIRD PARTIES. If the name
signed on a vote, consent, waiver or proxy appointment does not correspond to
the name of its shareholder, the Secretary or other agent authorized to tabulate
votes at the meeting may nevertheless, if acting in good faith, accept such
vote, consent, waiver or proxy appointment and give it effect as the act of the
shareholder if:
(a) The shareholder is an entity and the name signed purports
to be that of an officer or an agent of the entity;
(b) The name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if the
Secretary or other agent requests, acceptable evidence of fiduciary status has
been presented;
(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder, and, if the Secretary or other agent
requests, acceptable evidence of this status has been presented;
(d) The name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if the Secretary or
other agent requests, acceptable evidence of the signatory's authority to sign
has been presented; or
(e) Two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
2.15.3 REJECTION OF DOCUMENTS. The Secretary or other agent
authorized to tabulate votes at the meeting is entitled to reject a vote,
consent, waiver or proxy appointment if such agent, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about
the signatory's authority to sign for the shareholder.
2.16 SUBJECT OF MEETINGS. To be properly brought before an annual
meeting of shareholders, business must be either (i) specified in the notice of
the meeting (or any supplement or amendment thereto) given by or at the
direction of the Board, (ii) otherwise brought before the meeting by or at the
direction of the Board, or (iii) otherwise brought before the meeting by a
shareholder who is a shareholder of record at the time of giving of the notice
provided for in this Section 2.16, who shall be entitled to vote at such meeting
and who complies fully with all of the notice procedures and other requirements
set forth in this Section 2.16. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting of
shareholders by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) calendar
days nor more than ninety (90) calendar days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is changed by more than thirty (30) calendar days
from such anniversary date, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth (10th) calendar day
following the earlier of the day on which notice of the date of the meeting was
mailed or public disclosure was made. A shareholder's notice to the
Corporation's Secretary of business proposed to be conducted at any annual or
special meeting of shareholders shall set forth as to each matter the
shareholder proposes to bring before such meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and record address of the
shareholder proposing such business and the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, (iii) the class, series and
number of shares of the capital stock of the Corporation which are owned
beneficially and of record by such shareholder and by the beneficial owner, if
any, on whose behalf the proposal is made, and (iv) any material interest of
such shareholder and the beneficial owner, if any, on whose behalf the proposal
is made in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 2.16. The officer of
the Corporation presiding at a meeting of shareholders (the "Presiding Officer")
shall determine whether the proposed business is properly brought before the
meeting in accordance with the provisions of this Section 2.16. If the Presiding
Officer should determine that the proposed business is not properly brought
before the meeting, the Presiding Officer shall state such determination to the
meeting, whereupon any such business not properly brought before the meeting
shall not be transacted or otherwise brought before the meeting. Notwithstanding
the foregoing provisions of this Section 2.16, a shareholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
set forth herein.
SECTION 3
BOARD OF DIRECTORS
3.1 GENERAL POWERS. The business and affairs of the Corporation shall
be managed by the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Oregon Business Corporation Act.
3.2 NUMBER, TENURE AND QUALIFICATIONS. The Board shall consist of no
less than three and no more than nine Directors, the specific number to be set
by resolution of the Board. The number of Directors may be changed from time to
time by amendment to these Bylaws, but no decrease in the number of Directors
shall shorten the term of any incumbent Director. The terms of the Directors
expire at the next annual shareholder's meeting following their election.
Despite the expiration of a Director's term, however, the Director continues to
serve until the Director's successor is elected and qualifies or until there is
a decrease in the number of Directors. Directors need not be shareholders of the
Corporation or residents of the State of Oregon.
3.3 NOMINATIONS OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of the Corporation
at any meeting of shareholders may be made by or at the direction of the Board,
by any committee of persons appointed by the Board or at the meeting by any
shareholder of the Corporation who is a shareholder of record at the time of
giving notice provided for in this Section 3.3, who shall be entitled to vote
for the election of directors at the meeting and who complies fully with all of
the notice procedures and other requirements set forth in this Section 3.3 and
the procedures and requirements set forth in the Oregon Business Corporation
Act. Nominations by any shareholder shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation (a) in the case of an annual meeting, not less than
sixty (60) calendar days nor more than ninety (90) calendar days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is changed by more than
thirty (30) calendar days from such anniversary date, notice by the shareholder
to be timely must be so received not later than the close of business on the
tenth (10th) calendar day following the earlier of the day on which notice of
the date of the meeting was mailed or public disclosure was made, and (b) in the
case of a special meeting at which Directors are to be elected, not later than
the earlier of (i) the close of business on the tenth (10th) calendar day
following the earlier of the day on which notice of the date of the meeting was
mailed or public disclosure was made or (ii) the close of business on the fifth
(5th) calendar day before the date of the meeting. Such shareholder's notice to
the Secretary or a written demand from shareholders pursuant to Section 60.204
of the Oregon Revised Statutes shall set forth (i) as to each person whom such
shareholders propose to nominate for election or reelection as a Director, (a)
the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person, (c) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (d) all other information relating to the person that is or would be
required to be disclosed in a solicitation for proxies for election of Directors
pursuant to the Rules and Regulations of the Securities and Exchange Commission
under Section 14 of the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected); (ii) as to the shareholders giving
such notice or demand (a) the name and record address of the shareholders, (b)
the class and number of shares of capital stock of the Corporation which are
beneficially owned by each such shareholder and also which are owned of record
by each such shareholder and (c) any material interest or relationship each such
shareholder has in or with the proposed nominee; and (iii) as to each beneficial
owner, if any, on whose behalf the nomination is made, (a) the name and address
of such person, (b) the class and number of shares of capital stock of the
Corporation which are beneficially owned by such person and (c) any material
interest or relationship such person has in or with the proposed nominee. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a Director of the Corporation. No person shall
be eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth herein. The Presiding Officer shall
determine whether the nomination is made in accordance with the foregoing
procedures. If the Presiding Officer should determine that the nomination was
not made in accordance with the foregoing procedures, the Presiding Officer
shall state such determination to the meeting, whereupon any such defective
nomination shall be disregarded and not otherwise brought before the meeting.
Notwithstanding the foregoing provisions of this Section 3.3, a shareholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth herein.
3.4 ANNUAL AND REGULAR MEETINGS. An annual Board meeting shall be held
without further notice immediately after and at the same place as the annual
meeting of shareholders. By resolution, the Board, or any committee thereof, may
specify the time and place for holding regular meetings thereof without other
notice than such resolution.
3.5 SPECIAL MEETINGS. Special meetings of the Board or any committee
designated by the Board may be called by or at the request of the Chair of the
Board, or the President or any two Directors, and, in the case of any special
meeting of any committee designated by the Board, by the Chair thereof. The
person or persons authorized to call special meetings may fix any place either
within or without the State of Oregon as the place for holding any special Board
or committee meeting called by them.
3.6 MEETINGS BY TELECOMMUNICATIONS. Members of the Board or any
committee designated by the Board may participate in a meeting of such Board or
committee by use of any means of communication by which all persons
participating may simultaneously hear each other during the meeting.
Participation by such means shall be deemed presence in person at the meeting.
3.7 NOTICE OF SPECIAL MEETING. Notice of a special Board or committee
meeting stating the date, time and place of the meeting shall be given to a
Director in writing or orally by telephone or in person as set forth below.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY. If delivery is by personal service,
the notice shall be effective if delivered at such address at least one day
before the meeting.
3.7.2 DELIVERY BY MAIL. If notice is delivered by mail, the
notice shall be deemed effective if deposited in the official government mail at
least five days before the meeting properly addressed to a Director at his or
her address shown on the records of the Corporation with postage prepaid.
3.7.3 DELIVERY BY TELEGRAPH. If notice is delivered by
telegraph, the notice shall be deemed effective if the content thereof is
delivered to the telegraph company by such time that telegraph company
guarantees delivery at least one day before the meeting.
3.7.4 ORAL NOTICE. If notice is delivered orally, by telephone
or in person, the notice shall be effective if personally given to a Director at
least one day before the meeting.
3.7.5 NOTICE BY FACSIMILE TRANSMISSION. If notice is delivered
by facsimile transmission, the notice shall be deemed effective if the content
thereof is transmitted to the office of a Director, at the facsimile number
shown on the records of the Corporation, at least one day before the meeting,
and receipt is either confirmed by confirming transmission equipment or
acknowledged by the receiving office.
3.7.6 NOTICE BY PRIVATE COURIER. If notice is delivered by
private courier, the notice shall be deemed effective if delivered to the
courier, properly addressed and prepaid, by such time that the courier
guarantees delivery at least one day before the meeting.
3.8 WAIVER OF NOTICE.
3.8.1 WRITTEN WAIVER. Whenever any notice is required to be
given to any Director under the provisions of these Bylaws, the Articles of
Incorporation or the Oregon Business Corporation Act, a waiver thereof in
writing, executed at any time, specifying the meeting for which notice is
waived, signed by the person or persons entitled to such notice, and filed with
the minutes or corporate records, shall be deemed equivalent to the giving of
such notice.
3.8.2 WAIVER BY ATTENDANCE. The attendance of a Director at a
Board or committee meeting shall constitute a waiver of notice of such meeting,
unless the Director, at the beginning of the meeting, or promptly upon such
Director's arrival, objects to holding the meeting or transacting any business
at the meeting and does not thereafter vote for or assent to action taken at the
meeting.
3.9 QUORUM. A majority of the number of Directors fixed by or in the
manner provided by these Bylaws shall constitute a quorum for the transaction of
business at any Board meeting.
3.10 MANNER OF ACTING. The act of the majority of the Directors present
at a Board or committee meeting at which there is a quorum shall be the act of
the Board or committee, unless the vote of a greater number is required by these
Bylaws, the Articles of Incorporation or the Oregon Business Corporation Act.
3.11 PRESUMPTION OF ASSENT. A Director of the Corporation present at a
Board or committee meeting at which action on any corporate matter is taken
shall be deemed to have assented to the action taken unless such Director
objects at the beginning of the meeting, or promptly upon such Director's
arrival, to holding the meeting or transacting business at the meeting; or such
Director's dissent is entered in the minutes of the meeting; or such Director
delivers a written notice of dissent or abstention to such action with the
presiding officer of the meeting before the adjournment thereof; or such
Director forwards such notice by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. A Director who
voted in favor of such action may not thereafter dissent or abstain.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING. Any action which
could be taken at a meeting of the Board or of any committee appointed by the
Board may be taken without a meeting if a written consent setting forth the
action so taken is signed by each Director or by each committee member. The
action shall be effective when the last signature is placed on the consent,
unless the consent specifies an earlier or later date. Such written consent,
which shall have the same effect as a unanimous vote of the Directors or such
committee, shall be inserted in the minute book as if it were the minutes of a
Board or committee meeting.
3.13 RESIGNATION. Any Director may resign at any time by delivering
written notice to the Chair of the Board, the Board, or to the registered office
of the Corporation. Such resignation shall take effect at the time specified in
the notice, or if no time is specified, upon delivery. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Once delivered, a notice of resignation is irrevocable unless
revocation is permitted by the Board.
3.14 REMOVAL. One or more members of the Board (including the entire
Board) may be removed at a meeting of shareholders called expressly for that
purpose, provided that the notice of such meeting states that the purpose, or
one of the purposes, of the meeting is such removal. A member of the Board may
be removed with or without cause, unless the Articles of Incorporation permit
removal for cause only, by a vote of the holders of a majority of the shares
then entitled to vote on the election of the Director(s). A Director may be
removed only if the number of votes cast to remove the Director exceeds the
number of votes cast to not remove the Director. If a Director is elected by a
voting group of shareholders, only the shareholders of that voting group may
participate in the vote to remove such Director.
3.15 VACANCIES. Any vacancy occurring on the Board, including a vacancy
resulting from an increase in the number of Directors, may be filled by the
shareholders, by the Board, by the affirmative vote of a majority of the
remaining Directors though less than a quorum of the Board, or by a sole
remaining Director. A Director elected to fill a vacancy shall be elected for
the unexpired term of his or her predecessor in office; except that the term of
a Director elected by the Board to fill a vacancy expires at the next
shareholders' meeting at which Directors are elected. Any Directorship to be
filled by reason of an increase in the number of Directors may be filled by the
affirmative vote of a majority of the number of Directors fixed by the Bylaws
prior to such increase for a term of office continuing only until the next
election of Directors by the shareholders. Any Directorship not so filled by the
Directors shall be filled by election at the next annual meeting of shareholders
or at a special meeting of shareholders called for that purpose. If the vacant
Directorship is filled by the shareholders and was held by a Director elected by
a voting group of shareholders, then only the holders of shares of that voting
group are entitled to vote to fill such vacancy. A vacancy that will occur at a
specific later date by reason of a resignation effective at such later date or
otherwise may be filled before the vacancy occurs, but the new Director may not
take office until the vacancy occurs.
3.16 MINUTES. The Board shall keep minutes of its meetings and shall
cause them to be recorded in books kept for that purpose.
3.17 EXECUTIVE AND OTHER COMMITTEES.
3.17.1 CREATION OF COMMITTEES. The Board, by resolution
adopted by a majority of the number of Directors fixed in the manner provided by
these Bylaws, may appoint standing or temporary committees, including an
Executive Committee, from its own number and consisting of no less than two (2)
Directors. The Board may invest such committee(s) with such powers as it may see
fit, subject to such conditions as may be prescribed by the Board, these Bylaws,
the Articles of Incorporation and the Oregon Business Corporation Act.
3.17.2 AUTHORITY OF COMMITTEES. Each committee shall have and
may exercise all of the authority of the Board to the extent provided in the
resolution of the Board designating the committee and any subsequent resolutions
pertaining thereto and adopted in like manner, except that no such committee
shall have the authority to: (a) authorize distributions, except as may be
permitted by Section 3.17.2(g) of these Bylaws; (b) approve or propose to
shareholders actions required by the Oregon Business Corporation Act to be
approved by shareholders; (c) fill vacancies on the Board or any committee
thereof; (d) adopt, amend or repeal these Bylaws; (e) amend the Articles of
Incorporation; (f) approve a plan of merger not requiring shareholder approval;
or (g) authorize or approve reacquisition of shares, except within limits
prescribed by the Board.
3.17.3 QUORUM AND MANNER OF ACTING. A majority of the number
of Directors composing any committee of the Board, as established and fixed by
resolution of the Board, shall constitute a quorum for the transaction of
business at any meeting of such committee.
3.17.4 MINUTES OF MEETINGS. All committees so appointed shall
keep regular minutes of their meetings and shall cause them to be recorded in
books kept for that purpose.
3.17.5 RESIGNATION. Any member of any committee may resign at
any time by delivering written notice thereof to the Board, the Chair of the
Board or the Corporation. Any such resignation shall take effect at the time
specified in the notice, or if no time is specified, upon delivery. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board.
3.17.6 REMOVAL. The Board may remove from office any member of
any committee elected or appointed by it, but only by the affirmative vote of
not less than a majority of the number of Directors fixed by or in the manner
provided by these Bylaws.
3.18 COMPENSATION. By Board resolution, Directors and committee members
may be paid their expenses, if any, of attendance at each Board or committee
meeting, or a fixed sum for attendance at each Board or committee meeting, or a
stated salary as Director or a committee member, or a combination of the
foregoing. No such payment shall preclude any Director or committee member from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 4
OFFICERS
4.1 NUMBER. The Officers of the Corporation shall be a President and a
Secretary, each of whom shall be appointed by the Board. One or more Vice
Presidents, a Treasurer and such other Officers and assistant Officers may be
appointed by the Board; such Officers and assistant Officers to hold office for
such period, have such authority and perform such duties as are provided in
these Bylaws or as may be provided by resolution of the Board. Any Officer may
be assigned by the Board any additional title that the Board deems appropriate.
The Board may delegate to any Officer or agent the power to appoint any such
subordinate Officers or agents and to prescribe their respective terms of
office, authority and duties. Any two or more offices may be held by the same
person.
4.2 APPOINTMENT AND TERM OF OFFICE. The Officers of the Corporation
shall be appointed annually by the Board at the Board meeting held after the
annual meeting of the shareholders. If the appointment of Officers is not made
at such meeting, such appointment shall be made as soon thereafter as a Board
meeting conveniently may be held. Unless an Officer dies, resigns, or is removed
from office, he or she shall hold office until the next annual meeting of the
Board or until his or her successor is appointed.
4.3 RESIGNATION. Any Officer may resign at any time by delivering
written notice to the Corporation. Any such resignation shall take effect at the
time specified in the notice, or if no time is specified, upon delivery. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. Once delivered, a notice of resignation is
irrevocable unless revocation is permitted by the Board.
4.4 REMOVAL. Any Officer or agent appointed by the Board may be removed
by the Board, with or without cause, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Appointment of an
Officer or agent shall not of itself create contract rights.
4.5 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office or any other cause may be
filled by the Board for the unexpired portion of the term, or for a new term
established by the Board. If a resignation is made effective at a later date,
and the Corporation accepts such future effective date, the Board may fill the
pending vacancy before the effective date, if the Board provides that the
successor does not take office until the effective date.
4.6 CHAIR OF THE BOARD. If appointed, the Chair of the Board shall
perform such duties as shall be assigned to him or her by the Board from time to
time and shall preside over meetings of the Board and shareholders unless
another Director or an Officer is appointed or designated by the Board as Chair
of such meeting. The Chair of the Board shall not, by virtue of that position
alone, be deemed to be an Officer of the Corporation.
4.7 PRESIDENT. The President shall be the chief executive Officer of
the Corporation unless some other Officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chair of
the Board and, subject to the Board's control, shall supervise and control all
of the assets, business and affairs of the Corporation. The President shall have
authority to sign deeds, mortgages, bonds, contracts, or other instruments,
except when the signing and execution thereof have been expressly delegated by
the Board or by these Bylaws to some other Officer or agent of the Corporation,
or are required by law to be otherwise signed or executed by some other Officer
or in some other manner. In general, the President shall perform all duties
incident to the office of President and such other duties as are prescribed by
the Board from time to time.
4.8 VICE PRESIDENT. In the event of the death of the President or his
or her inability to act, the Vice President (or if there is more than one Vice
President, the Vice President who was designated by the Board as the successor
to the President, or if no Vice President is so designated, the Vice President
first appointed to such office) shall perform the duties of the President,
except as may be limited by resolution of the Board, with all the powers of and
subject to all the restrictions upon the President. Vice Presidents shall have,
to the extent authorized by the President or the Board, the same powers as the
President to sign deeds, mortgages, bonds, contracts or other instruments. Vice
Presidents shall perform such other duties as from time to time may be assigned
to them by the President or by the Board.
4.9 SECRETARY. The Secretary shall: (a) prepare and keep the minutes of
meetings of the shareholders and the Board in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be responsible for custody
of the corporate records and seal of the Corporation; (d) keep registers of the
post office address of each shareholder and Director; (e) have general charge of
the stock transfer books of the Corporation; and (f) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him or her by the President or by the Board. In the
absence of the Secretary, an Assistant Secretary may perform the duties of the
Secretary.
4.10 TREASURER. If required by the Board, the Treasurer shall give a
bond for the faithful discharge of his or her duties in such amount and with
such surety or sureties as the Board shall determine. The Treasurer shall have
charge and custody of and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, and deposit all such moneys in the name
of the Corporation in banks, trust companies or other depositories selected in
accordance with the provisions of these Bylaws; and in general perform all of
the duties incident to the office of the Treasurer and such other duties as from
time to time may be assigned to him or her by the President or by the Board. In
the absence of the Treasurer, an Assistant Treasurer may perform the duties of
the Treasurer.
4.11 SALARIES. The salaries of the Officers shall be fixed from time to
time by the Board or by any person or persons to whom the Board has delegated
such authority. No Officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the Corporation.
SECTION 5
CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS. The Board may authorize any Officer or Officers, or
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authority may
be general or confined to specific instances.
5.2 LOANS TO THE CORPORATION. No loans shall be contracted on behalf of
the Corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board. Such authority may be general or
confined to specific instances.
5.3 LOANS TO DIRECTORS. The Corporation shall not lend money to or
guarantee the obligation of a Director unless: (a) the particular loan or
guarantee is approved by a majority of the votes represented by the outstanding
voting shares of all classes, voting as a single voting group, excluding the
votes of the shares owned by or voted under the control of the benefitted
Director; or (b) the Board determines that the loan or guarantee benefits the
Corporation and either approves the specific loan or guarantee or a general plan
authorizing the loans and guarantees. The fact that a loan or guarantee is made
in violation of this provision shall not affect the borrower's liability on the
loan.
5.4 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such Officer or Officers, or agent or agents,
of the Corporation and in such manner as is from time to time determined by
resolution of the Board.
5.5 DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board may select.
SECTION 6
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES. No shares of the Corporation shall be issued
unless authorized by the Board, which authorization shall include the maximum
number of shares to be issued and the consideration to be received for each
share. Before the Corporation issues shares, the Board shall determine that the
consideration received or to be received for such shares is adequate. Such
determination by the Board shall be conclusive insofar as the adequacy of
consideration for the issuance of shares relates to whether the shares are
validly issued, fully paid and nonassessable.
6.2 ESCROW FOR SHARES. The Board may authorize the placement in escrow
of shares issued for a contract for future services or benefits or a promissory
note, or may authorize other arrangements to restrict the transfer of shares,
and may authorize the crediting of distributions in respect of such shares
against their purchase price, until the services are performed, the note is paid
or the benefits received. If the services are not performed, the note is not
paid, or the benefits are not received, the Board may cancel, in whole or in
part, such shares placed in escrow or restricted and such distributions
credited.
6.3 CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board. Such
certificates shall be signed by any two of the following officers: the Chair of
the Board, the President, any Vice President, the Treasurer, the Secretary or
any Assistant Secretary. Any or all of the signatures on a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Corporation itself or an employee of the
Corporation. All certificates shall be consecutively numbered or otherwise
identified.
6.4 STOCK RECORDS. The stock transfer books shall be kept at the
registered office or principal place of business of the Corporation or at the
office of the Corporation's transfer agent or registrar. The name and address of
each person to whom certificates for shares are issued, together with the class
and number of shares represented by each such certificate and the date of issue
thereof, shall be entered on the stock transfer books of the Corporation. The
person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes.
6.5 RESTRICTION ON TRANSFER.
6.5.1 SECURITIES LAWS. Except to the extent that the
Corporation has obtained an opinion of counsel acceptable to the Corporation
that transfer restrictions are not required under applicable securities laws, or
has otherwise satisfied itself that such transfer restrictions are not required,
all certificates representing shares of the Corporation shall bear conspicuously
on the front or back of the certificate a legend or legends describing the
restriction or restrictions.
6.5.2 OTHER RESTRICTIONS. In addition, the front or back of
all certificates shall include conspicuous written notice of any further
restrictions which may be imposed on the transferability of such shares.
6.6 TRANSFER OF SHARES. Transfer of shares of the Corporation shall be
made only on the stock transfer books of the Corporation pursuant to
authorization or document of transfer made by the holder of record thereof or by
his or her legal representative, who shall furnish proper evidence of authority
to transfer, or by his or her attorney-in-fact authorized by power of attorney
duly executed and filed with the Secretary of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificates for a like number of
shares shall have been surrendered and cancelled.
6.7 LOST OR DESTROYED CERTIFICATES. In the case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such terms
and indemnity to the Corporation as the Board may prescribe.
6.8 TRANSFER AGENT AND REGISTRAR. The Board may from time to time
appoint one or more Transfer Agents and one or more Registrars for the shares of
the Corporation, with such powers and duties as the Board shall determine by
resolution.
6.9 OFFICER CEASING TO ACT. In case any officer who has signed or whose
facsimile signature has been placed upon a stock certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if the signer were such officer at the date
of its issuance.
6.10 FRACTIONAL SHARES. The Corporation shall not issue certificates
for fractional shares.
SECTION 7
BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and Board and such other records as may be necessary or advisable.
SECTION 8
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year, provided
that if a different fiscal year is at any time selected for purposes of federal
income taxes, the fiscal year shall be the year so selected.
SECTION 9
SEAL
The seal of the Corporation, if any, shall consist of the name of the
Corporation and the state of its incorporation.
SECTION 10
INDEMNIFICATION
10.1 DIRECTORS AND OFFICERS. The Corporation shall indemnify its
directors and officers to the fullest extent not prohibited by law.
10.2 EMPLOYEES AND OTHER AGENTS. The Corporation shall have the power
to indemnify its employees and other agents to the fullest extent not prohibited
by law.
10.3 NO PRESUMPTION OF BAD FAITH. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
or not opposed to the best interests of this Corporation, or, with respect to
any criminal proceeding, that the person had reasonable cause to believe that
the conduct was unlawful.
10.4 ADVANCES OF EXPENSES. The expenses incurred by a director or
officer in any proceeding shall be paid by the Corporation in advance at the
written request of the director or officer, if the director or officer:
10.4.1 Furnishes the Corporation a written affirmation of such
person's good faith belief that such person is entitled to be indemnified by the
Corporation; and
10.4.2 Furnishes the Corporation a written undertaking to
repay such advance to the extent that it is ultimately determined by a court
that such person is not entitled to be indemnified by the Corporation. Such
advances shall be made without regard to the person's ability to repay such
expenses and without regard to the person's ultimate entitlement to
indemnification under this Bylaw or otherwise.
10.5 ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances under this Bylaw shall be
deemed to be contractual rights and be effective to the same extent and as if
provided for in a contract between the Corporation and the director or officer
who serves in such capacity at any time while this Bylaw and any other
applicable law, if any, are in effect. Any right to indemnification or advances
granted by this Bylaw to a director or officer shall be enforceable by or on
behalf of the person holding such right in any court of competent jurisdiction
if (a) the claim for indemnification or advances is denied, in whole or in part,
or (b) no disposition of such claim is made within ninety (90) days of request
thereof. The claimant in such enforcement action, if successful in whole or in
part, shall be entitled to be also paid the expense of prosecuting the claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in connection with any proceeding in advance of its
final disposition when the required affirmation and undertaking have been
tendered to the Corporation) that the claimant has not met the standards of
conduct which makes it permissible under the law for the Corporation to
indemnify the claimant, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because the claimant has met the
applicable standard of conduct, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
shareholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
10.6 NONEXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of articles of incorporation,
bylaws, agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in the person's official capacity and as to action in another
capacity while holding office. The Corporation is specifically authorized to
enter into individual contracts with any or all of its directors, officers,
employees or agents respecting indemnification and advances to the fullest
extent not prohibited by law.
10.7 SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
10.8 INSURANCE. To the fullest extent not prohibited by law, the
Corporation, upon approval by the Board of Directors, may purchase insurance on
behalf of any person required or permitted to be indemnified pursuant to this
Bylaw.
10.9 AMENDMENTS TO LAW. For purposes of this Bylaw, the meaning of
"law" within the phrase "to the fullest extent not prohibited by law" shall
include, but not be limited to, the Oregon Business Corporation Act, as the same
exists on the date hereof or as it may be amended; provided, however, that in
the case of any such amendment, such amendment shall apply only to the extent
that it permits the Corporation to provide broader indemnification rights than
the Act permitted the Corporation to provide prior to such amendment.
10.10 SAVINGS CLAUSE. If this Bylaw or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall indemnify each director, officer or other agent to the fullest
extent permitted by any applicable portion of this Bylaw that shall not have
been invalidated, or by any other applicable law.
10.11 CERTAIN DEFINITIONS. For purposes of this Section, the following
definitions shall apply:
10.11.1 The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether brought in the right of the Corporation or otherwise
and whether civil, criminal, administrative or investigative, in which the
director or officer may be or may have been involved as a party or otherwise by
reason of the fact that the director or officer is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
10.11.2 The term "expenses" shall be broadly construed and
shall include, without limitation, all costs, charges and expenses (including
fees and disbursements of attorneys, accountants and other experts) actually and
reasonably incurred by a director or officer in connection with any proceeding,
all expenses of investigations, judicial or administrative proceedings or
appeals, and any expenses of establishing a right to indemnification under these
Bylaws, but shall not include amounts paid in settlement, judgments or fines.
10.11.3 "Corporation" shall mean Wholesome & Hearty Foods,
Inc. and any successor corporation thereof.
10.11.4 Reference to a "director," "officer," "employee" or
"agent" of the Corporation shall include, without limitation, situations where
such person is serving at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
10.11.5 References to "other enterprises" shall include
employee benefit plans. References to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan. References to
"serving at the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants, or beneficiaries. A person who
acted in good faith and in a manner the person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Bylaw.
SECTION 11
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board at any regular or special meeting of the Board; provided,
however, that the shareholders, in amending or repealing a particular Bylaw, may
provide expressly that the Board may not amend or repeal that Bylaw. The
shareholders may also make, alter, amend and repeal the Bylaws of the
Corporation at any annual meeting or at a special meeting called for that
purpose. All Bylaws made by the Board may be amended, repealed, altered or
modified by the shareholders at any regular or special meeting called for that
purpose.
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease is made and entered into this 1st day of
January, 1998, by and between Paul F. Wenner, and Frank S. Card and Maralee
Jeanne Card, as Trustees in the Card Trust U/D/T October 6, 1994 ("Lessor"), on
the one hand and Gardenburger, Inc. fka Wholesome & Hearty Foods, Inc.
("Lessee"), on the other.
RECITALS
A. On or about January 1, 1993, Frank S. Card and Lessee entered into a
certain lease agreement (the "Lease"), pursuant to which Frank S. Card agreed to
lease to Lessee certain real property in the City of Portland, Oregon described
as follows: Lots 1 and 2, Block 172, HAWTHORNE PARK, Multnomah County, Oregon
(the "Premises"), having a street address of 1416 S.E. 8th Avenue, Portland,
Oregon.
B. The Premises are currently owned by Paul F. Wenner, as to an
undivided one-half interest, and Frank S. Card and Maralee Jeanne Card, as
Trustees in the Card Trust U/D/T October 6, 1994, as to an undivided one-half
interest.
C. On or about September 30, 1997, the parties hereto entered into a
first amendment to lease pursuant to which (1) the term of the Lease was
extended past December 31, 1997, (2) the Lease was made a month-to-month Lease
commencing January 1, 1998, and (3) the monthly rent payment was increased to
$2,200 per month.
D. The parties hereto desire to amend the Lease make the Lease a lease
for a period of one year effective January 1, 1998, with the option of renewing
the Lease for an additional year.
AMENDMENT
Now, therefore, in consideration for the mutual covenants contained
herein, the parties hereto agree to amend the Lease as follows:
1. Term of Lease. The term of the Lease will be one year, commencing
January 1, 1998, and ending December 31, 1998.
2. Renewal Option. Lessee shall have the option to renew the Lease for
an additional one-year term if notification of such renewal is given to Lessor
by November 1, 1998. If no notification is given to Lessor, the Lease shall
terminate on December 31, 1998.
3. No Other Modification to Lease. No other modification to the Lease
is made or intended to be made hereby. All terms, conditions, and covenants to
the Lease, to the extent not inconsistent with the foregoing amendments, shall
remain in full force and effect.
LESSOR:
/s/ Paul F. Wenner
----------------------------------------
Paul F. Wenner
/s/ Frank S. Card, Trustee
----------------------------------------
Frank S. Card, as Trustee in the Card
Trust U/D/T October 6, 1994
/s/ Maralee Jeanne Card, Trustee
----------------------------------------
Maralee Jeanne Card, as Trustee in the
Card Trust U/D/T October 6, 1994
LESSEE: GARDENBURGER, INC.
By: /s/ Richard C. Dietz
------------------------------------
Richard C. Dietz
Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
Bank of America NT & SA Business Loan Agreement
- --------------------------------------------------------------------------------
This Agreement dated as of April 28, 1998 is between Bank of America NT & SA
(the "Bank") and Gardenburger, Inc. (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Ten Million Dollars ($10,000,000).
(b) This is a revolving line of credit with a within line facility for
standby letter of credit. During the availability period, the Borrower
may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit plus the outstanding amounts of any standby letter
of credit to exceed the Commitment, including amounts drawn on standby
letter of credit and not yet reimbursed, to exceed the Commitment.
1.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and July 1,
1999 (the "Expiration Date") unless the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an Optional interest rate as described
below, the interest rate is the Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by Bank as its Reference Rate. The Reference Rate is set based
on various factors, including Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans. The Bank may price loans to its customers at,
above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in
the public announcement of a change in the Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on May 1, 1998, and then monthly
thereafter until payment in full of any principal outstanding under
this line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than
the Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period,
which shall be no later than the Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the first day of
every month and on the last day of each interest period. At the end of any
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional interest
rate for the portion.
1.6 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the LIBOR Rate plus 1.0
percentage point.
Designation of a LIBOR Rate portion is subject to the following requirements:
(a) The interest period during which the LIBOR Rate will be in effect will
be 7 - 180 days. The last day of the interest period will be determined
by the Bank using the practices of the London inter-bank market.
(b) Each LIBOR Rate portion will be an amount not less than Five Hundred
Thousand Dollars ($500,000).
(c) The Borrower shall irrevocably request a LIBOR Rate portion no later
than 9:00 a.m. San Francisco time three (3) banking days before the
commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate= London Rule
----------------------------
(1.00) - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward
to the nearest 1/16th of one percent) at which the
Bank of America NT & SA's London Branch, London,
Great Britain, would offer U.S. Dollar deposits for
the applicable interest period to other major banks
in the London inter-bank market at approximately
11:00 a.m. London time two (2) banking days before
the commencement of the interest period.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to
be maintained by the member banks of the Federal
Reserve System for Eurocurrency Liabilities, as
defined in the Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent.
The percentage will be expressed as a decimal, and
will include, but not limited to, marginal,
emergency, supplemental, special, and other reserve
percentages.
(e) The Borrower may not elect a LIBOR Rate with respect to any portion of
the appreciable balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(f) Any portion of the principal balance of the line of credit already
bearing interest at the LIBOR Rate will not be converted to a different
rate during its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee equal to
the amount (if any) by which:
(i) the additional interest which would have been payable
on the amount prepaid had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
London inter-bank market for a period starting on the
date on which it was prepaid and ending on the last
day of the interest period for such portion.
(h) The Bank will have no obligation to accept an election for LIBOR Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate portion.
1.7 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate plus
1.0 percentage point.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect
will be 7 - 180 days. The last day of the interest period will be
determined by the Bank using the practices of the offshore dollar
inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
Offshore Rate= Grand Cayman Rate
--------------------------
(1.0 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to
the nearest 1/16th of one percent) at which the Bank's Grand
Cayman Branch, Grand Cayman, British West Indies, would offer
U.S. dollar deposits for the applicable interest period to
other major banks in the offshore dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and
will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion
of the principal balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Offshore Rate will be converted to a different
rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accomplished by the amount
of accrued interest on the amount prepaid, and a prepayment fee equal
to the amount (if any) by which
(i) the additional interest which would have been payable
on the amount period had it not been paid until the
last day of the interest period, exceeds
(ii) the interest which would have been recoverable by the
Bank by placing the amount prepaid on deposit in the
offshore dollar market for a period starting on the
date on which it was prepaid and ending on the last
day of the interest period for such portion.
(g) The Bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and
is continuing:
(i) Dollar deposits in the principal amount, and for
periods equal to the interest period, of an Offshore
Rate portion are not available in the offshore Dollar
inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the
cost of an Offshore Rate portion.
1.8 LETTERS OF CREDIT. This line of credit may be used for financing:
(i) a standby letter of credit with a maximum maturity of
March 31, 2000 provided however that the maturity
date may be automatically extended each year for an
additional year unless the Bank gives written notice
to the contrary.
(ii) the amount of outstanding letters of credit,
including amounts drawn on letters of credit and not
yet reimbursed, may not exceed at any one time Four
Hundred Thousand Dollars ($400,000).
The Borrower agrees:
(a) so long as credit remains available from the Bank under the line of
credit, any sum drawn under the letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described
elsewhere in this Agreement.
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form
and content satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit
for the Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
2. FACILITY NO. 2: LINE OF CREDIT AMOUNT AND TERMS
2.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Facility 2 Commitment") is Five Million Dollars ($5,000,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit to exceed the Facility 2 Commitment.
2.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and December
1, 1998 (the "Expiration Date") unless the Borrower is in default.
2.3 INTEREST RATE.
(a) The interest rate is the Reference Rate plus 3.0 Percentage points.
2.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on May 1, 1998, and then monthly
thereafter until payment in full of any principal outstanding under
this line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than
the Expiration Date.
3. FEES AND EXPENSES
3.1 FEES.
(a) FACILITY NO. 1 LOAN FEE. The Borrower agrees to pay a Five Thousand
Dollar ($5,000) fee due upon date of execution of the loan agreement.
(b) FACILITY NO. 2 LOAN FEE. The Borrower agrees to pay a Fifty Thousand
Dollar ($50,000) fee due upon execution of this Agreement; and 2% of
Commitment due at first advance.
3.2 EXPENSES. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
4. COLLATERAL
4.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrower. In addition, all personal property
collateral securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any consumer credit
covered by the Federal Truth in Lending law, unless the Borrower has otherwise
agreed in writing). All personal property collateral securing any other present
or future obligations of the Borrower to the Bank shall also secure this
Agreement.
(a) Machinery, and equipment.
(b) Inventory.
(c) Receivables.
(d) Patents, trademarks and other general intangibles.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
5.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
5.3. TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or
for the designation of optional interest rates given by the individual
signer(s) of this Agreement or a person or persons authorized by the
signer(s) of this Agreement.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 28013-00537, or such other accounts with the
Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) for, from and against all liability, loss, and
costs in connection with any act resulting from telephone instructions
it reasonably believes are made by a signer of this Agreement or a
person authorized by a signer. This indemnity and excuse will survive
this Agreement's termination.
5.4 DIRECT DEBIT (PRE-BILLING)
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 28013-00537 (the "Designated Account") on the date each
payment of principal and interest and any fees from the Borrower
becomes due (the "Due Date"). If the Due Date is not a banking day, the
Designated Account will be debited on the next banking day.
(b) Approximately 5 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date
(the "Billed Amount"). The calculation will be made on the assumption
that no new extensions of credit or payments will be made between the
date of the billing statement and the Due Date, and that there will be
no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount of principal due and interest accrued
(collectively, the "Accrued Amount"). If the Billed Amount debited to
the Designated Account differs from the Accrued Amount, the discrepancy
will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount,
the Billed Amount for the following Due Date will be
increased by the amount of the discrepancy. The
Borrower will not be in default by reason of any such
discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount,
the Billed Amount for the following Due Date will be
decreased by the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without
compounding. The Bank will not pay the Borrower interest on any
overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account
to cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
5.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in Oregon and banks are open for business in California. For amounts
bearing interest at an offshore rate (if any), a banking day is a day other than
a Saturday or a Sunday on which the Bank is open for business in Oregon and the
Bank is dealing in offshore dollars. All payments and disbursements which would
be due on a day which is not a banking day will be due on the next banking day.
All payments received on a day which is not a banking day will be applied to the
credit on the next banking day.
5.6 TAXES. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes or charges on
any payments made by the Borrower, the Borrower will pay the taxes or charges.
Upon request by the Bank, the Borrower will confirm that it has paid the taxes
by giving the Bank official tax receipts (or notarized copies) within 30 days
after the due date. However, the Borrower will not pay the Bank's net income
taxes.
5.7 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
5.8 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance,
any amount not paid when due under this Agreement (including interest) shall
bear interest from the due date at the Reference Rate. This may result in
compounding of interest.
5.9 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is 2.0 percentage points
higher than the rate of interest otherwise provided under this Agreement. This
will not constitute a waiver of any event of default.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
6.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance
by the Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
6.2 SECURITY AGREEMENTS. Signed original security agreements, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
6.3 INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
6.4 SUBORDINATION AGREEMENTS. Subordination agreements in favor of the
Bank signed by Dresdner Kleinwort Benson Private Equity Partners LP.
6.5 OTHER ITEMS. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation:
7.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
7.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in existence and in good standing, and, where required, in
compliance with fictitious name statutes.
7.5 NO CONFLICTS. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
7.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
7.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged without conflict with the rights
of others.
7.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have been
disclosed in writing to the Bank.
7.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
7.13 YEAR 2000 COMPLIANCE. The Borrower has conducted a comprehensive review
and assessment of the Borrower's computer applications and made inquiry of the
Borrower's key suppliers, vendors and customers with respect to the "year 2000
problem" (that is, the risk that computer applications may not be able to
properly perform date-sensitive functions after December 31, 1999) and, based on
that review and inquiry, the Borrower does not believe the year 2000 problem
will result in a material adverse change in the Borrower's business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the credit.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
8.1 USE OF PROCEEDS. To use the proceeds of the credit only for general
operating needs.
8.2 FINANCIAL INFORMATION. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited by a
Certified Public Accountant ("CPA") acceptable to the Bank, accompanied
by Borrower's certificate of compliance in form and content
satisfactory to the Bank.
(b) Within 30 days after the period's end, the Borrower's monthly financial
statement, accompanied by Borrower's certificate of compliance in form
and content satisfactory to Bank.
(c) Within 45 days after the period's end, the Borrower's quarterly 10Q
statement, accompanied by Borrower's certificate of compliance in form
and content satisfactory to the Bank.
8.3 CURRENT RATIO. To maintain a ratio of current assets to current
liabilities of at least 2.0:1.0, measured monthly.
8.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain a ratio of total
liabilities to tangible net worth not exceeding 1.0:1.0, measured monthly.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
8.5 MINIMUM FIXED CHARGE COVERAGE RATIO FLOW RATIO. To maintain on a cash
flow ratio of at least 1.20:1.0 measured annually at fiscal year end.
"Minimum fixed charge coverage ratio" is defined as (earnings before interest
taxes depreciation and amortization plus lease expense minus dividends paid plus
new equity) divided by (lease expense plus interest plus current portion long
term debt). Current portion long term debt is measured as of the last day of the
period measured. Lease expense defined as payments made under any operating
lease, facility lease, or off balance sheet loan.
8.6 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank and its affiliates), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and lines of credit and capital leases in existence on the date
of this Agreement disclosed in writing to the Bank.
(e) Capital leases, direct or indirect guarantees, indemnities or
suretyships of any nature, and other miscellaneous types of
indebtedness incurred in the ordinary course of business in an
aggregate amount not to exceed Three Million Dollars ($3,000,000) at
any time.
(f) Indebtedness for borrowed money in an aggregate amount not greater than
Three Million Dollars ($3,000,000) at any time, the proceeds of which
are used exclusively for the purchase of assets in which the holder of
the indebtedness is granted a purchase money security interest.
(g) Incurring new operating or off-balance sheet lease obligations in an
aggregate amount for any fiscal year period not to exceed Ten Million
Dollars ($10,000,000).
8.7 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank and its
affiliates.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
(d) Additional purchase money security interests in personal property
acquired after the date of this Agreement.
(e) Security interests or liens subordinate to the interest of the Bank in
form satisfactory to Bank.
(f) Pledges or deposits made in the ordinary course of business to secure
payment of workers compensation, or to participate in any fund in
connection with workers compensation, unemployment insurance, old-age
pensions, or other social security programs.
(g) Liens of mechanics, materialmen, warehousemen, carriers, or other like
liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable.
(h) Good faith pledges or deposits made in the ordinary course of business
to secure performance of bids, tenders, contracts (other than for the
repayment of borrowed money), or leases, not in excess of ten percent
of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance, or other
similar bonds required in the ordinary course of business.
(i) The following, if the validity or amount thereof is being contested in
good faith by appropriate and lawful proceedings, so long as levy and
execution thereon have been stayed and continued to be stayed and they
do not, in the aggregate, materially detract from the value of the
property of the Borrower, or materially impair the use thereof in the
operation of its business: (a) claims or liens for taxes, assessments,
or similar charges incurred in the ordinary course of business; (b)
claims, liens, and encumbrances upon, and defects of title to,
property, including any attachment of property or other legal process
prior to adjudication of a dispute on the merits; (c) claims or liens
of mechanics, materialmen, warehousemen, carriers, or other like liens;
and (d) adverse judgments on appeal.
8.8 CAPITAL EXPENDITURES. Capital expenditures not funded by operating
leases or off-balance sheet loans shall not exceed Three Million Dollars
($3,000,000) during any fiscal year.
8.9 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw any
additional advances on its revolving line of credit, for a period of at least 30
consecutive days in each line-year. "Line-year" means the period between the
date of this Agreement and July 1, 1999, and each subsequent one-year period (if
any).
8.10 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Hundred Thousand Dollars ($100,000) against the
Borrower.
(b) any substantial dispute between the Borrower and any government
authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial condition or
operations.
(e) any change in the Borrower's name, address or legal structure.
8.11 BOOKS AND RECORDS. To maintain adequate books and records.
8.12 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
8.13 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
8.14 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
8.15 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
8.16 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.17 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
8.18 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to
the Bank. The insurance must be issued by an insurance company
acceptable to the Bank and must include a lender's loss payable
endorsement in favor of the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in. To maintain insurance satisfactory to the Bank as to
amount, nature and carrier covering property damage (including loss of
use and occupancy) to any of the Borrower's properties, public
liability insurance including coverage for contractual liability,
product liability and workers' compensation, and any other insurance
which is usual for the Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
8.19 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets except in the ordinary course of the
Borrower's business.
(d) sell or otherwise dispose of any assets for less than fair market
value, or enter into any sale and leaseback agreement covering any of
its fixed or capital assets.
9. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank for, from, and against
any loss or liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law, or any petroleum products,
including crude oil and any product derived directly or indirectly from, or any
fraction or distillate of, crude oil. This indemnity will survive repayment of
the Borrower's obligations to the Bank.
10. DEFAULT.
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement will
automatically become due immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement when due.
10.2 NON-COMPLIANCE. The Borrower fails to meet the conditions of, or fails
to perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement the Borrower has with the Bank or any affiliate of
the Bank.
10.3 CROSS-DEFAULT. Any default occurs under any other agreement for
borrowing money or receiving credit under which Borrower may be obligated as
borrower, lessee or guarantor, if such default (I) consists of the failure to
pay any indebtedness when due or (ii) gives the holder of the indebtedness the
right to accelerate the indebtedness.
10.4 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
10.5 BANKRUPTCY. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower, or the Borrower makes a general
assignment for the benefit of creditors.
10.6 RECEIVERS. A receiver or similar official is appointed for the
Borrower's business, or the business is terminated.
10.7 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower; or the Borrower enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of One Hundred Thousand
Dollars ($100,000) or more in excess of any insurance coverage.
10.8 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's financial condition or
ability to repay.
10.9 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's financial condition, properties or prospects, or ability to repay the
loan.
11. NOTICE OF DEFAULT; OPPORTUNITY TO CURE.
Bank shall provide Borrower with three (3) banking days notice and opportunity
to cure any default arising from the failure of Borrower to satisfy an
obligation of payment under this Agreement and with fifteen (15) calendar days
notice and opportunity to cure any other act or omission constituting a default
hereunder. Notwithstanding anything to the contrary stated herein, Borrower
shall not be entitled to a notice and opportunity to cure a default under
Paragraphs 10.4, 10.5, or 10.6.
12. ENFORCING THIS AGREEMENT; MISCELLANEOUS
12.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
12.2 OREGON LAW. This Agreement is governed by Oregon law.
12.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
12.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury
to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by Oregon law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issues is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) a provisional or interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for provisional, interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
12.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
12.6 COSTS. If the Bank incurs any expenses in connection with enforcing
this Agreement or administering this Agreement (including in connection with
extending, amending, renewing or modifying this Agreement), or if the Bank takes
collection action under this Agreement, it is entitled to costs and reasonable
attorneys' fees, including any allocated costs of in-house counsel.
12.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable attorneys' fees
(including any allocated costs of in-house counsel) incurred in connection with
the lawsuit or arbitration proceeding, as determined by the court or arbitrator
(and not by a jury). Such costs and attorneys' fees shall include, without
limitation, those incurred on any appeal, as determined by the appellate court,
and any anticipated costs and attorneys' fees to pursue or collect any judgment.
12.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively, collectively, including but
not limited to attached letter agreement attached hereto as Exhibit A:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
12.9 EXCHANGE OF INFORMATION. The Borrower agrees that the Bank may exchange
financial information about the Borrower with BankAmerica Corporation affiliates
and other related entities.
12.10 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
12.11 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
12.12 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
12.13 WRITTEN AGREEMENTS. Under Oregon Law, most agreements, promises and
commitments made by the Bank 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 that Bank to be enforceable.
This Agreement is executed as of the date started at the top of the first page.
BANK OF AMERICA NT & SA Gardenburger, Inc.
/s/ Eric Eidler /s/ Richard C. Dietz
- ------------------------ --------------------
By: Eric Eidler By: Richard C. Dietz
Title: Vice President Title: Executive Vice President & CFO
Address where notices to the Bank Address where notices to the Borrower
are to be sent: are to be sent:
Oregon Commercial Banking Office #2089 1411 S.W. Morrison Street
P.O. Box 6400 Ste. 400, Fourth Floor
Portland, Oregon 97228 Portland, Oregon 97205
<PAGE>
Bank of America
Commercial Banking
EXHIBIT A
April 28, 1998
Richard C. Dietz, Executive Vice President & CFO
Gardenburger, Inc.
1411 S.W. Morrison, Suite 400
Portland, OR 97205
Dear Rich:
Notwithstanding the terms and conditions agreed to in the Business Loan
Agreement ("Agreement") dated April 28, 1998, between Bank of America NT&SA
("Bank") and Gardenburger, Inc. ("Borrower"), the following conditions with
respect to Facility No. 1 are hereby considered supplements to that Agreement:
- - At any time the availability period, should Total Liabilities to
Tangible Net Worth as defined in Section 8.4 exceed 0.65:1.0, the
amount of the Commitment is the lesser of $10,000,000 or the borrowing
base.
- - The borrowing base will be calculated by adding together up to 80% of
the acceptable accounts receivable and up to 50 % of acceptable
inventory.
- - In general, acceptable receivables means unencumbered accounts of the
Borrower resulting from sales in the ordinary course of business. These
receivables are to be aged 80 days or less from invoice date and
exclude, unless otherwise stated in writing by us, contra accounts;
employee or affiliate accounts; federal, state, or local government
accounts; foreign accounts; mineral accounts; COD, consignment, or
similar accounts; accounts in default; accounts of debtors exceeding
25% of acceptable receivables; and accounts of debtors who are in
default of 25% or more of all accounts owned by such debtors.
- - In general, acceptable inventory means unencumbered finished goods
inventory of the Borrower which is held for sale in the ordinary course
of business and is permanently located at locations acceptable to us.
This inventory must be of good and merchantable quality and excludes,
unless otherwise stated in writing by us, inventory which is consigned;
obsolete or defective inventory; inventory which has been returned by
the buyer; display items; and packing and shipping materials.
- - The advance rates indicated above, and the eligibility of assets
against which the Bank will advance funds, are subject to a Bank audit
and evaluation, the results of which must be satisfactory to the Bank.
The calculation of the borrowing base would be explained further in an
amendment to the Agreement.
By signing below, Borrower agrees to the above supplementary conditions to the
Agreement.
Please call me at 279-2529 if you have any questions regarding this matter.
Sincerely,
/s/ Eric Eidler
Eric Eidler
Vice President
Gardenburger, Inc.
/s/ Richard C. Dietz
- --------------------------------------
By: Richard C. Dietz
Title: Executive Vice President
and Chief Financial Officer
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
Amendment No. 1 dated as of March 26, 1998 (the "Amendment"), to the Rights
Agreement, dated as of April 25, 1996 (the "Rights Agreement"), between
Gardenburger, Inc. (f/k/a Wholesome & Hearty Foods, Inc.), an Oregon corporation
(the "Company"), and First Chicago Trust Company of New York, a New York
corporation (the "Rights Agent").
WITNESSETH:
WHEREAS, the Company and the Rights Agent have entered into the Rights
Agreement; and
WHEREAS, on March 26, 1998, the Board of Directors of the Company, in
accordance with Section 26 of the Rights Agreement, determined it desirable and
in the best interests of the Company and its shareholders to supplement and
amend certain provisions of the Rights Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Amendment to Section 1.1. Section 1.1 of the Rights Agreement is
amended to read in its entirety as follows:
"1.1 'ACQUIRING PERSON' shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 15% or more of the Common Shares of the
Company then outstanding, but shall not include: (i) the Company; (ii) any
Subsidiary of the Company; (iii) any employee benefit plan of the Company or of
any Subsidiary of the Company or any entity holding shares of capital stock of
the Company for or pursuant to the terms of any such plan, in its capacity as an
agent or trustee for any such plan; or (iv) any Exempt Person, unless such
Exempt Person becomes the Beneficial Owner of more than the Exempt Percentage of
the Common Shares of the Company then outstanding. "Exempt Person" shall mean
(x) Paul F. Wenner, together with all of his Affiliates and Associates,
including, without limitation, the Paul F. Wenner Charitable Foundation Trust
(collectively, "Wenner"); and (y) Dresdner Kleinwort Benson Private Equity
Partners LP, together with all of its Affiliates and Associates, or any one or
more of the Affiliates and Associates of Dresdner Kleinwort Benson Private
Equity Partners LP (collectively, "Dresdner"). "Exempt Percentage" shall mean,
with respect to Wenner, up to 25% of the Common Shares of the Company then
outstanding and, with respect to Dresdner, up to 22% of the Common Shares of the
Company then outstanding. Notwithstanding the foregoing, no Person shall become
an "Acquiring Person" as the result of an acquisition of Common Shares by the
Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% (25% as
to Wenner and 22% as to Dresdner) or more of the Common Shares of the Company
then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 15% (25% as to Wenner and 22% as to Dresdner) or more of the
Common Shares of the Company then outstanding solely by reason of share
purchases by the Company and shall, after such purchases by the Company, become
the Beneficial Owner of any additional Common Shares of the Company, then such
Person shall be deemed to be an "Acquiring Person." Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this Section 1.1, has become such inadvertently,
and such Person divests as promptly as practicable a sufficient number of Common
Shares so that such Person would no longer be an Acquiring Person, as defined
pursuant to the foregoing provisions of this Section 1.1, then such Person shall
not be deemed to be an "Acquiring Person" for any purposes of this Agreement (so
long as such Person does not become an Acquiring Person after such
divestiture)."
Section 2. Rights Agreement as Amended. The term "Agreement" as used in the
Rights Agreement shall be deemed to refer to the Rights Agreement as amended
hereby. This Amendment shall be effective as of the date hereof and, except as
set forth herein, the Rights Agreement shall remain in full force and effect and
be otherwise unaffected hereby.
Section 3. Counterparts. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all of such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and their respective corporate seals to be hereunto affixed, all as of
the day and year first above written.
GARDENBURGER, INC.
By /s/ Richard C. Dietz
-----------------------------------
Name: Richard C. Dietz
Title: Executive Vice President and
Chief Financial Officer
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By /s/ Thomas McDonough
-----------------------------------
Name: ___________________________
Title: ___________________________
EXECUTION COPY
NOTE PURCHASE AGREEMENT
DATED AS OF MARCH 27, 1998
BETWEEN
GARDENBURGER, INC.
AND
DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Authorization and Closing...........................................1
-------------------------
1A. Authorization of the Convertible Notes.....................1
--------------------------------------
1B. Purchase and Sale of Convertible Notes.....................1
--------------------------------------
1C. The Closing................................................1
-----------
1D. Deliveries and Proceedings at Closing......................1
-------------------------------------
2. Covenants...........................................................3
---------
2A. Financial Statements and Other Information.................3
------------------------------------------
2B. Inspection of Property.....................................4
----------------------
2C. Restrictions...............................................5
------------
2D. Affirmative Covenants......................................7
---------------------
2E. Current Public Information.................................9
--------------------------
2F. SBIC Regulatory Provisions.................................9
--------------------------
2G. Amendment of Charter, Bylaws and Rights Agreement;
--------------------------------------------------
Creation of New Securities; Amendment of Noncompetition
-------------------------------------------------------
Agreement..................................................9
---------
2H. Contingent Warrants.......................................10
-------------------
2I. Public Disclosures........................................10
------------------
2J. Use of Proceeds...........................................11
---------------
2K. U.S. Real Property Holding Corporation....................11
--------------------------------------
2L. Board of Directors........................................11
------------------
2M. Registration Statement....................................12
----------------------
2N. Amendments to Senior Indebtedness.........................13
---------------------------------
3. Transfer of Restricted Securities..................................13
---------------------------------
3A. General Provisions........................................13
------------------
3B. Opinion Delivery..........................................13
----------------
3C. Rule 144A.................................................14
---------
3D. Legend Removal............................................14
--------------
4. Representations and Warranties of the Company......................14
---------------------------------------------
4A. Organization, Corporate Power and Licenses................14
------------------------------------------
4B. Capital Stock and Related Matters.........................14
---------------------------------
4C. Subsidiaries; Investments.................................15
-------------------------
4D. Authorization; No Breach..................................15
------------------------
4E. Financial Statements......................................16
--------------------
4F. Absence of Undisclosed Liabilities........................16
----------------------------------
4G. No Material Adverse Change................................16
--------------------------
4H. Absence of Certain Developments...........................16
-------------------------------
4I. Assets....................................................18
------
4J. Tax Matters...............................................18
-----------
4K. Contracts and Commitments.................................19
-------------------------
<PAGE>
4L. Intellectual Property Rights..............................21
----------------------------
4M. Litigation, etc...........................................22
---------------
4N. Brokerage.................................................22
---------
4O. Consents..................................................23
--------
4P. Insurance.................................................23
---------
4Q. Employees.................................................23
---------
4R. ERISA.....................................................23
-----
4S. Compliance with Laws......................................24
--------------------
4T. Environmental and Safety Matters..........................24
--------------------------------
4U. Small Business Matters....................................25
----------------------
4V. Affiliated Transactions...................................26
-----------------------
4W. Disclosure................................................26
----------
4X. Investment Company........................................26
------------------
4Y. Projections and Pro Forma Financial Statements............26
----------------------------------------------
5. Definitions........................................................27
5A. Definitions...............................................27
-----------
6. Miscellaneous......................................................33
-------------
6A. Parties to this Agreement.................................33
-------------------------
6B. Remedies..................................................33
--------
6D. Consent to Amendments.....................................35
---------------------
6E. Survival of Representations and Warranties................35
------------------------------------------
6F. Successors and Assigns....................................35
----------------------
6G. Severability..............................................36
------------
6H. Counterparts..............................................36
------------
6I. Descriptive Headings; Interpretation......................36
------------------------------------
6J. Governing Law.............................................36
-------------
6K. Notices...................................................36
-------
6L. No Strict Construction....................................37
----------------------
6M. Indemnification...........................................37
---------------
6N. Waiver of Jury Trial......................................38
--------------------
6O. Expenses..................................................38
--------
6P. Subordination.............................................39
-------------
<PAGE>
LIST OF EXHIBITS
- ----------------
Exhibit A - Form of Opinion of the Company's Counsel
Exhibit B - Investment Policy
Exhibit C - Projections
Exhibit D - Pro Formas
Exhibit E - Form of Convertible Note
LIST OF DISCLOSURE SCHEDULES
- ----------------------------
Capitalization Schedule
Subsidiary Schedule
Financial Statements Schedule
Liabilities Schedule
Developments Schedule
Assets Schedule
Taxes Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Consents Schedule
Employee Benefits Schedule
Environmental Schedule
Affiliated Transactions Schedule
<PAGE>
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT is made as of March 27, 1998, between
GARDENBURGER, INC., an Oregon corporation and f/k/a Wholesome and Hearty Foods,
Inc. (the "Company"), and DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP,
a Delaware limited partnership (the "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 5 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Convertible Notes. The Company has authorized
the issuance and sale to the Purchaser of an aggregate of $15,000,000 in
principal amount of Convertible Notes. The Convertible Notes are convertible
into shares of the Common Stock.
1B. Purchase and Sale of Convertible Notes. At the Closing, the Company
shall sell to the Purchaser and, subject to the terms and conditions set forth
herein, the Purchaser shall purchase from the Company $15,000,000 in principal
amount of Convertible Notes at a price of $1,000 per $1,000 in principal amount
of Convertible Notes.
1C. The Closing. The closing of the purchase and sale of the
Convertible Notes (the "Closing") shall take place at the offices of Kirkland &
Ellis, Citicorp Center, 153 East 53rd Street, New York, New York at 10:00 a.m.
on the date hereof (the "Closing Date").
1D. Deliveries and Proceedings at Closing. At the Closing:
(i) Deliveries by the Company to the Purchaser. The Company
will deliver to the Purchaser:
(a) the Convertible Notes purchased by the Purchaser, duly
executed by the Company and registered in the Purchaser's name;
(b) a duly executed copy of Amendment No. 1 to the Rights
Agreement dated as of April 25, 1996, between the Company and First
Chicago Trust Company of New York, as Rights Agent, in form and
substance reasonably satisfactory to the Purchaser ("Amendment No. 1 to
the Rights Agreement");
(c) the Registration Rights Agreement duly executed by the
Company;
(d) a copy of the Articles of Incorporation, certified by the
Secretary of State of Oregon;
(e) copies of the resolutions duly adopted by the Company's
board of directors authorizing the execution, delivery and performance
of the Investment Documents, the issuance and sale of the Convertible
Notes, the reservation for issuance upon conversion of the Convertible
Notes an aggregate of 1,400,000 shares of Common Stock and the
consummation of all other transactions contemplated by the Investment
Documents, certified by the Company's Secretary or Assistant Secretary
as of the Closing Date;
(f) an incumbency and specimen signature certificate with
respect to the officers of the Company executing this Agreement, the
Convertible Notes and the Ancillary Agreements on behalf of the
Company;
(g) certificates issued not earlier than 10 days prior to the
Closing Date by (x) the Secretary of State of Oregon as to the
incorporation and status of the Company as an existing corporation and
(y) the Secretary of State of Utah to the effect that the Company is
duly qualified to do business as a foreign corporation;
(h) an opinion dated the Closing Date from Miller, Nash,
Wiener, Hager & Carlsen LLP in substantially the form of Exhibit A
hereto;
(i) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of
the transactions under the Investment Documents (including, without
limitation, all blue sky law filings and waivers of all preemptive
rights and rights of first refusal and the consents listed on the
Consents Schedule);
(j) duly completed and executed SBA Forms 480 and 652 and
Parts A and B of SBA Form 1031 together with a five-year business plan
showing the Company's financial projections (including balance sheets
and income and cash flows statements) for such five-year period and a
written statement from the Company regarding its intended use of
proceeds from the sale of the Convertible Notes hereunder (the "Use of
Proceeds Statement"); and a list after giving effect to the
transactions contemplated by this Agreement of (x) the name of each of
the Company's directors and (y) the name and title of each of the
Company's officers; and
(k) a closing fee in cash to Dresdner Kleinwort Benson North
America LLC in an amount equal to one percent (1%) of the aggregate
principal amount of the Convertible Notes purchased hereunder by the
Purchaser.
(ii) Deliveries by the Purchaser to the Company. The Purchaser
will deliver to the Company the aggregate purchase price of the Convertible
Notes purchased by the Purchaser by wire transfer of immediately available funds
to an account designated by the Company.
Section 2. Covenants.
---------
2A. Financial Statements and Other Information. The Company shall
deliver to each Registered Holder of at least $1,500,000 principal amount of the
Convertible Notes and each holder of at least 10% of the Underlying Common Stock
originally issuable:
(i) as soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Company's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied,
subject to the absence of footnote disclosures and to normal year-end
adjustments, and shall be certified by the Company's chief financial officer;
(ii) accompanying the financial statements referred to in
subparagraph (i) an Officer's Certificate stating that there is no Event of
Default in existence and that neither the Company nor any of its Subsidiaries is
in default under any Investment Document or any of its other material agreements
or, if any Event of Default or any such default exists, specifying the nature
and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year, setting forth in each case comparisons to the Company's annual
budget and to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and accompanied
by (a) with respect to the consolidated portions of such statements, an opinion
containing no exceptions or qualifications (except for qualifications regarding
specified contingent liabilities) of an independent accounting firm of
recognized national standing, (b) a certificate from such accounting firm,
addressed to the Company's board of directors, stating that in the course of its
examination nothing came to its attention that caused it to believe that there
was an Event of Default in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of the
terms, covenants, provisions or conditions of any Investment Document or any
other material agreement to which the Company or any Subsidiary is a party or,
if such accountants have reason to believe any Event of Default or other default
by the Company or any Subsidiary exists, a certificate specifying the nature and
period of existence thereof, and (c) a copy of such firm's annual management
letter to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's or any Subsidiary's operations or financial affairs given to
the Company or any Subsidiary by its independent accountants (and not otherwise
contained in other materials provided hereunder);
(v) at least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual budget prepared on a monthly basis for
the Company and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant budgets prepared by the Company or any
Subsidiary and any revisions of such annual or other budgets, and within 30 days
after any monthly period in which there is a material adverse deviation from the
annual budget, an Officer's Certificate explaining the deviation and what
actions the Company and its Subsidiaries have taken and propose to take with
respect thereto;
(vi) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Event of Default, any default
under any Investment Document or any other material agreement to which it or any
of its Subsidiaries is a party or any other material adverse change, event or
circumstance affecting the Company or any Subsidiary, an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(vii) within ten days after transmission thereof, copies of
all financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and copies of
all registration statements and all regular, special or periodic reports which
it files, or any of its officers or directors file with respect to the Company,
with the Securities and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's and its Subsidiaries'
businesses; and
(viii) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 2A may reasonably request.
Each of the financial statements referred to in subparagraph (i), (iii) and
(vii) shall be true and correct in all material respects as of the dates and for
the periods stated therein, subject in the case of the unaudited financial
statements to changes resulting from normal year-end adjustments. For purposes
of this subparagraph 2A, "each Registered Holder" shall include a Registered
Holder and such Registered Holder's Affiliates.
2B. Inspection of Property. The Company shall permit any
representatives designated by any Registered Holder of at least $1,500,000
principal amount of the Convertible Notes or any holder of at least 10% of the
Underlying Common Stock originally issuable, upon reasonable notice and during
normal business hours and at such other times as any such holder(s) may
reasonably request, to (i) visit and inspect any of the properties of the
Company and its Subsidiaries, (ii) examine the corporate and financial records
of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss the affairs, finances and accounts of any such
Persons with the directors, officers, key employees, lawyers, independent
accountants and other agents and consultants of the Company and its
Subsidiaries. The presentation of an executed copy of this Agreement to the
Company's independent accountants shall constitute the Company's permission to
its independent accountants to participate in discussions with such
representatives. For purposes of this subparagraph 2B, "any Registered Holder"
shall include a Registered Holder and such Registered Holder's Affiliates.
2C. Restrictions.
(a) So long as any Convertible Notes remain outstanding, the
Company shall not, unless it has received the prior written consent of the
Registered Holders of a majority of the then outstanding principal amount of the
Convertible Notes:
(i) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any
Person, except for (a) Investments of cash in a Wholly-Owned Subsidiary
established under the laws of a jurisdiction of the United States or
any of its territorial possessions, (b) reasonable advances to
employees in the ordinary course of business, (c) acquisitions
permitted pursuant to subparagraph (v) below, (d) Investments having a
stated maturity no greater than one year from the date the Company
makes such Investment in (1) obligations of the United States
government or any agency thereof or obligations guaranteed by the
United States government, (2) certificates of deposit of commercial
banks having combined capital and surplus of at least $100 million or
(3) commercial paper with a rating of at least "Prime-1" by Moody's
Investors Service, Inc., and (e) Investments in compliance with the
Company's investment policy attached hereto as Exhibit B;
(ii) merge or consolidate with or into any Person or, except
as permitted by subparagraph (v) below, permit any Subsidiary to merge
or consolidate with any Person (other than a Wholly-Owned Subsidiary);
(iii) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than $100,000
of the assets of the Company and its Subsidiaries computed on the basis
of the fair market value of such assets (other than sales of inventory
and obsolete or replaced equipment in the ordinary course of business)
and other than pursuant to agreements executed prior to the date hereof
and the sale or other disposition of the Company's plant facility in
Portland, Oregon;
(iv) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without
limitation, any reorganization into a limited liability company, a
partnership or any other non-corporate entity which is treated as a
partnership for federal income tax purposes);
(v) acquire, or permit any Subsidiary to acquire, any interest
in any Person or business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, involving
an aggregate consideration (including, without limitation, the
assumption of liabilities whether direct or indirect) exceeding
$500,000 in any one transaction or series of related transactions or
exceeding $1,000,000 in any twelve-month period;
(vi) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than
the manufacture and distribution of food products;
(vii) become subject to, or permit any of its Subsidiaries to
become subject to (including, without limitation, by way of amendment
to or modification of) any agreement or instrument which by its terms
would (under any circumstances) restrict (a) the right of any
Subsidiary to make loans or advances or pay dividends to, transfer
property to, or repay any Indebtedness owed to, the Company or another
Subsidiary or (b) the Company's right to perform the provisions of any
Investment Document, the Articles of Incorporation or the Company's
bylaws;
(viii) establish or acquire (a) any Subsidiaries other than
Wholly-Owned Subsidiaries or (b) any Subsidiaries organized outside of
the United States and its territorial possessions;
(ix) create, incur, assume, have outstanding or suffer to
exist, or permit any Subsidiary to create, incur, assume, have
outstanding or suffer to exist, Indebtedness other than (x) the
Convertible Notes and (y) other Indebtedness for borrowed money
(including the Senior Indebtedness) in an amount not to exceed an
aggregate principal amount outstanding at any time on a consolidated
basis of $20,000,000;
(x) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Liens other
than Permitted Liens and Liens disclosed on the Latest Balance Sheet
(including any notes thereto) or the Assets Schedule;
(xi) issue or sell any Equity Securities of any Subsidiary to
any Person other than the Company or a Wholly-Owned Subsidiary;
(xii) enter into, or permit any Subsidiary to enter into,
directly or indirectly, any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering
of any service) with any Affiliate of the Company or any of its
Subsidiaries or any officer, director or employee of the Company or any
of its Subsidiaries, except for (a) transactions in the ordinary course
of and pursuant to the reasonable requirements of the Company's and its
Subsidiaries' business and upon fair and reasonable terms which are no
less favorable to the Company or any such Subsidiary than it would
obtain in a comparable arm's-length transaction with an unaffiliated
Person, (b) customary officer and director indemnities consistent with
past practice and custom, and (c) officer, director or employee
compensation arrangements in the ordinary course of business;
(xiii) use the proceeds from the sale of the Convertible Notes
other than for working capital (and not capital expenditures) and to
pay the fees and expenses of the transactions contemplated by this
Agreement;
(xiv) enter into, have outstanding or suffer to exist, or
permit any Subsidiary to enter into, have outstanding or suffer to
exist, lease arrangements, whether operating or capitalized, for
property (whether real, personal or mixed) which provides for minimum
rental or lease payment obligations (x) for property located in
Clearfield, Utah in excess of an aggregate of $30,000,000 or (y) for
property located other than in Clearfield, Utah in excess of an
aggregate of $4,000,000; and
(xv) become or remain liable as lessee or as guarantor or
other surety, or permit any Subsidiary to become or remain liable as
lessee or as guarantor or other surety, with respect to any lease for
any property (whether real, personal or mixed), whether now owned or
hereafter acquired, which the Company or any Subsidiary has sold or
transferred or is to sell or transfer to any Person (other than the
Company or a Subsidiary).
(b) So long as (x) at least $5,000,000 in principal amount of
Convertible Notes remains outstanding and (y) Purchaser and its Affiliates own
at least a majority of the then outstanding principal amount of the Convertible
Notes, the Company shall not, without the prior written consent of the
Registered Holders of a majority of the then outstanding principal amount of the
Convertible Notes:
(i) directly or indirectly declare or pay any dividends or
make any distributions upon or payments in respect of any of its
capital stock or other Equity Securities; or
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise
acquire, any of the Company's or any Subsidiary's capital stock or
other Equity Securities other than the Convertible Notes pursuant to
the terms hereof and thereof.
2D. Affirmative Covenants.
(a) So long as any Convertible Notes remain outstanding, the
Company shall, and shall cause each Subsidiary to, unless it has received the
prior written consent of the Registered Holders of a majority of the then
outstanding principal amount of the Convertible Notes:
(i) use reasonable efforts to maintain, preserve and renew its
corporate existence and all material licenses, authorizations and
permits necessary to the conduct of its businesses;
(ii) use reasonable efforts to maintain and keep its
properties in good repair, working order and condition, and from time
to time make all necessary or desirable repairs, renewals and
replacements, so that its businesses may be properly and advantageously
conducted in all material respects at all times;
(iii) pay and discharge when payable all taxes, assessments
and governmental charges imposed upon its properties or upon the income
or profits therefrom (in each case before the same becomes delinquent
and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid would by law become a Lien upon
any of its property unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on
its books with respect thereto;
(iv) comply with all other obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express
or implied, as such obligations become due, unless and to the extent
that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(v) comply in all material respects with the requirements of
all applicable laws, rules and regulations of all governmental
authorities, including all Environmental and Safety Laws and all rules
and regulations of the U.S. Food and Drug Administration;
(vi) (1) respond promptly and diligently to any Environmental
Claims or any other matters which could give rise to liabilities or
investigatory, corrective or remedial obligations under Environmental
and Safety Laws; and (2) upon the Purchaser's belief communicated to
the Company in writing, that the Company or any of the Subsidiaries has
breached any representation or warranty, covenant or other provision
herein relating to Environmental and Safety Laws, provide documentation
reasonably satisfactory in form and substance to the Purchaser that it
has complied and is in compliance in all material respects with all
Environmental and Safety Laws and that there are no facts or conditions
relating to its operations or facilities that could reasonably be
expected to give rise to material liabilities or investigatory,
corrective or remedial obligations under Environmental and Safety Laws;
(vii) apply for and continue in force with good and
responsible insurance companies adequate insurance covering risks of
such types and in such amounts as are customary for corporations of
similar size engaged in similar lines of business; and
(viii) maintain proper books of record and account which
present fairly in all material respects its financial condition and
results of operations and make provisions on its financial statements
for all such proper reserves as in each case are required in accordance
with generally accepted accounting principles, consistently applied.
(b) So long as any Convertible Notes remain outstanding, the
Company agrees:
(i) Current Ratio. To maintain a ratio of current assets to
current liabilities of at least 1.575:1.0, measured monthly.
(ii) Total Liabilities to Tangible Net Worth. To maintain a
ratio of total liabilities to tangible net worth not exceeding 1.1:1.0
measured monthly. For purposes of this subparagraph 2D(b), (x) "total
liabilities" means the sum of current liabilities plus long term
liabilities (but excluding the aggregate principal amount of the
Convertible Notes outstanding), and (y) "tangible net worth" means the
gross book value of the Company's assets (excluding goodwill, patents,
trademarks, trade names, organization expense, treasury stock,
unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like
intangibles) less total liabilities, including but not limited to
accrued and deferred income taxes, and any reserves against assets.
(iii) Minimum Fixed Charge Coverage Ratio. To maintain minimum
fixed charge coverage ratio of 1.08:1 measured annually at the end of
the Company's fiscal year. For purposes of this subparagraph 2D(b), (x)
"minimum fixed charge coverage ratio" is defined as (earnings before
interest, taxes, depreciation and amortization plus lease expense and
new equity minus dividends paid) divided by (lease expense plus
interest plus current portion of long term debt), (y) "current portion
of long term debt" is measured as of the last day of the period
measured, and (z) "lease expense" is defined as payments made under any
operating lease, facility lease, or off balance sheet loan.
All calculations for the financial covenants contained in this subparagraph
2D(b) shall be made under generally accepted accounting principles, consistently
applied.
2E. Current Public Information. The Company shall file all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder.
2F. SBIC Regulatory Provisions.
(i) Within 75 days after the Closing, the Company shall deliver to each
SBIC Holder a written statement certified by the Company's president or chief
financial officer describing in reasonable detail the use of the proceeds of the
sale of the Convertible Notes by the Company and its Subsidiaries. In addition
to any other rights granted hereunder, the Company shall grant each SBIC Holder
and the United States Small Business Administration (the "SBA") access to the
Company's and its Subsidiaries' records for the purpose of verifying the use of
such proceeds.
(ii) The Company will provide each SBIC Holder with information such
SBIC Holder requests in order to enable such SBIC Holder to develop promptly
after the end of each fiscal year (but in any event prior to February 28 of each
year), a written assessment of the economic impact of each SBIC Holder's
investment in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes and other
economic benefits resulting from the investment (including, but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports).
2G. Amendment of Charter, Bylaws and Rights Agreement; Creation of New
Securities; Amendment of Noncompetition Agreement. In no event shall the Company
amend, modify or otherwise change the Articles of Incorporation, the Company's
bylaws or the Rights Agreement, or file, amend, modify or otherwise change any
certificate of designation which would be materially adverse to the Purchaser's
rights and preferences under any of the Investment Documents as in effect on the
date hereof, or create any new class or series of securities, or permit any
Subsidiary of the Company to create any new class or series of securities which
has rights, preferences or privileges on par with or senior to the Convertible
Notes, in each case, without the prior written consent of the Registered Holders
of a majority of the then outstanding principal amount of the Convertible Notes.
The Company shall not amend, modify or waive any provision of the Noncompetition
Agreement, without the prior written consent of the holders of a majority of the
Underlying Common Stock, and the Company shall enforce the provisions of the
Noncompetition Agreement and shall exercise all of its rights and remedies
thereunder unless it is otherwise directed by the holders of a majority of the
Underlying Common Stock.
2H. Contingent Warrants. If the Company repays any principal amount
under any Convertible Note pursuant to Section 1(b) of any Convertible Note on
or before March 31, 2000 or as a result of an Event of Default (such principal
amount repaid, the "Repaid Amount"), then, in connection with and at the same
time as such repayment, the Company shall issue to the holder of such
Convertible Note warrants in a form acceptable to such holder, initially
exercisable at any time prior to the Maturity Date for the same number of shares
of Common Stock (the "CW Exercise Number") as the number of shares of Common
Stock into which the applicable Convertible Notes were convertible immediately
prior to their repayment (the "CN Conversion Number"), and at an initial
exercise price per share of Common Stock (the "CW Exercise Price") equal to the
conversion price of the Convertible Notes in effect immediately prior to their
repayment (the "CN Conversion Price"). The CW Exercise Number and the CW
Exercise Price will be subject to adjustment on the same terms as the terms
which provided for the adjustment of the CN Conversion Number and the CN
Conversion Price of the Repaid Amount. The Company acknowledges that the Common
Stock issued or issuable upon exercise of such warrants will constitute
Registrable Securities under, and subject to the conditions stated in, the
Registration Rights Agreement. The Company will use its best efforts to amend
the Investment Documents as reasonably requested by the holders of a majority of
the Underlying Common Stock to provide such warrants with all other rights of
the Convertible Notes under the Investment Documents, including the right to
designate a member and an observer of the Board.
2I. Public Disclosures. The Company shall not, nor shall it permit any
Subsidiary to, disclose the Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of the Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to the Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure. Notwithstanding the foregoing, the Purchaser
hereby acknowledges that, after the date hereof, the Company may attach this
Agreement, the form of Convertible Note and/or any of the Ancillary Agreements
as an exhibit to an SEC Form 10-Q to be filed by the Company with the SEC.
2J. Use of Proceeds. The Company shall not, nor shall it permit any
Subsidiary to, use any proceeds from the sale of the Convertible Notes
hereunder, directly or indirectly, for the purposes of purchasing or carrying
any "margin securities" within the meaning of Regulation G or T promulgated by
the Board of Governors of the Federal Reserve Board or for the purpose of
arranging for the extension of credit secured, directly or indirectly, in whole
or in part by collateral that includes any "margin securities," or for any
purpose not stated in any Use of Proceeds Statement.
2K. U.S. Real Property Holding Corporation. The Company will not become
a "United States real property holding corporation," as defined in IRC ss.897
and in applicable regulations thereunder.
2L. Board of Directors.
(i) To the extent permitted by law, so long as any Convertible
Notes or Underlying Common Stock remains outstanding, Paul F. Wenner, Lyle G.
Hubbard, each Registered Holder of Convertible Notes and each holder of
Underlying Common Stock (collectively, the "Securityholders") shall vote all
voting securities of the Company over which such Securityholder has voting
control, and shall take all other reasonably necessary or desirable actions
within such Securityholder's control (whether in such Securityholder's capacity
as a securityholder, director, member of a board committee or officer of the
Company or otherwise, and including, without limitation, attendance at meetings
in person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings), and the Company shall take all necessary
and desirable actions within its control (including, without limitation, calling
special board and shareholder meetings), so that:
(a) an individual designated by the holders of record of a
majority of the Underlying Common Stock is elected as a member of the
Board (the "Designated Director") (the Designated Director shall
initially be Alexander Coleman); provided that (1) if the Designated
Director is not an employee of the Purchaser or any of its Affiliates,
then such individual must be reasonably acceptable to a majority of the
then directors of the Company and (2) the initial Designated Director
need not be elected to the Board prior to April 21, 1998; and
(b) in the event that any Designated Director for any reason
ceases to serve as a member of the Board during such Designated
Director's term of office, the resulting vacancy on the Board shall be
filled by a director designated in accordance with clause (a) above.
(ii) Observer. If at any time a Designated Director is not a
member of the Board, then holders of a majority of the Underlying Common Stock
shall appoint a representative (the "Observer") (the initial Observer shall be
Alexander Coleman). Holders of a majority of the Underlying Common Stock may
remove any such representative or appoint a new representative if a vacancy in
such position occurs for any reason by delivery of a written notice to the
Secretary of the Company and any such representative shall automatically be
removed at such time as a Designated Director becomes a member of the Board. The
Company or the applicable members of the Board will give the Observer oral or
written notice of each meeting of the Board (whether annual or special) at the
same time and in the same manner as oral or written notice is given to the
applicable members of the Board (which notice may be waived by the Observer).
Notwithstanding the foregoing, if the Observer attends (or, in the case of a
telephonic meeting, listens by telephone to) any such meeting of the Board, then
the Observer shall be deemed to have had proper notice of such meeting. The
Company will permit the Observer to attend (or, in the case of a telephonic
meeting, to listen by telephone to) each meeting of the Board as a non-voting
observer. The Company shall provide the Observer all written materials and other
information (including copies of meeting minutes) given to the members of the
Board in connection with any such meeting at the same time as such information
is delivered to the members of the Board and, if the Observer does not attend
(or, in the case of a telephonic meeting, does not listen by telephone to) a
meeting of the Board, the Observer will be entitled, upon request, to receive a
written or oral summary of the meeting from the Secretary of the Company. If the
Company takes any action by written consent in lieu of a meeting of the Board,
then the Company shall give prompt written notice of such action to the
Observer. The provisions of this subparagraph (ii) shall remain in effect only
so long as any Convertible Notes or Underlying Common Stock remains outstanding.
(iii) The Company shall reimburse (a) the Designated Director
for all reasonable out-of-pocket expenses borne by the Designated Director in
connection with the performance of his or her duties as a director of the
Company and (b) the Observer for all reasonable out-of-pocket expenses borne by
the Observer in connection with his or her attendance of any meeting of the
Board.
(iv) If within a reasonable time holders of the Underlying
Common Stock fail to designate in writing a representative to fill a director
position pursuant to the terms of this paragraph 2L, the election of a Person to
such director position shall be accomplished in accordance with the Company's
Articles of Incorporation and Bylaws and applicable law. In the event that, at
any time, any provision of the Company's Articles of Incorporation or Bylaws is
inconsistent with the requirements of any provision of this paragraph 2L, the
Securityholders and the Company shall take such action within their respective
control as may be necessary to amend any such provision in the Company's
Articles of Incorporation or Bylaws, as the case may be, to conform with such
requirements.
(v) Each Securityholder represents that such Securityholder
has not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this paragraph
2L, and each Securityholder agrees not to grant any proxy or become party to any
voting trust or other agreement which is inconsistent with or conflicts with the
provisions of this paragraph 2L.
2M. Registration Statement. Promptly after the date hereof, the Company
will file with, and will use its reasonable efforts to have declared effective
by the SEC, a Form S-3 or any similar short-form registration statement covering
the Underlying Common Stock for resale by the holders thereof. After such
registration statement has been declared effective, the Company will use its
best efforts to keep such registration statement current and effective until the
earlier of (x) March 31, 2004 or (y) the date that neither Convertible Notes nor
Underlying Common Stock are outstanding. If such Registration Statement is not
declared effective by the date 120 days after the date hereof (the "Final
Date"), then the Company shall pay the Purchaser liquidated damages in an amount
equal to 0.01% multiplied by the then outstanding principal amount of
Convertible Notes for each day after the Final Date until such registration
statement is declared effective. Such liquidated damages shall be paid in 30 day
increments after the Final Date by delivery to the Purchaser of a number of
shares of Common Stock equal to (A) the applicable amount of liquidated damages
as of such payment date divided by (B) the lesser of (x) the Conversion Price
(as such term is defined in the Convertible Notes) and (y) the Market Price (as
such term is defined in the Convertible Notes) per share of Common Stock, in
each case, as of such payment date. The Company will pay all Registration
Expenses (as such term is defined in the Registration Rights Agreement) in
connection with any registration initiated pursuant to this paragraph 2M. To the
extent not inconsistent with the terms of this paragraph 2M and the other terms
of this Agreement, Sections 5 through 11 of the Registration Rights Agreement
shall apply to any registration initiated pursuant to this paragraph 2M as if
such registration was initiated as a Demand Registration (as such term is
defined in the Registration Rights Agreement) by the Purchaser. The parties
hereto acknowledge that the shares of Underlying Common Stock are "Registrable
Securities" for purposes of the Registration Rights Agreement.
2N. Amendments to Senior Indebtedness. The Company will not, and will
not permit any of its Subsidiaries to, amend, modify or restate the terms of
Senior Indebtedness if such amendment, modification or restatement would (i)
increase the amount of Senior Indebtedness (except as expressly permitted by the
definition of "Senior Indebtedness" set forth herein), (ii) increase any
interest rate on the Senior Indebtedness to a rate in excess of the interest
rate set forth in Section 1.3 of the Senior Credit Agreement (including the
optional interest rates referred to therein) as such Senior Credit Agreement is
in effect on the date hereof plus 3.00% per annum, or (iii) change or amend any
terms of the Senior Credit Agreement in a manner which would have a material
adverse effect on the Company or the Registered Holders.
Section 3. Transfer of Restricted Securities.
---------------------------------
3A. General Provisions. Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 3B below, any other legally available means of
transfer.
3B. Opinion Delivery. In connection with the transfer of any Restricted
Securities (other than a transfer described in paragraph 3A(i) or (ii) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
Kirkland & Ellis or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that such
transfer of Restricted Securities may be effected without registration of such
Restricted Securities under the Securities Act. In addition, if the holder of
the Restricted Securities delivers to the Company an opinion of Kirkland & Ellis
or such other counsel that no subsequent transfer of such Restricted Securities
shall require registration under the Securities Act, the Company shall promptly
upon such contemplated transfer deliver new certificates for such Restricted
Securities which do not bear the Securities Act legend set forth in paragraph
6C. If the Company is not required to deliver new certificates for such
Restricted Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to the Company
in writing its agreement to be bound by the conditions contained in this
paragraph and paragraph 6C.
3C. Rule 144A. Upon the request of the Purchaser, the Company shall
promptly supply to the Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
3D. Legend Removal. If any Restricted Securities become eligible for
sale pursuant to Rule 144(k), the Company shall, upon the request of the holder
of such Restricted Securities, remove the legend set forth in paragraph 6C from
the certificates for such Restricted Securities.
Section 4. Representations and Warranties of the Company.
---------------------------------------------
As a material inducement to the Purchaser to enter into this Agreement
and purchase the Convertible Notes hereunder, the Company hereby represents and
warrants that:
4A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Oregon and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify. The Company
possesses all requisite corporate power and authority and all material licenses,
permits and authorizations necessary to own and operate its properties, to carry
on its businesses as now conducted and presently proposed to be conducted and to
carry out the transactions contemplated by this Agreement. The copies of the
Company's and each Subsidiary's charter documents and bylaws which have been
furnished to the Purchaser reflect all amendments made thereto at any time prior
to the date of this Agreement and are correct and complete.
4B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of 25,000,000 shares of
Common Stock, of which 8,827,468 shares shall be issued and outstanding,
1,400,000 shares shall be reserved for issuance upon conversion of the
Convertible Notes, and 3,106,635 shares shall be reserved for issuance in
connection with the Company's stock option plans and (b) 5,000,000 shares of
Preferred Stock, no par value, of which no shares shall be issued and
outstanding. As of the Closing, neither the Company nor any Subsidiary shall be
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any of its Equity Securities, except as set forth on the
"Capitalization Schedule" and except pursuant to this Agreement. As of the
Closing, neither the Company nor any Subsidiary shall have outstanding any
Equity Securities, except as set forth on the Capitalization Schedule. As of the
Closing, all of the outstanding shares of the Company's capital stock shall be
validly issued, fully paid and nonassessable.
(ii) There are no statutory or contractual stockholders
preemptive rights or rights of refusal with respect to the issuance of the
Convertible Notes hereunder or the issuance of the Common Stock upon conversion
of the Convertible Notes. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Convertible Notes
hereunder do not require registration under the Securities Act or any applicable
state securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs, except for this Agreement.
4C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted and is qualified
to do business in every jurisdiction in which its ownership of property or its
conduct of business requires it to qualify. All of the outstanding shares of
capital stock of each Subsidiary are validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary (as described on the attached Subsidiary Schedule) free and clear of
any Lien and not subject to any option or right to purchase any such shares.
Except as set forth on the Subsidiary Schedule, neither the Company nor any
Subsidiary owns or holds the right to acquire any Equity Security or other
Investment in any other Person.
4D. Authorization; No Breach. The execution, delivery and performance
of this Agreement, the Convertible Notes, the Ancillary Agreements and all other
agreements contemplated hereby to which the Company is a party have been duly
authorized by the Company. This Agreement, the Convertible Notes, the Ancillary
Agreements, the Articles of Incorporation and all other agreements contemplated
hereby to which the Company is a party each constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Agreement, the Convertible Notes,
the Ancillary Agreements and all other agreements contemplated hereby to which
the Company is a party, the offering, sale and issuance of the Convertible Notes
hereunder, the issuance of the Common Stock upon conversion of the Convertible
Notes and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, assuming receipt of all consents listed on the "Consents
Schedule," do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any Lien upon the Company's or any Subsidiary's
capital stock or assets pursuant to, (iv) give any third party the right to
modify, terminate or accelerate any obligation under, (v) result in a violation
of, or (vi) require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company or any Subsidiary, or any law, statute, rule or regulation to
which the Company or any Subsidiary is subject, or any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject.
None of the Subsidiaries are subject to any restrictions upon making loans or
advances or paying dividends to, transferring property to, or repaying any
Indebtedness owed to, the Company or another Subsidiary.
4E. Financial Statements. Attached hereto as the "Financial Statements
Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of the Company and
its Subsidiaries as of December 31, 1995, December 31, 1996 and
December 31, 1997, and the related statements of income and cash flows
(or the equivalent) for the fiscal years then ended, respectively; and
(ii) the unaudited consolidated balance sheet of the Company
and its Subsidiaries as of February 28, 1998 (the "Latest Balance
Sheet"), and the related statements of income and cash flows (or the
equivalent) for the two-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company and its Subsidiaries
(which, in turn, are accurate and complete in all material respects) and has
been prepared in accordance with generally accepted accounting principles,
consistently applied, subject in the case of the unaudited financial statements
to the absence of footnote disclosure and changes resulting from normal year-end
adjustments (none of which would, alone or in the aggregate, be materially
adverse to the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole).
4F. Absence of Undisclosed Liabilities. Except as set forth on the
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any obligation or liability (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known to the Company or any Subsidiary, whether due
or to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities set forth on the Latest Balance Sheet (including any notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit), (iii) other liabilities and obligations
expressly disclosed in the other Schedules to this Agreement and (iv)
liabilities which individually or in the aggregate do not and could not
reasonably be expected to have a material adverse effect on the business,
assets, operations, financial condition or prospects of the Company or any of
its Subsidiaries.
4G. No Material Adverse Change. Since December 31, 1997 there has been
no material adverse change in the financial condition, operating results,
assets, operations, business prospects, or employee, governmental, customer,
provider or supplier relations of the Company and its Subsidiaries taken as a
whole.
4H. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement or as
set forth on the attached "Developments Schedule," since December 31, 1997,
neither the Company nor any Subsidiary have:
(a) issued any notes, bonds or other debt securities or any
capital stock or other Equity Securities;
(b) borrowed any amount or incurred or become subject to any
Indebtedness or other liabilities, except current liabilities incurred
in the ordinary course of business and liabilities under contracts
entered into in the ordinary course of business;
(c) discharged or satisfied any Lien or paid any obligation or
liability, other than current liabilities paid in the ordinary course
of business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its capital stock or
other Equity Securities or purchased or redeemed any shares of its
capital stock or other Equity Securities;
(e) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Permitted Liens;
(f) sold, assigned or transferred any of its tangible assets,
except inventory or obsolete or replaced equipment disposed of in the
ordinary course of business, or canceled any debts or claims;
(g) sold, assigned or transferred any Intellectual Property
Rights, or disclosed any proprietary confidential information to any
Person (other than the Purchaser or any representative thereof);
(h) suffered any extraordinary losses or waived any material
rights of value, whether or not in the ordinary course of business or
consistent with past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $500,000;
(j) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $100,000 in the
aggregate;
(k) made any charitable contributions or pledges in excess of
$10,000 in the aggregate;
(l) suffered any damage, destruction or casualty loss
exceeding in the aggregate $20,000 whether or not covered by insurance;
(m) made any Investment in or taken steps to incorporate any
Subsidiary;
(n) entered into any other transaction other than in the
ordinary course of business or entered into any other material
transaction, whether or not in the ordinary course of business; or
(o) committed or agreed to do any of the foregoing.
(ii) Neither the Company nor any Subsidiary has at any time
made any bribes, kickback payments or other illegal payments.
4I. Assets. Except as set forth on the attached "Assets Schedule," the
Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all Liens, except for inventory and obsolete or replaced equipment
disposed of in the ordinary course of business since the date of the Latest
Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Permitted Liens. Except as described on the
Assets Schedule, the Company's and each Subsidiary's buildings, equipment and
other tangible assets are in good operating condition in all material respects
(ordinary wear and tear excepted) and are fit for use in the ordinary course of
business. The Company and each Subsidiary own, or have a valid leasehold
interest in, all tangible assets necessary for the conduct of their respective
businesses as presently conducted and as presently proposed to be conducted.
4J. Tax Matters.
(i) Except as set forth on the attached "Taxes Schedule": the
Company, each Subsidiary and each Affiliated Group have filed all Tax Returns
which they are required to file under applicable laws and regulations; all such
Tax Returns are complete and correct in all material respects and have been
prepared in compliance with all applicable laws and regulations in all material
respects; the Company, each Subsidiary and each Affiliated Group in all material
respects have paid all Taxes due and owing by them (whether or not such Taxes
are required to be shown on a Tax Return) and have withheld and paid over to the
appropriate taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; neither the Company, any Subsidiary nor any Affiliated Group has waived
any statute of limitations with respect to any material Taxes or agreed to any
extension of time with respect to any material Tax assessment or deficiency; the
accrual for Taxes on the Latest Balance Sheet would be adequate to pay all Tax
liabilities of the Company and its Subsidiaries if their current tax year were
treated as ending on the date of the Latest Balance Sheet (excluding any amount
recorded which is attributable solely to timing differences between book and Tax
income); since the date of the Latest Balance Sheet, the Company and its
Subsidiaries have not incurred any liability for Taxes other than in the
ordinary course of business; the assessment of any additional Taxes for periods
for which Tax Returns have been filed by the Company, each Subsidiary and each
Affiliated Group shall not exceed the recorded liability therefor on the Latest
Balance Sheet (excluding any amount recorded which is attributable solely to
timing differences between book and Tax income); no foreign, federal, state or
local tax audits or administrative or judicial proceedings are pending or being
conducted with respect to the Company, any Subsidiary or any Affiliated Group,
no information related to Tax matters has been requested by any foreign,
federal, state or local taxing authority and no written notice indicating an
intent to open an audit or other review has been received by the Company from
any foreign, federal, state or local taxing authority; and there are no material
unresolved questions or claims concerning the Company's, any Subsidiary's or any
Affiliated Group Tax liability.
(ii) Neither the Company nor any of its Subsidiaries has made
an election under ss.341(f) of the Internal Revenue Code of 1986, as amended.
Neither the Company nor any Subsidiary is liable for the Taxes of another Person
that is not a Subsidiary in a material amount under (a) Treas. Reg. ss. 1.1502-6
(or comparable provisions of state, local or foreign law), (b) as a transferee
or successor, (c) by contract or indemnity or (d) otherwise. Neither the Company
nor any Subsidiary is a party to any tax sharing agreement. The Company, each
Subsidiary and each Affiliated Group have disclosed on their federal income Tax
Returns any position taken for which substantial authority (within the meaning
of IRC ss.6662(d)(2)(B)(i)) did not exist at the time the return was filed.
Except as set forth on the attached Taxes Schedule, neither the Company nor any
Subsidiary has made any payments, is obligated to make payments or is a party to
an agreement that could obligate it to make any payments that would not be
deductible under IRC ss.280G.
(iii) "Tax" or "Taxes" means federal, state, county, local,
foreign or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not. "Tax Return" means any
return, information report or filing with respect to Taxes, including any
schedules attached thereto and including any amendment thereof. "Affiliated
Group" means any affiliated group as defined in IRC ss.1504 that has filed a
consolidated return for federal income tax purposes (or any similar group under
state, local or foreign law) for a period during which the Company or any of its
Subsidiaries was a member.
(iv) The Company is not a "United States real property holding
corporation", as defined in IRC ss.897 and in applicable regulations thereunder.
4K. Contracts and Commitments.
(i) Except for the Investment Documents or as set forth on the
attached "Contracts Schedule" or the Employee Benefits Schedule, neither the
Company nor any Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any collective bargaining agreement or any other
contract with any labor union, or any severance agreement, program,
policy or arrangement;
(b) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $50,000 or contract
relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has
advanced or loaned any other Person amounts in the aggregate exceeding
$50,000 or made any other Investment in any other Person;
(d) agreement or indenture relating to Indebtedness or the
mortgaging, pledging or otherwise placing a Lien on any material asset
or material group of assets of the Company and its Subsidiaries;
(e) guarantee of any obligation (other than by the Company of
a Wholly-Owned Subsidiary's debts or a guarantee by a Subsidiary of the
Company's debts or another Subsidiary's debts);
(f) lease or agreement under which the Company or any
Subsidiary is lessee of or holds or operates any property, real or
personal, owned by any other party, except for any lease of real or
personal property under which the aggregate annual rental payments do
not exceed $100,000;
(g) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to hold or operate
any property, real or personal, owned or controlled by the Company or
any Subsidiary;
(h) contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves
consideration in excess of $100,000, provided that sales invoices are
not required to be listed;
(i) assignment, license, indemnification or agreement with
respect to any intangible property material to the operation of the
Company's business (including, without limitation, any Intellectual
Property Right);
(j) agreement with any federal, state or local government or
subdivision, agency or authority thereof;
(k) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and
piggyback registration rights);
(l) sales, distribution or franchise agreement;
(m) agreement material to the operation of the Company's
business with a term of more than six months which is not terminable by
the Company or any Subsidiary upon less than 90 days notice without
penalty;
(n) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(o) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of
$100,000 annually.
(ii) All of the contracts, agreements and instruments set
forth or required to be set forth on the Contracts Schedule are valid, binding
and enforceable in accordance with their respective terms. The Company and each
Subsidiary have performed all material obligations required to be performed by
them and are not in default under or in breach of nor in receipt of any claim of
default or breach under any contract, agreement or instrument to which the
Company or any Subsidiary is subject; no event has occurred which with the
passage of time or the giving of notice or both would result in a default,
breach or event of noncompliance by the Company or any Subsidiary under any
contract, agreement or instrument to which the Company or any Subsidiary is
subject; neither the Company nor any Subsidiary has any present expectation or
intention of not fully performing all such obligations; neither the Company nor
any Subsidiary has knowledge of any breach or anticipated breach by the other
parties to any contract, agreement, instrument or commitment to which it is a
party; and neither the Company nor any Subsidiary is a party to any materially
adverse contract or commitment.
(iii) The Purchaser has been supplied with a true and correct
copy of each of the written instruments, plans, contracts and agreements and an
accurate description of each of the oral arrangements, contracts and agreements
which are referred to on the Contracts Schedule, together with all amendments,
waivers or other changes thereto; provided that neither a list of nor copies of
individual option agreements under the Company's stock option plans is required
to be supplied to the Purchaser.
4L. Intellectual Property Rights.
(i) The attached "Intellectual Property Schedule" contains a
complete and accurate list of all (a) registered Intellectual Property Rights
owned or used by the Company or any Subsidiary, (b) pending applications for
registrations of Intellectual Property Rights filed by the Company or any
Subsidiary, (c) material unregistered trade names and corporate names owned or
used by the Company or any Subsidiary and (d) material unregistered trademarks,
service marks, copyrights, mask works and computer software owned or used by the
Company or any Subsidiary. The Intellectual Property Schedule also contains a
complete and accurate list of all licenses and other rights granted by the
Company or any Subsidiary to any third party with respect to any Intellectual
Property Rights and all licenses and other rights granted by any third party to
the Company or any Subsidiary with respect to any Intellectual Property Rights,
in each case identifying the subject Intellectual Property Rights. The Company
or one of its Subsidiaries owns all right, title and interest to, or has the
right to use pursuant to a valid license, all Intellectual Property Rights
necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted and as presently proposed to be conducted,
free and clear of all Liens. No loss or expiration of any Intellectual Property
Right or related group of Intellectual Property Rights owned or used by the
Company or any which would reasonably be expected to have a material adverse
effect on the conduct of the Company's and its Subsidiaries' respective
businesses is, to the best of the Company's knowledge, threatened, pending or
reasonably foreseeable. The Company and its Subsidiaries have taken all
reasonably necessary actions to maintain and protect the Intellectual Property
Rights which they own. To the best of the Company's knowledge, the owners of any
Intellectual Property Rights licensed to the Company or any Subsidiary have
taken all reasonably necessary actions to maintain and protect the Intellectual
Property Rights which are subject to such licenses.
(ii) Except as set forth on the Intellectual Property
Schedule, (a) the Company and its Subsidiaries own all right, title and interest
in and to all of the Intellectual Property Rights listed on such schedule, free
and clear of all Liens other than Permitted Liens, (b) there have been no claims
made against the Company or any Subsidiary asserting the invalidity, misuse or
unenforceability of any of such Intellectual Property Rights, and, to the best
of the Company's knowledge, there are no grounds for the same, (c) neither the
Company nor any Subsidiary has received any notices of, or is aware of any facts
which indicate a likelihood of, any infringement or misappropriation by, or
conflict with, any third party with respect to such Intellectual Property Rights
(including, without limitation, any demand or request that the Company or any
Subsidiary license any rights from a third party), (d) the conduct of the
Company's and each Subsidiary's business has not infringed, misappropriated or
conflicted with and does not infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, nor would any future conduct as
presently contemplated infringe, misappropriate or conflict with any
Intellectual Property Rights of other Persons, and (e) to the best of the
Company's knowledge, the Intellectual Property Rights owned by or licensed to
the Company or any Subsidiary have not been infringed, misappropriated or
conflicted by other Persons. The transactions contemplated by this Agreement
shall have no material adverse effect on the Company's or any Subsidiary's
right, title and interest in and to the Intellectual Property Rights listed on
the Intellectual Property Schedule.
4M. Litigation, etc. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or employees of the Company and its Subsidiaries with respect to their
businesses or proposed business activities), or pending or threatened by the
Company or any Subsidiary against any third party, at law or in equity, or
before or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); neither the Company nor any Subsidiary is subject to any arbitration
proceedings under collective bargaining agreements or otherwise or, to the best
of the Company's knowledge, any governmental investigations or inquiries
(including, without limitation, inquiries as to the qualification to hold or
receive any license or permit). Neither the Company nor any Subsidiary is
subject to any judgment, order or decree of any court or other governmental
agency.
4N. Brokerage. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon the Company or
any Subsidiary, except pursuant to an engagement letter with Hambrecht & Quist
LLC dated December 3, 1997. The Company shall pay, and hold the Purchaser
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any such claim.
4O. Consents. No permit, consent, approval or authorization of, or
declaration to or filing with, any governmental authority or any other Person is
required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as set forth on the attached "Consents Schedule".
4P. Insurance. Neither the Company nor any Subsidiary is in default
with respect to its obligations under any insurance policy maintained by it, and
neither the Company nor any Subsidiary has been denied insurance coverage. The
insurance coverage of the Company and its Subsidiaries is customary for
corporations of similar size engaged in similar lines of business. The Company
and its Subsidiaries do not have any self-insurance or co-insurance programs,
and the reserves set forth on the Latest Balance Sheet are adequate to cover all
anticipated liabilities with respect to any such self-insurance or co-insurance
programs.
4Q. Employees. The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary. The Company and each Subsidiary have complied in all material
respects with all laws relating to the employment of labor (including, without
limitation, provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes), and
the Company is not aware that it or any Subsidiary has any material labor
relations problems (including, without limitation, any union organization
activities, threatened or actual strikes or work stoppages or material
grievances). Neither the Company, its Subsidiaries nor, to the best of the
Company's knowledge after due inquiry, any of their employees is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreements relating to, affecting or in conflict with the present or proposed
business activities of the Company and its Subsidiaries, except for agreements
between the Company and its present and former employees.
4R. ERISA. Except as set forth on the "Employee Benefits Schedule":
(i) Multiemployer Plans. The Company does not have any
obligation to contribute to (or any other liability, including current or
potential withdrawal liability, with respect to) any "multiemployer plan" (as
defined in Section 3(37) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")).
(ii) Retiree Welfare Plans. The Company does not maintain or
have any obligation to contribute to (or any other liability with respect to)
any plan or arrangement whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retired or terminated employees (except for limited continued medical benefit
coverage required to be provided under Section 4980B of the IRC or as required
under applicable state law).
(iii) Defined Benefit Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee plan
which is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(iv) Defined Contribution Plans. The Company does not
maintain, contribute to or have any liability under (or with respect to) any
employee plan which is a tax-qualified "defined contribution plan" (as defined
in Section 3(34) of ERISA), whether or not terminated.
(v) Other Plans. The Company does not maintain, contribute to
or have any liability under (or with respect to) any plan or arrangement
providing benefits to current or former employees, including any bonus plan,
plan for deferred compensation, employee health or other welfare benefit plan or
other arrangement, whether or not terminated.
(vi) The Company. For purposes of this paragraph 4R, the term
"Company" includes all organizations under common control with the Company
pursuant to Section 4.14(b) or (c) of the IRC.
4S. Compliance with Laws. Neither the Company nor any Subsidiary has
violated any law or any governmental regulation or requirement which violation
has had or would reasonably be expected to have a material adverse effect upon
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole, and neither the
Company nor any Subsidiary has received notice of any such violation.
4T. Environmental and Safety Matters. Except as set forth on the
"Environmental Schedule":
(i) The Company and each Subsidiary have obtained all material
permits, licenses and other authorizations which are required under
Environmental and Safety Laws and applicable to the conduct of the Company's and
the Subsidiaries' business (collectively, "Environmental Permits").
(ii) The Company and each Subsidiary are in material
compliance with the terms and conditions of all such Environmental Permits and
are in material compliance with all Environmental and Safety Laws.
(iii) With respect to the Company and each Subsidiary, no
notice, notification, demand, request for information, citation, summons or
order has been issued, no complaint has been filed, and no penalty has been
assessed or, to the Company's best knowledge, no investigation, notice,
notification, demand, request for information, citation, summons or order is
pending or threatened by any Person with respect to any alleged failure to
obtain any material Environmental Permits or any material violation of any
Environmental and Safety Laws, or with respect to the generation, treatment,
storage, recycling, transportation, discharge or disposal, or any Release or
threatened Release, of any Hazardous Materials (except in the ordinary course of
business in material compliance with all Environmental and Safety Laws).
(iv) No property or facility now or previously owned or
operated by the Company or any Subsidiary has been or is presently operated
(during the period owned or used by the Company or any Subsidiary) in a manner
which requires permitting as a hazardous waste treatment, storage or disposal
facility for purposes of RCRA or any analogous state law.
(v) To the best of the Company's knowledge, none of the
following is present at any property or facility now owned or operated by the
Company or any Subsidiary (except to the extent such presence could not
reasonably result in a material liability): (i) polychlorinated biphenyls
contained in electrical or other equipment; (ii) asbestos-containing insulation
or building material; or (iii) active or inactive underground storage tanks.
(vi) Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location which
is on the CERCLA National Priorities List (or proposed for such listing), the
CERCLIS List or any similar state list or which is the subject of federal, state
or local enforcement actions or other investigations which could be expected to
lead to claims against the Company or any Subsidiary under any Environmental and
Safety Laws.
(vii) There has been no Release of Hazardous Materials into
the environment at or from any property or facility now or, to the best
knowledge of the Company, previously owned or operated by the Company or any
Subsidiary so as to give rise to any material present or future liability or
obligation under any Environmental and Safety Laws.
(viii) No Liens have arisen under or pursuant to any
Environmental and Safety Laws on any property or facility now or previously
owned or operated by the Company or any Subsidiary, and to the best knowledge of
the Company, no governmental actions have been taken or are in process which
could subject any such properties or facilities to such Liens, and neither the
Company nor any Subsidiary would be required to place any notice or restriction
relating to the presence of Hazardous Materials in any deed to such property or
facility.
(ix) Neither the Company nor any Subsidiary has, either
expressly or by operation of law, assumed or undertaken any material liability
or corrective or remedial obligation of any other Person relating to
Environmental and Safety Laws.
(x) Without limiting the generality of the foregoing, there
are no other facts, events or conditions relating to the past (during the period
owned or used by the Company or any Subsidiary) or present operations,
properties or facilities of the Company or any Subsidiary which could reasonably
be expected to give rise to any material liability or investigatory, corrective
or remedial obligation under any Environmental and Safety Laws.
4U. Small Business Matters. The Company acknowledges that Purchaser is
an SBIC. The Company, together with its "affiliates" (as that term is defined in
Title 13, Code of Federal Regulations, ss.121.103), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended, and the regulations thereunder, including Title 13, Code of Federal
Regulations, ss.121.301. The information regarding the Company and its
affiliates set forth in the Small Business Administration Form 480, Form 652 and
Parts A and B of Form 1031 delivered at the Closing is accurate and complete.
Neither the Company nor any Subsidiary presently engages in, or shall hereafter
engage in, any activities, nor shall the Company or any Subsidiary use directly
or indirectly the proceeds from the sale of the Convertible Notes hereunder for
any purpose, for which an SBIC is prohibited from providing funds by the Small
Business Investment Act of 1958, as amended, and the regulations thereunder
(including Title 13, Code of Federal Regulations, ss.107.720).
4V. Affiliated Transactions. Except as set forth on the attached
"Affiliated Transactions Schedule," no officer, director, stockholder or
Affiliate of the Company or any Subsidiary or any individual related by blood,
marriage or adoption to any such individual or any entity in which any such
Person or individual owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company or any Subsidiary or has
any material interest in any material property used by the Company or any
Subsidiary.
4W. Disclosure. Neither this Agreement nor any of the exhibits,
schedules, attachments, written statements, documents, certificates or other
items supplied to the Purchaser by or on behalf of the Company with respect to
the transactions contemplated hereby contain any untrue statement of a material
fact or omit a material fact necessary to make each statement contained herein
or therein, under the circumstances in which they are made, not misleading.
There is no fact which the Company has not disclosed to the Purchaser in writing
and of which any of its officers, directors or executive employees is aware and
which has had or would reasonably be expected to have a material adverse effect
upon the existing or expected financial condition, operating results, assets,
customer or supplier relations, employee relations or business prospects of the
Company and its Subsidiaries taken as a whole.
4X. Investment Company. The Company is not an "investment company" as
defined under the Investment Company Act of 1940.
4Y. Projections and Pro Forma Financial Statements.
(i) Attached hereto as Exhibit C is a true and complete copy
of the latest projections of the consolidated income and cash flows of the
Company and its Subsidiaries for the fiscal years ending December 31, 1998,
December 31, 1999, December 31, 2000 and December 31, 2001. Such projections are
based on underlying assumptions of the Company which provide a reasonable basis
for the projections contained therein. Such projections have been prepared on
the basis of the assumptions set forth therein, which the Company reasonably
believes are fair and reasonable in light of the historical financial
performance of the Company and its Subsidiaries and of current and reasonably
foreseeable business conditions.
(ii) The pro forma consolidated balance sheet of the Company
and its Subsidiaries as of February 28, 1998, attached hereto as Exhibit D, is
complete and correct in all material respects and presents fairly in all
material respects the consolidated financial condition of the Company and its
Subsidiaries as of such date as if the transactions contemplated by this
Agreement had occurred immediately prior to such date, and such balance sheet
contains all pro forma adjustments necessary in order to fairly reflect such
assumption.
Section 5. Definitions.
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5A. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Ancillary Agreements" means the Registration Rights Agreement.
"Articles of Incorporation" means the Company's Articles of
Incorporation, as in effect from time to time.
"Board" means the Company's board of directors.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time, or any successor
federal statute.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System.
"Change of Control" means any sale or issuance (or series of sales or
issuances) of the Company's Common Stock or the right to acquire Common Stock by
the Company or any holder thereof which results in any Person or group of
affiliated Persons or entities or group of Persons or entities acting together,
owning and/or having the right to acquire more than 50% of the Common Stock on a
fully diluted basis immediately after the time of such sale or issuance or
series of issuances (without giving effect to any out-of-the-money Equity
Securities).
"Conversion Shares" means (i) any Common Stock issued upon conversion
of the Convertible Notes or upon exercise of any ID Warrants and (ii) any common
stock issued with respect to the securities referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Convertible Notes" means the 7% Convertible Senior Subordinated Notes
issued by the Company pursuant to this Agreement substantially in the form of
Exhibit E hereto, and all notes issued directly or indirectly in replacement of
or substitution for any such note in whole or in part.
"Environmental and Safety Laws" means any and all applicable present
and future, federal, state, local and foreign statutes, laws, regulations,
ordinances and similar provisions having the force or effect of law, all
judicial and administrative orders and determinations, all contractual
obligations and common law concerning public health or safety, worker health or
safety or pollution or protection of the environment, including, without
limitation, those relating to any emissions, discharges or Releases of Hazardous
Materials to ambient air, surface water, ground water or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, control, cleanup or handling of Hazardous Materials.
"Environmental Claim" means, with respect to any Person, any written
notice, claim, demand or other communication alleging or asserting such Person's
liability for investigatory costs, cleanup costs, governmental response costs,
damages to natural resources or other property, personal injuries, fines or
penalties arising out of, based on or resulting from (a) the presence, handling,
generation, treatment, storage, disposal, Release or threatened Release into the
environment of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental and Safety Law.
"Equity Security" of any Person means any capital stock or other
ownership or equity interest or profit participation or similar right with
respect to such Person (including any partnership or membership interest, any
stock appreciation, phantom stock or similar right or plan, and any note or debt
security having or containing equity or profit participation features), or any
option, warrant or other security or right which is directly or indirectly
convertible into or exercisable or exchangeable for any other Equity Security of
such Person.
"Event of Default" has the meaning set forth in the Convertible Notes.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Environmental and Safety Laws as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, "TLCP" toxicity or "EP" toxicity; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; (d) underground storage tanks, whether empty or containing any
substance or surface impoundments; and (e) asbestos in any form or electrical
equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls.
"ID Warrants" means any warrants issued in accordance with paragraph 2H
and any warrants issued directly or indirectly in replacement of or substitution
for any such warrants in whole or in part.
"Indebtedness" means at a particular time, without duplication, (i) any
indebtedness for borrowed money or issued in substitution for or exchange of
indebtedness for borrowed money, (ii) any indebtedness evidenced by any note,
bond, debenture or other debt security, (iii) any indebtedness for the deferred
purchase price of property or services with respect to which a Person is liable,
contingently or otherwise, as obligor or otherwise (other than trade payables
and other current liabilities incurred in the ordinary course of business), (iv)
any commitment by which a Person assures a creditor against loss (including,
without limitation, contingent reimbursement obligations with respect to letters
of credit), (v) any indebtedness guaranteed in any manner by a Person
(including, without limitation, guarantees in the form of an agreement to
repurchase or reimburse), (vi) any indebtedness secured by a Lien on a Person's
assets and (vii) any unsatisfied obligation for "withdrawal liability" to a
"multiemployer plan" as such terms are defined under ERISA; provided that
"Indebtedness" does not include the Convertible Notes.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks, service marks,
trade dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investment Documents" means this Agreement, the Convertible Notes, the
Ancillary Agreements and any modifications or amendments thereto and any other
document delivered or agreement executed in connection herewith or therewith.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Liens" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company or any Subsidiary, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute other than to reflect ownership by a third party of
property leased to the Company or any Subsidiary under a lease which is not in
the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"Management Change" shall occur if any of Lyle G. Hubbard, Richard C.
Dietz or any of their respective successors ceases to be employed by the Company
in their respective positions as of the date hereof and a successor, who is
reasonably satisfactory to the holders of a majority of the Underlying Common
Stock, is not employed by the Company within 60 days of such cessation of
employment.
"Management Options" means any and all of the stock options of the
Company issued pursuant to Permitted ESO Issuances.
"Noncompetition Agreement" means the noncompete provisions in effect as
of the date hereof in the written employment agreements or other agreements
between the Company and its officers and managers.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to the best of such officer's
knowledge, such certificate does not misstate any material fact and does not
omit to state any fact necessary to make the certificate, under the
circumstances in which it is made, not misleading.
"Permitted ESO Issuances" means the issuance by the Company of stock
options of the Company pursuant to the Company's 1992 First Amended and Restated
Combination Stock Option Plan and on terms approved by the Company's Board of
Directors (or a committee thereof); provided that such stock options shall not
at any time after the date hereof have been exercised since the date of this
Agreement and be exercisable for more than an aggregate of 2,081,635 shares of
Common Stock.
"Permitted Liens" means:
(i) tax liens with respect to taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings and
for which appropriate reserves have been established in accordance with
generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with, or to secure
payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security
obligations;
(iii) purchase money security interests in any property
acquired by the Company or any Subsidiary to the extent such
acquisition is permitted by this Agreement;
(iv) trust deeds or mortgages on real property acquired by the
Company or any Subsidiary to the e(iv)xtent such acquisition is
permitted by this Agreement;
(v) interests or title of a lessor under any lease which the
Company or any Subsidiary is permitted to enter into by this Agreement;
(vi) mechanics', materialmen's or contractors' liens or
encumbrances or any similar lien or restriction for amounts not yet due
and payable;
(vii) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of
the business of the Company and its Subsidiaries or detracting from the
value of the assets of the Company and its Subsidiaries; and
(viii) any liens granted to the holder or holders of the
Senior Indebtedness pursuant to the terms of the Senior Credit
Agreement.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof among the Company and the Purchaser.
"Registered Holder" has the meaning set forth in the Convertible Notes.
"Release" means any "release" as such term is defined in 42 U.S.C. ss.
9601(22), or any successor federal statute or analogous state law.
"Restricted Securities" means (i) the Convertible Notes issued
hereunder, (ii) any ID Warrants, (iii) the Common Stock issued upon conversion
of Convertible Notes or upon exercise of any ID Warrants and (iv) any securities
issued with respect to the securities referred to in clauses (i), (ii) or (iii)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) been distributed to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act or become eligible for sale pursuant to
Rule 144(k) (or any similar provision then in force) under the Securities Act or
(c) been otherwise transferred and new certificates for them not bearing the
Securities Act legend set forth in paragraph 6C have been delivered by the
Company in accordance with paragraph 3A(ii). Whenever any particular securities
cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Company, without expense, new securities of like tenor not
bearing a Securities Act legend of the character set forth in paragraph 6C.
"Rights Agreement" means the Rights Agreement dated as of April 25,
1996, between the Company and First Chicago Trust Company of New York, as Rights
Agent, as amended by Amendment No. 1 to the Rights Agreement.
"Sale Event" means the sale, lease or other disposal (or series of
sales, leases or other disposals) by the Company and/or any of its Subsidiaries
of more than 50% of the consolidated assets of the Company and its Subsidiaries
computed on the basis of book value, determined in accordance with generally
accepted accounting principles consistently applied, or fair market value (other
than sales of inventory and obsolete or replaced equipment in the ordinary
course of business).
"SBIC" means a small business investment company licensed under the
Small Business Investment Act of 1958, as amended.
"SBIC Holder" means any Registered Holder of Convertible Notes or any
holder of Underlying Common Stock which is an SBIC.
"SBIC Regulations" means the Small Business Investment Company Act of
1958, as amended, and the regulations issued by the Small Business
Administration thereunder, 13 CFR 107 and 121, as amended.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Senior Credit Agreement" means the Business Loan Agreement dated as of
June 26, 1997 among the Company and Bank of America NT & SA (the "Bank"), as
such agreement may be amended, restated, supplemented or otherwise modified from
time to time pursuant to and in accordance with paragraph 2N hereof; provided
that if the Company enters into a loan agreement with a bank other than the Bank
with terms that would be permitted as an amendment to Senior Indebtedness
pursuant to paragraph 2N, such loan agreement shall thereafter be deemed to be
the Senior Credit Agreement.
"Senior Indebtedness" means all obligations under the Senior Credit
Agreement now or hereafter incurred pursuant to and in accordance with the terms
of the Senior Credit Agreement; provided, that in no event shall the aggregate
principal amount of Senior Indebtedness exceed $20,000,000.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity. Where not
otherwise indicated, the term "Subsidiary" refers to a Subsidiary of the
Company.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
upon conversion of the Convertible Notes or upon exercise of any ID Warrants and
(ii) any common stock issued or issuable with respect to the securities referred
to in clause (i) above by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Convertible
Notes or ID Warrants shall be deemed to be the holder of the Underlying Common
Stock obtainable upon conversion of the Convertible Notes or exercise of the ID
Warrants in connection with the transfer thereof or otherwise regardless of any
restriction or limitation on the conversion of the Convertible Notes or exercise
of the ID Warrants, such Underlying Common Stock shall be deemed to be in
existence, and such Person shall be entitled to exercise the rights of a holder
of Underlying Common Stock hereunder. As to any particular shares of Underlying
Common Stock, such shares shall cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar provision then in force) or (c) repurchased by
the Company or any Subsidiary.
"Wenner Stock Option" means the stock option of the Company issued to
Paul F. Wenner on March 10, 1992, as in effect on the date hereof, and which, as
of the date hereof, is exercisable for 1,025,000 shares of Common Stock at an
exercise price of $1.00 per share.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 6. Miscellaneous.
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6A. Parties to this Agreement. The Purchaser shall remain a party to
this Agreement only so long as the Purchaser is the holder of record of
Convertible Notes, ID Warrants or Underlying Common Stock.
6B. Remedies. Each holder of Convertible Notes, ID Warrants and
Underlying Common Stock shall have all rights and remedies set forth in this
Agreement and the Articles of Incorporation and the other Investment Documents
and all rights and remedies which such holders have been granted at any time
under any other agreement or contract and all of the rights which such holders
have under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
6C. Purchaser's Representations and Covenants.
(i) The Purchaser hereby represents that it is acquiring the
Restricted Securities purchased hereunder or acquired pursuant hereto for its
own account with the present intention of holding such securities for purposes
of investment, and that it has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein shall
prevent the Purchaser and subsequent holders of Restricted Securities from
transferring such securities in compliance with the provisions of Section 3
hereof. Each certificate or instrument representing Restricted Securities shall
be imprinted with a legend in substantially the following form:
"The [securities/security] represented by this [certificate
were/instrument was] originally issued on March 27, 1998, and
[have/has] not been registered under the Securities Act of
1933, as amended and may be reoffered and sold only if so
registered or if an exemption from such registration is
available. The transfer of such [securities/security] is
subject to the conditions specified in the Note Purchase
Agreement, dated as of March 27, 1998 as in effect from time
to time, between the issuer (the "Company") and certain
investor(s), and the Company reserves the right to refuse the
transfer of such [securities/security] until such conditions
have been fulfilled with respect to such transfer. Upon
written request, a copy of such conditions shall be furnished
by the Company to the holder hereof without charge."
(ii) The Purchaser (a) is an "Accredited Investor" as defined
in Regulation D under the Securities Act, (b) confirms that it has been given
the opportunity to ask questions of the officers of the Company and (c) is an
experienced and sophisticated investor and has such knowledge and experience in
financial and business matters as are necessary to evaluate the merits and risks
of an investment in the Company.
(iii) The Purchaser hereby represents and warrants that (a) it
has full partnership power and authority to execute and deliver this Agreement
and each of the Ancillary Agreements, to perform its obligations under this
Agreement and each of the Ancillary Agreements, and to consummate the
transactions contemplated hereby, (b) this Agreement and each of the Ancillary
Agreements has been duly executed and delivered by the Purchaser, and (c) this
Agreement and each of the Ancillary Agreements constitutes the valid and binding
obligation of the Purchaser enforceable against the Purchaser in accordance with
their respective terms, except as such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws relating to creditors' rights generally, and general principles of equity
(whether applied in a proceeding at law or in equity).
(iv) With respect to the information and other material
furnished under or in connection with this Agreement (whether furnished before,
on or after the date hereof, including without limitation information furnished
pursuant to paragraphs 1D(j) and 2A hereof) which constitutes or contains
non-public business, financial or other information of the Company ("Non-Public
Information"), the Purchaser covenants for itself and its directors and officers
that it will use due care to prevent its officers, directors, employees,
counsel, accountants and other representatives from (x) disclosing any
Non-Public Information to Persons other than Purchaser's authorized employees,
counsel, accountants, shareholders, members, partners, limited partners and
other authorized representatives or (y) using Non-Public Information in any
manner that would constitute a violation of federal or state securities laws;
provided, however, that the Purchaser may disclose or deliver any Non-Public
Information should the Purchaser be advised by its counsel that such disclosure
or delivery is required by law, regulation or judicial or administrative order.
For purposes of this subparagraph 6C(iv), "due care" means at least the same
level of care that the Purchaser would use to protect the confidentiality of its
own sensitive or proprietary information, and this obligation shall survive
termination of this Agreement.
6D. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of holders
of a majority of the Underlying Common Stock. No other course of dealing between
the Company and the holder of any Convertible Note, ID Warrant or Underlying
Common Stock or any delay in exercising any rights hereunder or thereunder or
under the Articles of Incorporation shall operate as a waiver of any rights of
any such holders. For purposes of this Agreement, Convertible Notes or shares of
Underlying Common Stock held by the Company or any Subsidiaries shall not be
deemed to be outstanding. If the Company pays any consideration to any holder of
any Convertible Note or Underlying Common Stock for such holder's consent to any
amendment, modification or waiver hereunder, the Company shall also pay each
other holder granting its consent hereunder equivalent consideration computed on
a pro rata basis.
6E. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by the Purchaser or on its behalf.
6F. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the Purchaser's benefit as a
purchaser or holder of the Convertible Notes, any ID Warrants or Underlying
Common Stock are also for the benefit of, and enforceable by, any subsequent
holder of such Convertible Notes, such ID Warrants or such Underlying Common
Stock. At such time as any Person who is a party to this Agreement (other than
the Company) no longer owns, of record or beneficially any Convertible Notes, ID
Warrants or Underlying Common Stock, such Person shall thereafter not be
considered a party to this Agreement unless such Person thereafter becomes a
subsequent holder of Convertible Notes, ID Warrants or Underlying Common Stock.
6G. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
6H. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
6I. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
6J. Governing Law. The corporate law of the State of Oregon shall
govern all issues and questions concerning the relative rights and obligations
of the Company and its securityholders. All other issues and questions
concerning the construction, validity, enforcement and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
6K. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and delivered personally, mailed by certified or registered mail, return
receipt requested and postage prepaid, sent via a nationally recognized
overnight courier, or via facsimile. Such notices, demands and other
communications will be sent to the address indicated below:
To the Borrower:
Gardenburger, Inc.
1411 S.W. Morrison Street
Portland, OR 97205
Attention: Richard C. Dietz
Telecopy No.: (503) 205-1648
With a copy to:
Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204
Attention: Mary Ann Frantz, Esq.
Telecopy No.: (503) 224-0155
To the Purchaser:
Dresdner Kleinwort Benson Private
Equity Partners LP
75 Wall Street, 24th Floor
New York, NY 10005-2889
Attention: Alexander Coleman
Telecopy No.: (212) 429-3139
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Eunu Chun, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party;
provided, that the failure to deliver copies of notices as indicated above shall
not affect the validity of any notice. Any such communication shall be deemed to
have been received (i) when delivered, if personally delivered, or sent by
nationally-recognized overnight courier or sent via facsimile or (ii) on the
third Business Day following the date on which the piece of mail containing such
communication is posted if sent by certified or registered mail.
6L. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
6M. Indemnification.
(i) General. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Convertible Notes hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the Purchaser and
each other holder of Convertible Notes and all of their officers, directors,
employees, Affiliates and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach
of warranty of the Company contained in this Agreement or in any statement,
certificate or document furnished or to be furnished to the Purchaser pursuant
hereto or in any other Investment Document or (b) any breach of any covenant or
obligation of the Company contained in this Agreement or any other Investment
Document. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(ii) Environmental Liabilities. Without limiting the
generality of the indemnity set out in paragraph 6M(i) above, the Company shall
defend, protect, indemnify and hold harmless the Purchaser and all other
Indemnitees from and against any and all actions, causes of action, suits,
losses, liabilities, damages, injuries, penalties, fees, costs, expenses and
claims of any and every kind whatsoever paid, incurred or suffered by, or
asserted against, the Purchaser or any other Indemnitee for, with respect to, or
as a direct or indirect result of, the past, present or future environmental
condition of any property owned, operated or used by the Company, any
Subsidiary, their predecessors or successors or of any offsite treatment,
storage or disposal location associated therewith, including, without
limitation, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, release, or threatened release into, onto or from, any such
property or location of any toxic, chemical or hazardous substance, material or
waste (including, without limitation, any losses, liabilities, damages,
injuries, penalties, fees, costs, expenses or claims asserted or arising under
the CERCLA, any so-called "Superfund" or "Superlien" law, or any other federal,
state, local or foreign statute, law, ordinance, code, rule, regulation, order
or decree regulating, relating to or imposing liability or standards on conduct
concerning, any toxic, chemical or hazardous substance, material or waste),
regardless of whether caused by, or within the control of, the Company or any
Subsidiary.
6N. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER DOCUMENT OR AGREEMENT IN CONNECTION HEREWITH OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
6O. Expenses. The Company agrees to pay, and hold the Purchaser,
Dresdner Kleinwort Benson North America LLC and their respective Affiliates
harmless against liability for the payment of (i) the reasonable fees and
expenses of Purchaser, Dresdner Kleinwort Benson North America LLC and their
respective Affiliates, including fees and expenses of their respective counsel,
arising in connection with the negotiation and execution of this Agreement and
the other Investment Documents and the due diligence in connection with and the
consummation of the transactions contemplated by this Agreement, (ii) the
reasonable fees and expenses incurred with respect to any amendments or waivers
(whether or not the same become effective) under or in respect of this
Agreement, the other Investment Documents, and the Company's Articles of
Incorporation (including, without limitation, in connection with any proposed
merger, sale or recapitalization of the Company), (iii) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any Conversion Shares issuable upon
conversion of Convertible Notes or exercise of any ID Warrants, (iv) the
reasonable fees and expenses incurred with respect to the enforcement of the
rights granted under this Agreement and the other Investment Documents, (v) the
reasonable fees and expenses incurred (including reasonable legal fees) in
connection with the issuance of any ID Warrants, (vi) the reasonable fees and
expenses incurred by the Purchaser in any filing with any governmental agency
with respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions the Purchaser,
and (vii) the reasonable fees and expenses incurred by the Purchaser in
connection with any transaction, claim or event which the Purchaser believes
affects the Company and as to which the Purchaser seeks advice of counsel.
6P. Subordination.
(i) Convertible Notes Subordinate to Senior Indebtedness. The
Company covenants and agrees, and the Purchaser likewise covenants and agrees,
that, to the extent and in the manner hereinafter set forth in this paragraph
6P, the payment of the principal of and interest on the Convertible Notes, and
all other sums or obligations due and payable by the Company to the Registered
Holders hereunder (collectively with the Convertible Notes, the "Subordinated
Obligations"), are hereby expressly made subordinate and subject in right of
payment to the prior payment in cash in full of all Senior Indebtedness.
(ii) Payment Over of Proceeds Upon Dissolution.
(a) In the event of (x) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization,
adjustment, composition or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as
such, or to its assets, or (y) any liquidation, dissolution or other
winding up of the Company whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (z) any assignment for
the benefit of creditors or any other marshaling of assets and
liabilities of the Company (collectively, "Bankruptcy Events"), then
and in any such event:
(1) the holders of Senior Indebtedness shall be
entitled to receive payment in cash in full of all amounts due
or to become due on or in respect of all such Senior
Indebtedness, before the Registered Holders are entitled to
receive any payment or distribution, whether in cash,
securities or other property, on account of Subordinated
Obligations;
(2) any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities, by set-off or otherwise, to which the Registered
Holders would be entitled but for the provisions of this
paragraph 6P (except for any such payment or distribution (x)
authorized by an order or decree stating that effect is being
given to the subordination of such Subordinated Obligations to
such Senior Indebtedness or (y) of securities which, if debt
securities, are subordinated to at least the same extent as
such Subordinated Obligations to the payment of all Senior
Indebtedness then outstanding (each such payment or
distribution, a "Junior Payment") shall be paid by the
liquidating trustee or agent or other Person making such
payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the
holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to
the aggregate amounts remaining unpaid on account of the
principal of, and interest on, such Senior Indebtedness held
or represented by each, to the extent necessary to make
payment in cash in full of all such Senior Indebtedness
remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior
Indebtedness; and
(3) in the event that, notwithstanding the foregoing
provisions of this paragraph 6P, the Registered Holders shall
have received any such payment or distribution of assets of
the Company of any kind or character, whether in cash,
property or securities (but excluding any Junior Payment)
before all such Senior Indebtedness is paid in full in cash or
payment thereof is provided for, then and in such event such
payment or distribution shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making
payment or distribution of assets of the Company for
application to the payment of all such Senior Indebtedness
remaining unpaid, to the extent necessary to pay all such
Senior Indebtedness in full in cash, after giving effect to
any concurrent payment or distribution to or for the holders
of such Senior Indebtedness.
(b) If, notwithstanding the provisions of this Agreement,
there shall occur any consolidation of the Company with, or any merger
of the Company into, another corporation or the liquidation or
dissolution of the Company following any conveyance, transfer or lease
of its properties and assets substantially as an entirety to another
corporation, such consolidation, merger or liquidation shall not be
deemed a Bankruptcy Event for the purposes of this paragraph 6P.
(iii) No Payment in Certain Circumstances.
(a) In the event that (i) the Company shall fail to pay when
due (after giving effect to any applicable grace periods), upon
acceleration or otherwise, any principal, interest or fees with respect
to Senior Indebtedness (a "Payment Default") which Payment Default
shall not have been cured or waived, or (ii) the Company shall fail to
comply with the covenants contained in the Senior Credit Agreement,
which default shall not have been cured or waived (a "Covenant
Default"), and the Company and the Registered Holders receive written
notice of such Covenant Default from the holders of at least a majority
in aggregate principal amount of such Senior Indebtedness at the time
outstanding (a "Blockage Notice"), then no payment shall be made by the
Company on account of the Subordinated Obligations (x) in the case of
any Payment Default, unless and until such Senior Indebtedness shall
have been paid in cash in full or provision shall have been made for
such payment or until such Payment Default shall have been cured or
waived, or (y) in the case of any Covenant Default, from the date the
Company and the Registered Holders shall have received such Blockage
Notice until the earlier of (1) 179 days after such date and (2) the
date, if any, on which such Senior Indebtedness to which such Covenant
Default relates is discharged or such Covenant Default is waived by the
holders of such Senior Indebtedness or otherwise cured (a "Blockage
Period"); provided, that (A) only one Blockage Notice may be given in
any 360-day period, and (B) no Covenant Default that previously served
as the basis for a Blockage Notice or that was in existence during a
prior Blockage Period may serve as the basis for a Blockage Notice
unless such Covenant Default was subsequently cured for a period of at
least 180 consecutive days.
(b) In the event that, notwithstanding the foregoing, the
Company shall make any payment to any Registered Holder prohibited by
the foregoing provisions of this subparagraph 6P(iii), then and in such
event such payment shall be paid over and delivered forthwith to the
Company.
(iv) Payments Otherwise Permitted. Nothing contained in this
paragraph 6P or elsewhere in this Agreement or in the Convertible Notes shall
prevent the Company, at any time except during a Bankruptcy Event as set forth
in subparagraph 6P(ii) or under the conditions described in subparagraph
6P(iii), from making payments at any time of principal of and interest on the
Convertible Notes or any other amount payable by the Company under the
Convertible Notes or this Agreement.
(v) Subrogation. Subject to the payment in cash in full of all
Senior Indebtedness, the Registered Holders shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to such Senior Indebtedness until the
principal of and interest on the Convertible Notes shall be paid in full in
cash. For purposes of such subrogation, no payments or distributions to the
holders of such Senior Indebtedness of any cash, property or securities to which
the Registered Holders would be entitled except for the provisions of this
paragraph 6P and no payments over pursuant to the provisions of this paragraph
6P to the holders of such Senior Indebtedness by the Registered Holders shall,
as among the Company, its creditors (other than holders of such Senior
Indebtedness) and the Registered Holders be deemed to be a payment or
distribution by the Company to or on account of any of the Convertible Notes.
(vi) Provisions Solely to Define Relative Rights. The
provisions of this paragraph 6P are and are intended solely for the purpose of
defining the relative rights of the holders of the Convertible Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing contained
in this paragraph 6P or elsewhere in this Agreement or in the Convertible Notes
is intended to or shall (A) impair, as among the Company, its creditors (other
than holders of Senior Indebtedness) and the Registered Holders, the obligation
of the Company, which is absolute and unconditional, to pay to the Registered
Holders the principal of, and premium and interest on, and any other amount
payable by the Company under, the Convertible Notes or this Agreement as and
when the same shall become due and payable in accordance with their terms; or
(B) affect the relative rights against the Company of the Registered Holders and
its creditors (other than the holders of Senior Indebtedness); or (C) prevent
the Registered Holders from accelerating the Convertible Notes and exercising
all other remedies otherwise permitted by applicable law upon default under this
Agreement, subject to the rights, if any, under this paragraph 6P of the holders
of Senior Indebtedness (x) upon the occurrence of a Bankruptcy Event, to
receive, pursuant to and in accordance with subparagraph 6P(ii), cash, property
and securities otherwise payable or deliverable to the Registered Holders, or
(y) under the conditions specified in subparagraph 6P(iii), to prevent any
payment prohibited by such subparagraph.
(vii) Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this paragraph 6P, the Registered Holders shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Registered Holders for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this paragraph
6P.
IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase
Agreement on the date first written above.
GARDENBURGER, INC.
By: /s/ Richard C. Dietz
--------------------------------------
Name: Richard C. Dietz
Title: Executive Vice President and
Chief Executive Officer
DRESDNER KLEINWORT BENSON PRIVATE EQUITY
PARTNERS LP
By: Dresdner Kleinwort Benson Private Equity
Managers LLC, its General Partner
By: /s/ Alexander P. Coleman
----------------------------------
Name: Alexander P. Coleman
Title: Investment Partner
Paul F. Wenner and Lyle G.
Hubbard hereby join this
Agreement for the express
and limited purposes set
forth in paragraph 2L
hereof.
/s/ Paul F. Wenner
- ------------------------------
Paul F. Wenner
/s/ Lyle G. Hubbard
- ------------------------------
Lyle G. Hubbard
THE SECURITY REPRESENTED BY THIS INSTRUMENT WAS ORIGINALLY ISSUED ON MARCH 27,
1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE TRANSFER OF SUCH SECURITY IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE NOTE
PURCHASE AGREEMENT DATED AS OF MARCH 27, 1998, AS IN EFFECT FROM TIME TO TIME,
BETWEEN THE ISSUER (THE "COMPANY") AND CERTAIN INVESTOR(S), AND THE COMPANY
RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITY UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER. UPON WRITTEN REQUEST, A COPY
OF SUCH CONDITIONS WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF WITHOUT
CHARGE.
GARDENBURGER, INC.
CONVERTIBLE SENIOR SUBORDINATED NOTE
March 27, 1998 $15,000,000
Gardenburger, Inc., an Oregon corporation and f/k/a Wholesome
and Hearty Foods, Inc. (the "Company"), for value received, hereby promises to
pay to the order of Dresdner Kleinwort Benson Private Equity Partners LP
("Dresdner"), or registered assigns, the principal amount of Fifteen Million
dollars ($15,000,000) on April 1, 2003 (the "Maturity Date") together with
interest thereon calculated from the date hereof in accordance with the
provisions contained herein. The Company will maintain a register in which it
will record the initial ownership of the Convertible Notes and changes in the
ownership of Convertible Notes of which it receives notice. The holder of this
Convertible Note indicated at any time in such register will be the "Registered
Holder" of this Convertible Note.
This Convertible Note was issued pursuant to a Note Purchase
Agreement, dated as of March 27, 1998 (as in effect from time to time, the
"Purchase Agreement"), among the Company and Dresdner, and this Convertible Note
is one of the "Convertible Notes" referred to in the Purchase Agreement. The
Purchase Agreement contains terms governing the rights of the holder of this
Convertible Note, and all provisions of the Purchase Agreement are hereby
incorporated in this Convertible Note in full by reference. Except as defined in
Section 9 of this Convertible Note or otherwise indicated in this Convertible
Note, each capitalized term used in this Convertible Note has the meaning set
forth in the Purchase Agreement.
1. PAYMENT OF PRINCIPAL.
(a) SCHEDULED PAYMENT. The Company will pay the entire unpaid
principal amount of this Convertible Note on the Maturity Date.
(b) OPTIONAL PREPAYMENT. Subject to paragraph 2H of the
Purchase Agreement, the Company may prepay the principal amount of this
Convertible Note, in whole or in any $1,000 increment, at any time and from time
to time; provided, however, (i) if any such optional prepayment occurs during
the period beginning on April 1, 2000 and ending on March 31, 2001, then the
Company shall pay a pre-payment premium to the then Registered Holder equal to
2.8% of the principal amount of this Convertible Note then pre-paid, and (ii) if
any such optional prepayment occurs during the period beginning on April 1, 2001
and ending on March 31, 2002, then the Company shall pay a pre-payment premium
to the then Registered Holder equal to 1.4% of the principal amount of this
Convertible Note then pre-paid. The holder of this Convertible Note may convert
all or any portion of the outstanding principal amount of this Convertible Note
pursuant to Section 5 until such time as such amount has been paid. The Company
shall mail written notice by overnight delivery (with a copy sent by facsimile
on the date mailed) of each such optional prepayment of any Convertible Note to
each Registered Holder of the Convertible Notes not more than 20 nor less than 5
business days prior to the date on which such optional prepayment is to be made.
Upon mailing any such notice of optional prepayment, the Company shall become
obligated to prepay the principal amount of Convertible Notes specified in such
notice, together with the applicable pre-payment premium and all unpaid accrued
interest thereon, at the time of the optional prepayment specified therein.
(c) OTHER PREPAYMENTS OR ACQUISITIONS. The Company shall not,
nor shall it permit any Subsidiary to, prepay any principal amount of any
Convertible Note or otherwise acquire any Convertible Notes, except as expressly
authorized herein.
(d) SPECIAL PREPAYMENTS FOR A CHANGE OF CONTROL OR SALE EVENT.
If a Change of Control has occurred, the Company obtains knowledge that a Change
of Control is proposed to occur or a Sale Event is proposed to occur, the
Company shall give written notice within five business days of such Change of
Control or the date it obtains knowledge of such proposed Change of Control or
Sale Event describing in reasonable detail the material terms and date of
consummation or proposed consummation thereof to the Registered Holder of this
Convertible Note, and the Company shall give the Registered Holder of this
Convertible Note prompt written notice of any material change in the terms or
timing of any such transaction. The Registered Holder of this Convertible Note
may require the Company to prepay all or any portion of the unpaid principal
amount of this Convertible Note (along with a pre-payment premium equal to 20%
of the principal amount of this Convertible Note the Registered Holder has
elected to have pre-paid) by giving written notice to the Company of such
election prior to the later of (a) the twenty-first day after receipt of the
Company's notice and (b) the fifth day prior to the consummation of the Change
of Control or Sale Event, as the case may be.
Upon receipt of any such election, the Company shall be
obligated to prepay the unpaid principal amount of this Convertible Note as
specified therein, together with the applicable pre-payment premium and all
unpaid accrued interest thereon, on the later of (a) the occurrence of the
Change of Control or Sale Event, as the case may be, and (b) the fifth day after
the Company's receipt of such election. If any proposed Change of Control or
Sale Event does not occur, all requests for prepayment in connection therewith
shall be automatically rescinded; provided, that, if there has been a material
change in the terms or the timing of the transaction, the Registered Holder of
this Convertible Note may rescind such Registered Holder's request for
prepayment by giving written notice of such rescission to the Company.
Notwithstanding the foregoing, at any time prior to the date the Company makes a
pre-payment pursuant to this Section 1(d), the Registered Holder may elect (by
delivery of written notice to the Company) to receive such payment, in whole or
in part, in shares of Common Stock with a Market Price as of the date of payment
equal to the amount of principal, premium and/or interest the Registered Holder
has elected to receive in shares of Common Stock rather than cash.
(e) SPECIAL PREPAYMENTS FOR A MANAGEMENT CHANGE. If a
Management Change has occurred or the Company obtains knowledge that a
Management Change is about to occur, the Company shall give written notice
within five business days of such Management Change to the Registered Holder of
this Convertible Note. The Registered Holder of this Convertible Note may
require the Company to prepay all or any portion of the unpaid principal amount
of this Convertible Note (along with a pre-payment premium equal to 20% of the
principal amount of this Convertible Note the Registered Holder has elected to
have pre-paid) by giving written notice to the Company of such election prior to
the twenty-first day after receipt of the Company's notice of such Management
Change. Upon receipt of any such election, the Company shall be obligated to
prepay the unpaid principal amount of this Convertible Note as specified
therein, together with the applicable pre-payment premium and all unpaid accrued
interest thereon, on the fifth day after the Company's receipt of such election.
Notwithstanding the foregoing, at any time prior to the date the Company makes a
pre-payment pursuant to this Section 1(e), the Registered Holder may elect (by
delivery of written notice to the Company) to receive such payment, in whole or
in part, in shares of Common Stock with a Market Price as of the date of payment
equal to the amount of principal, premium and/or interest the Registered Holder
has elected to receive in shares of Common Stock rather than cash.
2. INTEREST. Interest will accrue at the rate of seven percent
(7%) per annum (computed on the basis of a 360-day year, as appropriate, and the
actual number of days elapsed in any year) on the unpaid principal amount of
this Convertible Note outstanding from time to time, or (if less) at the highest
rate then permitted under applicable law. Interest accruing hereunder, and any
interest accruing as provided in Section 4(b)(iii), will be payable to the
Registered Holder in cash, in arrears, on each March 31 and September 30 (each
an "Interest Payment Date") and will be payable to the Registered Holder in cash
in any event on the Maturity Date. Any accrued interest which is not paid on any
March 31 or September 30 will bear interest at such rate as provided herein
until such interest is paid. Interest will accrue on any amount of principal or
interest until such time as payment therefor is actually delivered to the
Registered Holder of this Convertible Note.
Notwithstanding the foregoing, on any Interest Payment Date,
the Company may, at its election, pay the interest payable to the Registered
Holder on such Interest Payment Date by delivery to the Registered Holder of a
number of shares of Common Stock equal to (A) the amount of interest accrued as
of such Interest Payment Date divided by (B) the lesser of (x) the Conversion
Price and (y) the Market Price per share of the Common Stock, in each case, as
of such Interest Payment Date; provided, that the Company may make such election
only if the Liquidity Test (as herein defined) has been met as of such Interest
Payment Date. If the Company makes such election, the Company may pay the
Registered Holder cash in lieu of issuing any fractional shares of Common Stock.
As of any Interest Payment Date, the "Liquidity Test" shall be met if the
Registered Holder receives shares of Common Stock which the Registered Holder
can immediately sell to any Person without violating the Securities Act and such
shares are received by the Registered Holder no later than the fifth day after
the applicable Interest Payment Date; provided, however, that, notwithstanding
the foregoing, the Liquidity Test shall not be met if either (i) the Market
Price per share of Common Stock has been below $5.00 per share (such number to
be appropriately adjusted for any stock split, reverse stock split, stock
dividend or other subdivision or combination of Common Stock after the original
date of issuance of this Convertible Note) for each of the 90 days prior to such
Interest Payment Date, (ii) the average daily trading volume of the Common Stock
as quoted in the NASDAQ System for the 30 business days prior to such Interest
Payment Date is less than 15,000 shares per day, (iii) at any time prior to such
Interest Payment Date, the Company has received a notice from a Person with the
requisite authority which states that the Common Stock has been delisted from
the NASDAQ System and the Common Stock is not listed on the New York or American
Stock Exchange, or (iv) an Event of Default (as herein defined) has occurred at
or prior to and is continuing as of such Interest Payment Date.
3. PRO RATA PAYMENT. Except as otherwise permitted by Sections
1(d) or 1(e) hereof, all payments to the holders of the Convertible Notes
(whether for principal, interest or otherwise) will be made pro rata among such
holders based upon the aggregate unpaid principal amount of the Convertible
Notes held by each such holder. By its acceptance of this Convertible Note, the
holder of this Convertible Note agrees that if any holder of a Convertible Note
obtains any payment (whether voluntary, involuntary, by application of offset or
otherwise) of principal, interest or any other amount with respect to any
Convertible Note in excess of such holder's pro rata share of such payments
obtained by all holders of the Convertible Notes (unless permitted by Sections
1(d) or 1(e) hereof)), such holder will purchase from the other holders of the
Convertible Notes such participation in the Convertible Notes held by them as is
necessary to cause such holders to share the excess payment ratably among each
of them as provided in this Section 3.
4. EVENTS OF DEFAULT.
(a) DEFINITION. An "Event of Default" will be deemed to have
occurred if:
(i) the Company fails to pay any amount of the principal of
any Convertible Note as and when required pursuant to the terms of
such Convertible Note or the Purchase Agreement;
(ii) the Company fails to pay any amount of the interest on
any Convertible Note within five (5) days of when such payment is
required pursuant to the terms of such Convertible Note or the
Purchase Agreement;
(iii) the Company fails to perform or observe any covenant or
agreement contained in paragraphs 2C or 2G of the Purchase Agreement;
(iv) the Company fails to perform or observe any other
covenant or agreement contained in the Convertible Notes, the Purchase
Agreement or any of the other Investment Documents, and such failure
is not cured within ten (10) days after the occurrence of such
failure;
(v) any representation, warranty, statement or information
contained in the Purchase Agreement or any other Investment Document
or required to be furnished to any holder of the Convertible Notes
pursuant to the Purchase Agreement or any other Investment Document is
false or misleading in any material respect on the date made or
furnished;
(vi) the Company or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Company or any Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Company or any
Subsidiary is entered under the Federal Bankruptcy Code; or the
Company or any Subsidiary petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator of the
Company or any Subsidiary, or of any substantial part of the assets of
the Company or any Subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any
Subsidiary) relating to the Company or any Subsidiary under any
bankruptcy reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction; or any such
petition or application is filed, or any such proceeding is commenced,
against the Company or any Subsidiary and either (A) the Company or
any such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 30 days;
(vii) a judgment in excess of $250,000 (exclusive of
insurance) is rendered against the Company or any Subsidiary and,
within 30 days after entry thereof, such judgment is not discharged in
full or execution thereof stayed pending appeal, or within 30 days
after the expiration of any such stay, such judgment is not discharged
in full; or
(viii) the Company or any Subsidiary defaults in the
performance of any obligation or agreement, including with respect to
any Indebtedness, if the effect of such default is to cause an amount
exceeding $250,000 to become due prior to its stated maturity or to
permit the holder or holders of any obligation or agreement to cause
an amount exceeding $250,000 to become due prior to its stated
maturity.
The foregoing will constitute Events of Default whatever the reason or
cause for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
(b) CONSEQUENCES OF EVENTS OF DEFAULT.
(i) If any Event of Default (other than an Event of Default of
a type described in Sections 4(a)(iii) and 4(a)(vi)) has occurred and
is continuing, then the holder or holders of a majority of the unpaid
principal amount of the Convertible Notes then outstanding may declare
(by written notice delivered to the Company) all or any portion of the
outstanding principal amount of the Convertible Notes (together with
all accrued interest thereon) to be immediately due and payable and
may demand immediate payment of all or any portion of the outstanding
principal amount of the Convertible Notes and interest thereon in
accordance with paragraph 2H of the Purchase Agreement.
(ii) If an Event of Default of the type described in Sections
4(a)(iii) or 4(a)(vi) has occurred, then the aggregate principal
amount of the Convertible Notes (together with all accrued interest
thereon and all other amounts due and payable with respect thereto)
will become immediately due and payable without any action on the part
of the holders of the Convertible Notes. Subject to paragraph 2H of
the Purchase Agreement, the Company will immediately pay to the
holders of the Convertible Notes all amounts due and payable with
respect to the Convertible Notes upon the occurrence of such Event of
Default.
(iii) If any Event of Default of a type described in Sections
4(a)(i) or 4(a)(ii) has occurred and is continuing, the interest rate
on the Convertible Notes will increase immediately by an increment of
3 percentage points (i.e., 300 basis points), to the extent permitted
by applicable law. Any such increase of the interest rate resulting
from the operation of this Section 4(b)(iii) will terminate as of the
close of business on the next date on which no Event of Default exists
(subject to subsequent increases pursuant to this Section).
(iv) Each holder of the Convertible Notes will also have any
other rights which such holder may have been afforded under any
contract or agreement at any time and any other rights which such
holder may have pursuant to applicable law. The Company hereby waives
diligence, presentment, protest and demand and notice of protest and
demand, dishonor and nonpayment of the Convertible Notes, and
expressly agrees that the Convertible Notes, or any payment
thereunder, may be extended from time to time and that the holders
thereof may accept security for the Convertible Notes or release
security for the Convertible Notes, all without in any way affecting
the liability of the Company thereunder.
5. CONVERSION.
(a) CONVERSION PROCEDURE.
(i) VOLUNTARY CONVERSION. At any time and from time to time
prior to the payment of this Convertible Note in full, the holder of
this Convertible Note may convert all or any portion of the unpaid
principal amount of this Convertible Note plus any unpaid accrued
interest thereon into a number of shares of the Conversion Stock
determined by dividing (A) the unpaid principal and interest amount
designated by such holder to be converted, by (B) the Conversion Price
then in effect.
(ii) EFFECTIVENESS OF CONVERSION. Except as otherwise provided
herein, each conversion of this Convertible Note will be deemed to
have been effected as of the close of business on the date on which
this Convertible Note has been surrendered for conversion at the
office of the Company specified for delivery of notices pursuant to
the Purchase Agreement. At such time as such conversion has been
effected, the rights of the holder of this Convertible Note as such
holder to the extent of the conversion will cease, and the Person or
Persons in whose name or names any certificate or certificates for
shares of Conversion Stock are to be issued upon such conversion will
be deemed to have become the holder or holders of record of the shares
of Conversion Stock represented thereby.
(iii) CONTINGENT CONVERSION. Notwithstanding any other
provision hereof, if a conversion of all or any portion of this
Convertible Note is to be made in connection with a registered public
offering, a Change of Control, a Sale Event, a Management Change, a
proposed sale of the underlying Conversion Stock or any other
transaction or event, then such conversion may, at the election of the
holder of this Convertible Note, be conditioned upon the consummation
of such transaction or the occurrence of such event, in which case
such conversion will not be deemed to be effective until such
consummation or occurrence.
(iv) ACTIONS BY THE COMPANY. As soon as possible after a
conversion has been effected (but in any event within five business
days thereafter), the Company will deliver to the converting holder a
certificate or certificates representing the number of shares of
Conversion Stock issuable by reason of such conversion, in such name
or names and such denomination or denominations as the converting
holder has specified, and a new Convertible Note representing any
portion of the principal amount which was represented by this
Convertible Note but which was not converted.
(v) CHARGES, ETC. The issuance of certificates for shares of
Conversion Stock upon conversion of any principal amount of this
Convertible Note will be made without charge to the holder of this
Convertible Note or the Conversion Stock to be issued for any issuance
tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of shares of
Conversion Stock. Upon conversion of this Convertible Note, the
Company will take all such actions as are necessary in order to insure
that the Conversion Stock issuable with respect to such conversion
will be validly issued, fully paid and nonassessable, free and clear
of all taxes, liens, charges and encumbrances with respect to the
issuance thereof. The Company will not close its books against the
transfer of this Convertible Note or of Conversion Stock issued or
issuable upon conversion of this Convertible Note in any manner which
interferes with the timely conversion of this Convertible Note. The
Company will assist and cooperate with any holder of this Convertible
Note or Conversion Stock issuable upon any such conversion which is
required to make any governmental filings or obtain any governmental
approval prior to or in connection with the conversion of this
Convertible Note (including making any filings required to be made by
the Company).
(vi) RESERVATION. The Company will at all times reserve and
keep available out of its authorized but unissued shares of Conversion
Stock, solely for the purpose of issuance upon the conversion of the
Convertible Notes, such number of shares of Conversion Stock issuable
upon the conversion of all outstanding Convertible Notes. All shares
of Conversion Stock which are so issuable will, when issued, be duly
and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company will take all such actions as
may be necessary to assure that all such shares of Conversion Stock
may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities
exchange upon which shares of Conversion Stock may be listed (except
for official notice of issuance which will be immediately delivered by
the Company upon each such issuance). The Company will not take any
action which would cause the number of authorized but unissued shares
of Conversion Stock to be less than the number of such shares issuable
upon conversion in full of the Convertible Notes and the conversion,
exercise or exchange in full of all other Equity Securities of the
Company then outstanding.
(vii) RELATED CONVERSION. If any Conversion Stock issuable by
reason of conversion of this Convertible Note is immediately
convertible into or immediately exchangeable for any other stock or
securities of the Company, then the Company will, at the converting
holder's option and upon surrender of this Convertible Note by such
holder as provided herein together with any notice, statement or
payment required to effect such conversion or exchange of such
Conversion Stock, deliver to such holder (or as otherwise specified by
such holder) a certificate or certificates representing the stock or
securities into which the shares of Conversion Stock issuable by
reason of such conversion are so convertible or exchangeable,
registered in such name or names and in such denomination or
denominations as such holder has specified.
(b) CONVERSION PRICE.
(i) The initial Conversion Price will be $12.90. In order to
prevent dilution of the conversion rights granted under the
Convertible Notes, the Conversion Price will be subject to adjustment
from time to time as provided in this Section 5(b).
(ii) If and whenever on or after the original date of issuance
of this Convertible Note the Company issues or sells, or in accordance
with Section 5(c) is deemed to have issued or sold, any Conversion
Stock for a consideration per share which is less than the Conversion
Price in effect immediately prior to such issuance or sale, then
immediately upon such issue or sale or deemed issue or sale the
Conversion Price will be reduced to the Conversion Price determined by
dividing (A) an amount equal to the sum of (x) the product derived by
multiplying the Conversion Price in effect immediately prior to such
issue or sale or deemed issue or sale by the number of shares of
Conversion Stock Deemed Outstanding immediately prior to such issue or
sale or deemed issue or sale, plus (y) the consideration, if any,
received by the Company upon such issue or sale or deemed issue or
sale, by (B) the number of shares of Conversion Stock Deemed
Outstanding immediately after such issue or sale or deemed issue or
sale; provided that no adjustment in the Conversion Price will be made
pursuant to this Section 5(b) in connection with any Exempt Issuance.
(iii) If, as of July 1, 1998, the Alternative Market Price per
share of Common Stock (such amount per share, the "July 1998
Alternative Market Price") is less than $10.75 per share (such number
to be appropriately adjusted for any stock split, reverse stock split,
stock dividend or other subdivision or combination of Common Stock
after the original date of issuance of this Convertible Note), then
the Conversion Price shall be reduced to an amount equal to the July
1998 Alternative Market Price multiplied by 120%; provided, that in no
event will the Conversion Price be increased pursuant to this Section
5(b)(iii); provided, further, that in no event will the Conversion
Price be decreased below $11.40 (such number to be proportionately
adjusted along with the Conversion Price if the Conversion Price is
adjusted pursuant to Section 5(b)(ii) after the original date of
issuance of this Convertible Note) pursuant to this Section 5(b)(iii).
(c) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under Section 5(b) and only if an
adjustment to the Conversion Price is required under Section 5(b), the following
will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner grants or sells any Options and the price per share for which
Conversion Stock is issuable upon the exercise of such Options, or
upon conversion or exchange of any Convertible Securities issuable
upon exercise of such Options, is less than the Conversion Price in
effect immediately prior to the time of the granting or sale of such
Options, then the maximum number of shares of Conversion Stock
issuable upon the exercise of such Options, or upon conversion or
exchange of the maximum amount of such Convertible Securities issuable
upon the exercise of such Options, will be deemed to be outstanding
and to have been issued and sold by the Company at the time of the
granting or sale of such Options for such price per share. For
purposes of this Section 5(c)(i), the "price per share for which
Conversion Stock is issuable upon exercise of such Options, or upon
conversion or exchange of any Convertible Securities issuable upon
exercise of such Options" will be determined by dividing (A) the total
amount, if any, received or receivable by the Company as consideration
for the granting or sale of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the maximum number of shares of Conversion
Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options. No adjustment of the Conversion
Price will be made upon the actual issuance of such Conversion Stock
or of such Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Conversion Stock upon conversion or
exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells any Convertible Securities and the price per
share for which Conversion Stock is issuable upon conversion or
exchange thereof is less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the maximum
number of shares of Conversion Stock issuable upon conversion or
exchange of all such Convertible Securities will be deemed to be
outstanding and to have been issued and sold by the Company at the
time of the issuance or sale of such Convertible Securities for such
price per share. For the purposes of this Section 5(b)(ii), the "price
per share for which Conversion Stock is issuable upon conversion or
exchange thereof" will be determined by dividing (A) the total amount
received or receivable by the Company as consideration for the issue
or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (B) the maximum number of
shares of Conversion Stock issuable upon the conversion or exchange of
all such Convertible Securities. No adjustment of the Conversion Price
will be made upon the actual issue of such Conversion Stock upon
conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustments of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 5(c), no
further adjustment of the Conversion Price will be made by reason of
such issue or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the
purchase price provided for in any Option, the additional
consideration (if any) payable upon the issue, conversion or exchange
of any Convertible Security, the quantity of Conversion Stock issuable
directly or indirectly upon the exercise, conversion or exchange of
any Option or Convertible Security, or the rate at which any
Convertible Security is convertible into or exchangeable for
Conversion Stock changes at any time, then the Conversion Price in
effect immediately prior to the time of such change will be adjusted
immediately to the Conversion Price which would have been in effect at
such time had such Option or Convertible Security originally provided
for such changed purchase price, additional consideration, changed
quantity or changed conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that in no event will the
Conversion Price be increased pursuant to this Section 5(c)(iii). For
purposes of this Section 5(c), if the terms of any Option or
Convertible Security which was outstanding as of the date of the
original issuance of this Convertible Note are changed in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Conversion Stock deemed issuable upon
exercise, conversion or exchange thereof will be deemed to have been
issued as of the date of such change; provided that in no event will
the Conversion Price be increased pursuant to this Section 5(c)(iii).
(iv) CALCULATION OF CONSIDERATION RECEIVED. If any Conversion
Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, then the consideration received
therefor will be deemed to be the net amount received by the Company
therefor. If any Conversion Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, then the
amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price thereof
as of the date of receipt. If any Conversion Stock, Options or
Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the
surviving entity, then the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such
Conversion Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash and securities
will be determined jointly by the Company and the holder or holders of
a majority of the outstanding unpaid principal amount of the
Convertible Notes. If such parties are unable to reach agreement
within a reasonable period of time, then such fair value will be
determined by an appraiser jointly selected by the Company and the
holder or holders of a majority of the outstanding unpaid principal
amount of the Convertible Notes. The determination of such appraiser
will be final and binding upon the Company and all holders of
Convertible Notes, and the fees and expenses of such appraiser will be
borne by the Company.
(v) INTEGRATED TRANSACTIONS. If any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued without consideration.
(vi) TREASURY SHARES. The disposition of any Conversion Stock
owned or held by the Company or any Subsidiary (including in treasury)
will be considered an issue or sale of Conversion Stock.
(vii) RECORD DATE. If the Company takes a record of the
holders of Conversion Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Conversion Stock,
Options or Convertible Securities or (B) to subscribe for or purchase
Conversion Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the shares
of Conversion Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(d) Subdivision or Combination of Conversion Stock. If the
Company at any time subdivides (by any stock split, stock dividend or otherwise)
one or more classes of its outstanding shares of Conversion Stock into a greater
number of shares, then the Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by reverse stock split or otherwise) one or more classes of its outstanding
shares of Conversion Stock into a smaller number of shares, then the Conversion
Price in effect immediately prior to such combination will be proportionately
increased.
(e) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE.
(i) ORGANIC CHANGE DEFINED. Any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all
or substantially all of the Company's assets or other transaction,
which in each case is effected in such a manner that holders of
Conversion Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or cash or other assets with
respect to or in exchange for Conversion Stock is referred to herein
as an "Organic Change."
(ii) PROVISIONS FOR ORGANIC CHANGE. Prior to the consummation
of any Organic Change, the Company will make lawful and adequate
provision (in form and substance satisfactory to the holder or holders
of a majority of the outstanding unpaid principal amount of the
Convertible Notes then outstanding) to insure that each holder of any
Convertible Note will thereafter have the right to acquire and
receive, in lieu of or addition to (as the case may be) shares of
Conversion Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Convertible Note, such shares of
stock, securities, cash or other assets as may be issued or payable
with respect to or in exchange for the number of shares of Conversion
Stock immediately theretofore acquirable and receivable upon
conversion of such holder's Convertible Note had such Organic Change
not taken place. In any such case, appropriate provision (in form and
substance satisfactory to the holder or holders of a majority of the
outstanding unpaid principal amount of the Convertible Notes then
outstanding) will be made with respect to such holder's rights and
interests to insure that the provisions of this Section 5 and Sections
6 and 7 hereof will thereafter be applicable in relation to any shares
of stock, securities, cash or other assets thereafter deliverable upon
the conversion of the Convertible Notes (including, in the case of any
such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment
of the Conversion Price to the value for the Conversion Stock
reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of
Conversion Stock acquirable and receivable upon conversion of the
Convertible Notes; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section 5 or
decrease the number of shares of Conversion Stock issuable upon
conversion of the Convertible Notes then outstanding). The Company
will not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than the
Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form
satisfactory to the holder or holders of a majority of the outstanding
unpaid principal amount of the Convertible Notes then outstanding),
the obligation to deliver to each such holder such shares of stock,
securities, cash or other assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 5 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights or securities with
equity or profit participation features), then the Company's board of directors
in good faith will make an appropriate adjustment in the Conversion Price so as
to protect the rights of the holders of the Convertible Notes; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 5 or decrease the number of shares of Conversion Stock
issuable upon conversion of the Convertible Notes then outstanding.
(g) NOTICES. Immediately upon any adjustment of the Conversion
Price, the Company will send written notice thereof to the holder of this
Convertible Note, setting forth in reasonable detail and certifying the
calculation of such adjustment. The Company will send written notice to the
holder of this Convertible Note at least 20 days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Conversion Stock, (B) with respect to any pro rata
subscription offer to holders of Conversion Stock or (C) for determining rights
to vote with respect to or to participate in any Organic Change, dissolution or
liquidation. The Company will also give at least 20 days prior written notice to
the holder of this Convertible Note of the date on which any Organic Change,
dissolution or liquidation will take place.
6. LIQUIDATING DIVIDENDS. If the Company declares a dividend
upon the Conversion Stock payable otherwise than in cash out of earnings or
earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for a stock dividend payable in shares
of Conversion Stock (a "Liquidating Dividend"), then the Company will pay to the
holder of this Convertible Note at the time of payment thereof the Liquidating
Dividend which would have been paid to the holder of this Convertible Note on
the Conversion Stock had this Convertible Note been fully converted immediately
prior to the date on which a record is taken for such Liquidating Dividend (or,
if no record is taken, the date as of which the record holders of Conversion
Stock entitled to such dividends are to be determined).
7. PURCHASE RIGHTS. If at any time the Company grants, issues
or sells any Equity Securities or other property pro rata to the holders of any
class of Conversion Stock, then each holder of the Convertible Notes will be
entitled to acquire, upon the terms applicable to such holders of Conversion
Stock, the aggregate Equity Securities or other property which such holder could
have acquired if such holder had held the number of shares of Conversion Stock
acquirable upon conversion of such holder's Convertible Note immediately before
the date on which a record is taken for the grant, issuance or sale of such
Equity Securities or other property (or, if no such record is taken, the date as
of which the record holders of Conversion Stock are to be determined for the
grant, issue or sale of such Equity Securities or other property).
8. AMENDMENT AND WAIVER. The provisions of the Convertible
Notes may be amended and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company has obtained the written consent of the holder or holders of a majority
of the unpaid principal amount of the outstanding Convertible Notes at the time
such action is taken, and any matter as to which such written consent has been
obtained will be effective as against all holders of Convertible Notes; provided
that no such action will (a) decrease the rate at which or the manner in which
interest accrues on the Convertible Notes or the times at which such interest
becomes payable, (b) change any provision relating to the scheduled payments of
principal on the Convertible Notes, (c) increase the Conversion Price or
decrease the number of shares or the class of stock into which the Convertible
Notes are convertible, or (d) the percentage required to approve any change
described in clauses (a), (b) and (c) above and this clause (d), without the
written consent of the holders at least 90% of the unpaid principal amount of
the Convertible Notes then outstanding.
9. DEFINITIONS. For purposes of the Convertible Notes, the
following capitalized terms have the following meaning.
"Alternative Market Price" of any security means the average
of the closing prices of such security's sales on all securities exchanges on
which such security may at the time be listed, or, if there has been no sale on
any such exchange on any day, then the average of the highest bid prices of such
security on all such exchanges at the end of such day, or, if on any day such
security is not so listed, then the representative bid price of such security
quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if
on any day such security is not quoted in the NASDAQ System, then the highest
bid price of such security on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case, averaged over a period of 30 days
consisting of the day as of which "Alternative Market Price" is being determined
and the 29 consecutive business days prior to such day. If at any time such
security is not listed on any securities exchange or quoted in the NASDAQ System
or the over-the-counter market, then the "Alternative Market Price" will be the
fair value thereof determined jointly by the Company and the Registered Holder
or Holders of a majority of the unpaid principal amount of the Convertible Notes
outstanding at the time of such determination. If such parties are unable to
reach agreement within a reasonable period of time, then such fair value will be
determined by an appraiser jointly selected by the Company and the Registered
Holder or Holders of a majority of the unpaid principal amount of the
Convertible Notes outstanding at the time of such determination. The
determination of such appraiser will be final and binding upon the parties, and
the fees and expenses of such appraiser will be borne by the Company.
"Common Stock" means the Company's Common Stock, no par value,
and any capital stock of any class of the Company hereafter authorized which is
not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company.
"Conversion Stock" means Common Stock; provided that if there
is a change such that the securities issuable upon conversion of the Convertible
Notes are issued by an entity other than the Company or there is a change in the
type or class of securities so issuable, then the term "Conversion Stock" will
mean shares of the security issuable upon conversion of this Convertible Note if
such security is issuable in shares, or the smallest unit in which such security
is issuable if such security is not issuable in shares.
"Conversion Stock Deemed Outstanding" means, at any given
time, the number of shares of Conversion Stock actually outstanding at such
time, plus the number of shares of Conversion Stock deemed to be outstanding
pursuant to Sections 5(c)(i) and 5(c)(ii) hereof, regardless of whether or not
the applicable Options and Convertible Securities are actually exercisable at
such time, but excluding any shares of Conversion Stock issuable upon conversion
of the Convertible Notes.
"Convertible Securities" means any Equity Securities directly
or indirectly convertible into or exchangeable for Conversion Stock.
"Exempt Issuance" means the issuance of any Common Stock or
other securities upon the exercise of any ID Warrant, any Management Options or
the Wenner Stock Option, in each case, in accordance with its terms, or upon the
conversion of any Convertible Notes or any issuance of any ID Warrant or any
Permitted ESO Issuances.
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sale on any
such exchange on any day, then the average of the highest bid prices of such
security on all such exchanges at the end of such day, or, if on any day such
security is not so listed, then the representative bid price of such security
quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if
on any day such security is not quoted in the NASDAQ System, then the highest
bid price of such security on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case, averaged over a period of 5 days
consisting of the day as of which "Market Price" is being determined and the 4
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, then the "Market Price" will be the fair value thereof
determined jointly by the Company and the Registered Holder or Holders of a
majority of the unpaid principal amount of the Convertible Notes outstanding at
the time of such determination. If such parties are unable to reach agreement
within a reasonable period of time, then such fair value will be determined by
an appraiser jointly selected by the Company and the Registered Holder or
Holders of a majority of the unpaid principal amount of the Convertible Notes
outstanding at the time of such determination. The determination of such
appraiser will be final and binding upon the parties, and the fees and expenses
of such appraiser will be borne by the Company.
"Options" means any Equity Securities directly or indirectly
to subscribe for or purchase Conversion Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
10. NOTE TRANSFERABLE. Subject to the transfer conditions
referred to in the legend endorsed on this Convertible Note, this Convertible
Note and all rights hereunder are transferable, in whole or in part, without
charge to the Registered Holder, upon surrender of this Convertible Note,
properly endorsed for transfer, at the office of the Company specified for
delivery of notices pursuant to the Purchase Agreement.
11. NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Convertible Note is exchangeable, upon the surrender of this Convertible Note by
the holder at the office of the Company specified for delivery of notices
pursuant to the Purchase Agreement, for new Convertible Notes of like tenor
representing in the aggregate the rights under this Convertible Note, and each
of such new Convertible Notes will represent such portion of such rights as is
designated by the holder at the time of such surrender.
12. REPLACEMENT. Upon receipt of evidence reasonably
satisfactory to the Company (it being agreed that an affidavit of the Registered
Holder will be satisfactory) of the ownership and the loss, theft, destruction
or mutilation of any certificate evidencing this Convertible Note, and in the
case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Company (it being agreed that if the holder is a
financial institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Company will (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
13. CANCELLATION. After all principal and accrued interest at
any time owed on this Convertible Note have been paid in full, this Convertible
Note will be surrendered to the Company for cancellation and will not be
reissued.
14. PAYMENTS AND NOTICES. All cash payments to be made to the
holders of the Convertible Notes will be made in the lawful money of the United
States of America in immediately available funds. Payments of principal and
interest in respect of this Convertible Note will be delivered to the Registered
Holder at such Registered Holder's address as it appears in the records of the
Company, or at such other address as the Registered Holder may specify by
written notice to the Company. Notices to be given pursuant to this Convertible
Note will be given in the manner provided in the Purchase Agreement.
15. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive
headings of the several Sections of this Convertible Note are inserted for
convenience only and do not constitute a part of this Convertible Note. The
corporate law of the State of Oregon (as in effect from time to time) will
govern all issues concerning the relative rights of the Company and its
securityholders to the extent of matters addressed therein. All other questions
concerning the construction, validity, enforcement and interpretation of this
Convertible Note will be governed by the internal law of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of law of any jurisdiction other than the State of New York. As
used in this Convertible Note, the term "including" is used by way of example or
illustration, and not as a limitation.
16. BUSINESS DAYS. If any payment is due, or any time period
for giving notice or taking action expires, on a day which is a Saturday, Sunday
or legal holiday in the State of New York or the State of Oregon, then the
payment will be due and payable on, and the time period will automatically be
extended to, the next business day immediately following such Saturday, Sunday
or legal holiday, and interest will continue to accrue at the required rate
under this Convertible Note until any such payment is made.
17. USURY LAWS. It is the intention of the Company and the
holder of this Convertible Note to conform strictly to all applicable usury laws
now or hereafter in force, and any interest payable under this Convertible Note
will be subject to reduction to the amount not in excess of the maximum legal
amount allowed under the applicable usury laws as now or hereafter construed by
the courts having jurisdiction over such matters. If the maturity of this
Convertible Note is accelerated by reason of an election by the holder hereof
resulting from an Event of Default, voluntary prepayment by the Company or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law will be canceled automatically
and, if theretofore paid, will at the option of the holder hereof either be
rebated to the Company or credited on the principal amount of this Convertible
Note, or if this Convertible Note has been paid, then the excess will be rebated
to the Company. The aggregate of all interest (whether designated as interest,
service charges, points or otherwise) contracted for, chargeable, or receivable
under this Convertible Note will under no circumstances exceed the maximum legal
rate upon the unpaid principal balance of this Convertible Note remaining unpaid
from time to time. If such interest does exceed the maximum legal rate, it will
be deemed a mistake and such excess will be canceled automatically and, if
theretofore paid, rebated to the Company or credited on the principal amount of
this Convertible Note, or if this Convertible Note has been repaid, then such
excess will be rebated to the Company.
18. SEVERABILITY. If any provision of this Convertible Note is
held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision will be of no force and effect, but such holding
shall have no effect upon the enforceability of any other provision.
19. GENERAL. This Convertible Note:
(a) constitutes, together with the Purchase Agreement and the
Ancillary Agreements, the entire agreement among the parties with respect to the
subject matter hereof;
(b) supersedes any and all prior understandings relating to
such subject matter; and
(c) will be binding upon and inure to the benefit of the
parties and their respective heirs, executors, administrators, successors and
assigns.
20. WAIVER OF JURY TRIAL. THE COMPANY (AND, BY ITS ACCEPTANCE
OF THIS CONVERTIBLE NOTE, THE HOLDER HEREOF) HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS CONVERTIBLE NOTE OR ANY
OTHER INVESTMENT DOCUMENT OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF.
21. NO STRICT CONSTRUCTION. The Company and the initial holder
of this Convertible Note have participated jointly in the negotiation and
drafting of this Convertible Note. In the event an ambiguity or question of
intent or interpretation arises, this Convertible Note will be construed as if
drafted jointly by the Company and the holder hereof, and no presumption or
burden of proof will arise favoring or disfavoring any Person by virtue of the
authorship of any of the provisions of this Convertible Note.
22. U.S. WITHHOLDING TAX. It is intended that interest paid on
the obligation qualify for the exemption from U.S. withholding tax as a
portfolio debt instrument under Section 871(h) or 881(c) of the IRC.
23. SUBORDINATION. The indebtedness evidenced by this
Convertible Note (i) is and shall be senior to any and all Indebtedness of the
Corporation other than the Senior Indebtedness (to the extent provided in the
Purchase Agreement) and all other Convertible Notes, (ii) shall rank pari-passu
with all other Convertible Notes, and (iii) is not and shall not be pari-passu
with or subordinated to claims of any trade or similar creditors of the Company
except as may be required by bankruptcy or other laws affecting the rights of
creditors generally.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered
this Convertible Senior Subordinated Note on the date specified above.
GARDENBURGER, INC.
By: /s/ Richard C. Dietz
-----------------------------
Name: Richard C. Dietz
Title: Executive Vice President and
Chief Financial Officer
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
March 27, 1998 by and between Gardenburger, Inc., an Oregon corporation and
f/k/a Wholesome and Hearty Foods, Inc. (the "Company"); and Dresdner Kleinwort
Benson Private Equity Partners LP, a Delaware limited partnership ("Dresdner").
As of the date hereof, Dresdner owns $15,000,000 in principal amount of
Convertible Senior Subordinated Notes issued by the Company.
Except as defined in Section 1 of this Agreement or otherwise indicated
in this Agreement, each capitalized term used in this Agreement has the meaning
set forth in the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used herein, the following terms shall have the
following meanings.
"Affiliate" means, when used with reference to a specified Person, any
Person that directly or indirectly controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who is an individual, "Affiliates" shall
also include, without limitation, any member of such individual's Family Group.
"Common Stock" means, collectively, the Company's Common Stock, no par
value, and any other common stock authorized by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Family Group" means, with respect to any Person who is an individual,
(i) such Person's spouse, former spouse and descendants (whether natural or
adopted), parents and their descendants and any spouse of the foregoing persons
(collectively, "relatives") or (ii) the trustee, fiduciary or personal
representative of such Person and any trust solely for the benefit of such
Person and/or such Person's relatives.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a bank, a trust company, a business
trust, a governmental entity or any department, agency or political subdivision
thereof or any other entity or organization.
"Purchase Agreement" means the Note Purchase Agreement dated as of the
date hereof between the Company and Dresdner.
"Registrable Securities" means (i) all Common Stock acquired by, or
issued or issuable to, Dresdner or any of its Affiliates on or after the date
hereof pursuant to (x) any of the terms of the Notes, including the conversion
of any principal amount into Common Stock or in connection with the payment of
interest, (y) any of the terms of the Purchase Agreement, or (z) the exercise of
any ID Warrants and (ii) all equity securities issued or issuable directly or
indirectly with respect to any Common Stock described in clause (i) above by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when they have been distributed to the public pursuant to
an offering registered under the Securities Act or sold to the public in
compliance with Rule 144. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such Person has the
right to acquire directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing and distributing expenses, messenger and
delivery expenses, fees and expenses of custodians, internal expenses (including
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance and the expenses and fees for listing the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed or on the NASD automated
quotation system, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company.
"Rule 144" means Rule 144 under the Securities Act (or any similar rule
then in force).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
2. Demand Registrations.
(a) Requests for Registration. At any time after the date hereof,
unless at such time a registration statement is effective which meets the
requirements set forth in paragraph 2M of the Purchase Agreement, the holder(s)
of a majority of the Registrable Securities may request registration under the
Securities Act of all or any portion of their Registrable Securities on Form S-1
or any similar long-form registration (a "Long-Form Registration"), or on Form
S-2 or S-3 or any similar short-form registration (a "Short-Form Registration")
if such a short form is available. All registrations requested pursuant to this
Section 2(a) are referred to herein as "Demand Registrations". Each request for
a Demand Registration ( a "Demand Request") shall specify the approximate number
of Registrable Securities requested to be registered, the anticipated method or
methods of distribution and the anticipated per share price range for such
offering. Within ten days after receipt of any such Demand Request, the Company
will give written notice of such requested registration (which shall specify the
intended method of disposition of such Registrable Securities) to all other
holders of Registrable Securities (a "Company Notice") and the Company will
include (subject to the provisions of this Agreement) in such registration, all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 20 days after the delivery of such Company
Notice.
(b) Long-Form Registrations. The holders of Registrable Securities will
be entitled to three Long-Form Registrations. A registration will not count as
one of the permitted Long-Form Registrations for purposes of the preceding
sentence unless and until it has become effective and no Long-Form Registration
will count as a Long-Form Registration for purposes of the preceding sentence
unless the applicable holders of Registrable Securities are able to register and
sell at least 75% of the Registrable Securities requested to be included by them
in such registration. The Company will pay all Registration Expenses in
connection with any registration initiated as a Long-Form Registration whether
or not it has become effective.
(c) Short-Form Registrations. The holders of Registrable Securities
will be entitled to unlimited Short-Form Registrations. Demand Registrations
will be Short-Form Registrations whenever the Company is permitted to use any
applicable short form. During such time as the Company is subject to the
reporting requirements of the Exchange Act, the Company will use its best
efforts to make Short-Form Registrations on Form S-3 available for the sale of
Registrable Securities. The Company will pay all Registration Expenses in
connection with any registration initiated as a Short-Form Registration whether
or not it has become effective.
(d) Priority on Demand Registrations.
(i) The Company will not include in any Demand Registration
any securities which are not Registrable Securities unless holder(s) of
a majority of the Registrable Securities initiating such Demand
Registration pursuant to Section 2(a) otherwise consent.
(ii) If a Demand Registration is an underwritten offering and
the managing underwriters advise the Company in writing that in their
opinion the number of Registrable Securities and, if permitted
hereunder, other securities, requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if
any, which can be sold in an orderly manner in such offering within a
price range acceptable to holder(s) of a majority of the Registrable
Securities initiating such Demand Registration pursuant to Section 2(a)
and without adversely affecting the marketability of the offering, then
the Company will include in such Demand Registration (A) first, the
number of Registrable Securities requested to be included in such
Demand Registration, pro rata from among the holders of such
Registrable Securities according to the number of Registrable
Securities requested by them to be so included, and (B) second, any
other securities of the Company requested to be included in such
registration, in such manner as the Company may determine.
(e) Restrictions on Demand Registrations.
(i) The Company will not be obligated to file any registration
statement with respect to any Long-Form Registration within 180 days
after the effective date of a previous Long-Form Registration or a
previous registration in which the holders of Registrable Securities
were given piggyback rights pursuant to Section 3 and in which there
were included not less than 80% of the number of Registrable Securities
requested to be included.
(ii) The Company may postpone for up to 90 days the filing or
the effectiveness of a registration statement for a Demand Registration
if the Company determines that such Demand Registration would
reasonably be expected to have a material adverse effect on any
proposal or plan by the Company or any of its Subsidiaries to engage in
any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer, reorganization or
similar transaction; provided that in such event the holders of
Registrable Securities initiating such Demand Registration pursuant to
Section 2(a) will be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration will not count as one of
the permitted Demand Registrations hereunder and the Company will pay
all Registration Expenses in connection with such requested
registration. The Company may delay a Demand Registration under this
clause (ii) only once during any twelve-month period.
(f) Selection of Underwriters. In the case of a Demand Registration for
an underwritten offering, the holders of a majority of the Registrable
Securities initiating such Demand Registration will have the right to select the
investment banker(s) and manager(s) to administer the offering (which investment
banker(s) and manager(s) will be nationally recognized) subject to the Company's
approval, which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this Agreement,
after the date hereof, the Company will not grant to any Persons the right to
request the Company to register any equity or similar securities of the Company,
or any securities convertible or exchangeable into or exercisable for such
securities, without the prior written consent of the holders of a majority of
the Registrable Securities.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its Common Stock under the Securities Act for its own account or for the
account of any holder of Common Stock (other than pursuant to a Demand
Registration, and other than in connection with a dividend reinvestment plan or
pursuant to a registration statement on Form S-8 or S-4 or any similar or
successor form) (a "Piggyback Registration"), the Company will give prompt
written notice to all holders of Registrable Securities of its intention to
effect such a registration and of such holders' rights under this Section 3(a).
Upon the written request of any holder of Registrable Securities, the Company
shall include in such registration (subject to the provisions of this Agreement)
all Registrable Securities requested to be registered pursuant to this Section
3(a), subject to Section 3(b) below, with respect to which the Company has
received written requests for inclusion therein within 20 days after the receipt
of the Company's notice; provided that any such holder may withdraw its request
for inclusion at any time prior to executing the underwriting agreement or, if
none, prior to the applicable registration statement becoming effective.
(b) Priority on Primary Registrations. If a Piggyback Registration is
in part an underwritten primary registration on behalf of the Company and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a price
range acceptable to the Company and without adversely affecting the
marketability of the offering, then the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration, pro rata from among the holders of such Registrable Securities
according to the number of Registrable Securities requested by them to be so
included, and (iii) third, any other securities requested to be included in such
registration, in such manner as the Company may determine.
(c) Priority on Secondary Registrations. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration and without adversely affecting the marketability of the
offering, then the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata from among such holders and the holders of such
Registrable Securities according to the number of Registrable Securities
requested by them to be so included, and (ii) second, any other securities
requested to be included in such registration, in such manner as the Company may
determine.
(d) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 2 or pursuant to this Section 3, and if such previous registration has
not been withdrawn or abandoned, then all the parties hereto agree that the
Company will not file or cause to be effected any other registration of any of
its equity or similar securities or securities convertible or exchangeable into
or exercisable for its equity or similar securities under the Securities Act
(except on Forms S-4 or S-8 or any successor or similar form or in connection
with a Demand Registration), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least 180 days has
elapsed from the effective date of such previous registration.
(e) Registration Expenses. The Company will pay all Registration
Expenses in connection with any Piggyback Registration whether or not such
Piggyback Registration has become effective.
4. Holdback Agreements.
(a) Each holder of Registrable Securities hereby agrees not to effect
any sale or distribution of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration), unless the underwriters
managing such underwritten registration otherwise agree (which agreement shall
be equally applicable to all holders of Registrable Securities).
(b) The Company (i) will not effect any sale or distribution of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Forms S-4 or S-8 or
any successor form or pursuant to a dividend reinvestment plan), unless the
underwriters managing such underwritten registration otherwise agree (which
agreement shall be equally applicable to all holders of Registrable Securities),
and (ii) will cause each holder of at least 2% (on a fully diluted basis) of
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any sale or distribution of any such securities during such period (except as
part of such underwritten registration, if otherwise permitted), unless the
underwriters managing such underwritten registration otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected pursuant to Section 6(b) below
copies of all such documents proposed to be filed, which documents will be
subject to the prompt review and reasonable comment of such counsel), and upon
filing such documents, the Company shall promptly notify in writing such counsel
of the receipt by the Company of any written comments by the SEC with respect to
such registration statement or prospectus or any amendment or supplement thereto
or any written request by the SEC for the amending or supplementing thereof or
for additional information with respect thereto;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than 180 days and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement and cause the prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities to the extent required under such other securities or blue sky laws
of such jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (ii) subject itself to
taxation in any such jurisdiction in any jurisdiction where it is not so subject
or (iii) consent to general service of process (i.e., service of process which
is not limited solely to securities law violations) in any such jurisdiction in
any jurisdiction where it is not so subject);
(e) promptly notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the discovery of the happening of
any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, and, at the request of any such
seller, the Company will, as soon as reasonably practicable, file and furnish to
all sellers a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the Nasdaq National Market System
("Nasdaq Market") and, if listed on the Nasdaq Market, use its best efforts to
secure designation of all such Registrable Securities covered by such
registration statement as a Nasdaq "National Market System security" within the
meaning of Rule 11Aa2-1 under the Exchange Act or, failing that, to secure
Nasdaq Market authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
National Association of Securities Dealers;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a split or a
combination of stock or units); provided that no holder of Registrable
Securities shall have any indemnification or contribution obligations
inconsistent with Section 7 hereof;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information and participate in due diligence sessions reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection with
such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of at least
twelve months beginning with the first day of the Company's first full calendar
quarter after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 promulgated thereunder;
(k) use reasonable best efforts to prevent the issuance of any stop
order ("Stop Order") suspending the effectiveness of a registration statement,
or of any order suspending or preventing the use of any related prospectus or
suspending the qualification of any securities included in such registration
statement for sale in any jurisdiction, and, in the event of such issuance, the
Company shall immediately notify the holders of Registrable Securities included
in such registration statement of the receipt by the Company of such
notification and shall use its best efforts promptly to obtain the withdrawal of
such order;
(l) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities, and
cooperate and assist with any filings to be made with the NASD;
<PAGE>
(m) obtain one or more "cold comfort" letters, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
"cold comfort" letters as the holders of a majority of the Registrable
Securities being sold reasonably request; and
(n) provide a legal opinion of the Company's outside counsel, dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), with respect to the registration statement, each
amendment and supplement thereto, the prospectus included therein (including the
preliminary prospectus) and such other documents relating thereto in customary
form and covering such matters of the type customarily covered by legal opinions
of such nature.
If any such registration or comparable statement refers to any holder
by name or otherwise as the holder of any securities of the Company and if in
such holder's sole and exclusive judgment, such holder is or might be deemed to
be an underwriter or a controlling person of the Company, such holder shall have
the right to require (i) the insertion therein of language, in form and
substance satisfactory to such holder and presented to the Company in writing,
to the effect that the holding by such holder of such securities is not to be
construed as a recommendation by such holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such holder will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force, the deletion of the reference to such holder; provided, that with
respect to this clause (ii), if requested by the Company, such holder shall
furnish to the Company an opinion of counsel to such effect, which opinion and
counsel shall be reasonably satisfactory to the Company.
6. Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all Registration Expenses,
will be borne by the Company.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
included in such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
initially requesting such registration.
7. Indemnification.
(a) By the Company. The Company agrees to, and will cause each of its
Subsidiaries to agree to, indemnify, to the fullest extent permitted by law,
each holder of Registrable Securities, its officers, directors, members,
employees, agents, stockholders and general and limited partners and each Person
who controls such holder (within the meaning of the Securities Act and Exchange
Act) against any and all losses, claims, damages, liabilities and expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof),
joint or several, arising out of or based upon any untrue or alleged untrue
statement of material fact contained in any registration statement, reports
required and other documents filed under the Exchange Act, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, together
with any documents incorporated therein by reference, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation or alleged violation by
the Company or any of its Subsidiaries of any federal, state, foreign or common
law rule or regulation and relating to action or inaction in connection with any
such registration, disclosure document or other document and shall reimburse
such holder, officer, director, member, employee, agent, stockholder, partner or
controlling Person for any legal or other expenses, including any amounts paid
in any settlement effected with the consent of the Company, which consent will
not be unreasonably withheld or delayed, incurred by such holder, officer,
director, member, employee, agent, stockholder, partner or controlling Person in
connection with the investigation or defense of such loss, claim, damage,
liability or expense, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such holder expressly for
use therein. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers, directors, agents and employees and
each Person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
the holders of Registrable Securities.
(b) By the Holders. In connection with any registration statement in
which a holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing such information and affidavits about such
holder as the Company reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its directors and officers and each Person who controls
the Company (within the meaning of the Securities Act) and the other holders of
Registrable Securities against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder which authorizes its use in the applicable document;
provided, that the obligation to indemnify will be individual, not joint and
several, for each holder and will be limited to the net amount of proceeds
received by such holder from the sale of Registrable Securities pursuant to such
registration statement.
(c) Claim Procedures. Any Person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (provided that the failure to give
prompt notice will not impair any Person's right to indemnification hereunder to
the extent such failure has not prejudiced the indemnifying party) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim, permit the indemnifying party to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent it may wish, with
counsel reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
will not be unreasonably withheld or delayed) and the indemnifying party shall
not, without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof, a release from all liability in respect of such claim or
litigation provided by the claimant or plaintiff to such indemnified party. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay (i) the fees and expenses of more than
one counsel for all parties indemnified by such indemnifying party with respect
to such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim or (ii) any settlement made
by any indemnified party without such indemnifying party's consent (but such
consent will not be unreasonably withheld).
(d) Survival; Contribution. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, agent or employee
and each other Person who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls such indemnified
party (within the meaning of the Securities Act), and will survive the transfer
of securities. The Company also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Company's indemnification is unavailable for any reason.
8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements (including, without limitation, pursuant to the
terms of any over-allotment or "green shoe" option requested by the managing
underwriter(s), provided that no holder of Registrable Securities will be
required to sell more than the number of Registrable Securities that such holder
has requested the Company to include in any registration) and (b) completes and
executes all customary questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements; provided, that no holder of Registrable Securities
included in any underwritten registration shall be required to make any
representations or warranties to the Company or the underwriters (other than
representations and warranties regarding such holder and such holder's intended
method of distribution) or to undertake any indemnification or contribution
obligations to the Company or the underwriters with respect thereto, except as
otherwise provided in Section 7.
9. Rule 144 Reporting. With a view to making available to the holders
of Registrable Securities the benefits of certain rules and regulations of the
SEC which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees to use its best efforts to:
(a) make and keep current public information available, within the
meaning of Rule 144 or any similar or analogous rule promulgated under the
Securities Act, at all times;
(b) file with the SEC, in a timely manner, all reports and other
documents required of the Company under the Securities Act and Exchange Act; and
(c) so long as any party hereto owns any Registrable Securities,
furnish to such Person forthwith upon request, a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144,
the Securities Act and the Exchange Act; a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as such
Person may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
10. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered if delivered
personally, sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient, or if sent by certified or registered mail, return
receipt requested, will be deemed to have been given two business days
thereafter. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
Gardenburger, Inc.
1411 S.W. Morrison Street
Portland, OR 97205
Attention: Richard C. Dietz
Telecopy No.: (503) 205-1648
With a copy, which shall not constitute notice, to:
Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, OR 97204-3699
Attention: Mary Ann Frantz, Esq.
Telecopy No.: (503) 224-0155
To Dresdner:
Dresdner Kleinwort Benson Private
Equity Partners LP
75 Wall Street, 24th Floor
New York, NY 10005-2889
Attention: Alexander Coleman
Telecopy No.: (212) 429-3139
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Eunu Chun, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents and warrants to
the holders of Registrable Securities that the registration rights granted to
the holders of such securities hereby do not conflict with any other
registration rights granted by the Company. The Company will not enter into any
agreement which is inconsistent with or violates the rights granted to the
holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may be
amended or waived only upon the prior written consent of the Company and holders
of at least 75% of the Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together will constitute one and
the same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. The corporate law of the State of Oregon will govern
all questions concerning the relative rights of the Company and its
securityholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
GARDENBURGER, INC.
By: /s/ Richard C. Dietz
----------------------------------------
Name: Richard C. Dietz
Title: Executive Vice President
and Chief Financial Officer
DRESDNER KLEINWORT BENSON PRIVATE
EQUITY PARTNERS LP
By: Dresdner Kleinwort Benson Private Equity
Managers LLC, its General Partner
By: /s/ Alexander P. Coleman
------------------------------------
Name: Alexander P. Coleman
Title: Investment Partner
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's balance sheets and related statements of operations for the
period ended March 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,310,000
<SECURITIES> 0
<RECEIVABLES> 8,197,000
<ALLOWANCES> 324,000
<INVENTORY> 6,659,000
<CURRENT-ASSETS> 28,071,000
<PP&E> 11,722,000
<DEPRECIATION> 2,269,000
<TOTAL-ASSETS> 42,190,000
<CURRENT-LIABILITIES> 10,888,000
<BONDS> 17,000,000
0
0
<COMMON> 8,725,000
<OTHER-SE> 6,887,000
<TOTAL-LIABILITY-AND-EQUITY> 42,190,000
<SALES> 13,040,000
<TOTAL-REVENUES> 13,040,000
<CGS> 6,887,000
<TOTAL-COSTS> 6,887,000
<OTHER-EXPENSES> 12,861,000
<LOSS-PROVISION> 48,000
<INTEREST-EXPENSE> 30,000
<INCOME-PRETAX> (6,738,000)
<INCOME-TAX> (2,420,000)
<INCOME-CONTINUING> (4,318,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,318,000)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
EXHIBIT 99
DESCRIPTION OF COMMON STOCK
OF GARDENBURGER, INC.
General
The authorized capital stock of Gardenburger, Inc. (the "Company")
consists of 5,000,000 shares of Preferred Stock, no par value ("Preferred
Stock"), and 25,000,000 shares of Common Stock, no par value ("Common Stock").
All outstanding shares of Common Stock are fully paid and nonassessable. Holders
of Common Stock have no preemptive or conversion rights and there are no
redemption or sinking fund provisions relating to the Common Stock. As no
Preferred Stock is outstanding, there are no restrictions on repurchase or
redemption of Common Stock as a result of arrearages in the payment of dividends
or sinking fund installments with respect to any class of stock issued by the
Company. The holders of outstanding shares of Common Stock are entitled to one
vote per share. Voting for directors is not cumulative.
Subject to the rights of any Preferred Stock which may be issued in the
future, the holders of Common Stock are entitled to such dividends as the Board
of Directors may declare out of assets legally available therefor, at such times
and in such amounts as the Board deems advisable and to share pro rata in all
assets of the Company available for distribution to its shareholders upon
liquidation.
Preferred Stock
The authorized Preferred Stock may be issued in the future without any
further action by the holders of the Common Stock, except as required by law or
as required for shares quoted on The Nasdaq Stock Market as National Market
System securities. The Board of Directors is authorized to divide the Preferred
Stock into series and, within the limitations provided by law and the Company's
Articles of Incorporation, to designate the different series and fix and
determine the relative rights and preferences of any series so established. If
Preferred Stock is issued, the rights of the holders of Common Stock will be
subordinated in certain respects to the rights of the holders of the Preferred
Stock.
Preferred Stock Purchase Rights
On April 25, 1996, the Board of Directors declared a dividend of one
right (a "Right") for each share of Common Stock outstanding at the close of
business on May 20, 1996 (the "Record Date"). As long as the Rights are attached
to the shares of the Common Stock, the Company will issue one Right (subject to
adjustment) with each new share issued so that all outstanding shares will have
attached Rights. When the Rights first become exercisable, each Right will
entitle the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock (the "Preferred
Shares") at a price of $47.00 per one one-hundredth of a Preferred Share,
subject to adjustment for antidilution provisions (the "Purchase Price"). A copy
of the Rights Agreement, dated as of April 25, 1996, as amended as of March 26,
1998 (the "Rights Agreement"), between the Company and First Chicago Trust
Company of New York as Rights Agent (the "Rights Agent"), pursuant to which the
Rights have been issued, may be obtained by shareholders from the Company. The
Company has agreed that, from and after the Distribution Date (as defined
below), the Company will reserve 250,000 Preferred Shares initially for issuance
upon exercise of the Rights. The Rights will expire on April 25, 2006, subject
to the Company's right to extend such date (the "Final Expiration Date"), unless
earlier redeemed or exchanged by the Company or terminated.
The Rights are not exercisable and are attached to and trade with
shares of Common Stock until the earlier to occur of (i) the 10th day after a
public announcement that any person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding Common Stock or (ii) the
10th day after the commencement or announcement of an intention to make a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Stock
(the earlier of (i) and (ii) being called the "Distribution Date"). Upon such an
event, the Rights will trade separately. An Acquiring Person will not include
(x) Paul F. Wenner, together with his affiliates and associates, including,
without limitation, the Paul F. Wenner Charitable Foundation Trust
(collectively, "Wenner") or (y) Dresdner Kleinwort Benson Private Equity
Partners LP, together with its affiliates and associates (collectively
"Dresdner"), so long as Wenner beneficially owns not more than 25% and Dresdner
not more than 22% of the outstanding Common Stock (other than as the result of
share repurchases by the Company).
Each Preferred Share purchasable upon exercise of the Rights will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend of 100 times the dividend, if any,
declared per share of Common Stock. In the event of liquidation, the holders of
the Preferred Shares will be entitled to a minimum preferential liquidation
payment of $100.00 per share but will be entitled to an aggregate payment of 100
times the payment made per share of Common Stock. Each Preferred Share will have
100 votes and will vote together with the Common Stock. Finally, in the event of
any merger, consolidation or other transaction in which shares of Common Stock
are exchanged, each Preferred Share will be entitled to receive 100 times the
amount received per share of Common Stock. These rights are protected by
customary antidilution provisions. Because of the nature of the dividend,
liquidation and voting rights of the Preferred Shares, the value of one
one-hundredth of a Preferred Share purchasable upon exercise of each Right
should approximate the value of one share of Common Stock.
In the event that a Person becomes an Acquiring Person (except pursuant
to certain cash offers for all outstanding shares of Common Stock approved by
the Board) or if the Company were the surviving corporation in a merger with an
Acquiring Person or any affiliate or associate of an Acquiring Person and the
shares of Common Stock were not changed or exchanged, each holder of a Right,
other than Rights that are or were acquired or beneficially owned by the
Acquiring Person (which Rights will thereafter be void), will thereafter have
the right to receive upon exercise that number of shares of Common Stock having
a market value of two times the then current Purchase Price of the Right. With
certain exceptions, in the event that the Company were acquired in a merger or
other business combination transaction or more than 50% of its assets or earning
power were sold, proper provision shall be made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction would have a
market value of two times the then current Purchase Price of the Right.
The Rights will cause substantial dilution to a person or group that
acquires 15% or more of the Common Stock on terms not approved by the Company's
Board of Directors. However, the Rights should not interfere with any merger or
other business combination approved by the Board of Directors at any time prior
to the first date that a person or group has become an Acquiring Person.
Convertible Notes
On March 27, 1998, the Company sold $15,000,000 aggregate principal
amount of 7% Convertible Senior Subordinated Notes (the "Notes") due April 1,
2003, to Dresdner Kleinwort Benson Private Equity Partners LP ("Dresdner")
pursuant to a Note Purchase Agreement dated as of March 27, 1998. The Notes may
be converted at any time prior to maturity or prepayment, in whole or in part,
into shares of the Common Stock. The initial conversion price is $12.90 per
share, subject to adjustment for changes in capitalization and other
antidilution provisions. If the Alternative Market Price of the Common Stock is
below $10.75 per share on July 1, 1998, the conversion price will be reduced to
a price which is 120 % of the Alternative Market Price on that date, but not
less than $11.40 per share. The Alternative Market Price is the average of the
bid prices of the Common Stock as quoted in the Nasdaq System as of 4 p.m., New
York time, on each of the 30 consecutive business days prior to and including
July 1, 1998.
Pursuant to the Note Purchase Agreement, the Company may not, without
the prior written consent of the holders of a majority of the shares of Common
Stock issued or issuable upon conversion of the Notes (the "Majority Holders"),
(i) amend the Company's Articles of Incorporation, Bylaws or the Rights
Agreement between the Company and First Chicago Trust Company of New York in a
manner materially adverse to Dresdner's rights and preferences under the Note
Purchase Agreement and the Notes, (ii) create a new class or series of
securities on a par with or senior to the Notes, or (iii) engage in certain
significant corporate transactions, including, but not limited to, a merger or
sale of the Company or its business, liquidation or dissolution of the Company,
certain business acquisitions, and the incurrence of indebtedness or lease
obligations in excess of specified thresholds. So long as at least $5,000,000 in
principal amount of the Notes remains outstanding and Dresdner and its
affiliates own at least a majority of the principal amount of Notes outstanding,
the Company may not declare any dividends or make any distributions with respect
to its capital stock or redeem or purchase any of its capital stock without the
prior written consent of the Majority Holders. In addition, so long as any Notes
remain outstanding, Paul F. Wenner, Lyle K. Hubbard and the Company have agreed
to take all reasonably necessary and desirable actions within their control so
that an individual designated by the Majority Holders is elected as a director
of the Company (a "Designated Director"). If at any time a Designated Director
is not a member of the Board of Directors, the Majority Holders have the right
to appoint a representative to attend and observe board meetings at the
Company's expense.
Transfer Agent
The Company's transfer agent is First Chicago Trust Company of New
York.
