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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20330
GARDENBURGER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0886359
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1411 SW MORRISON STREET, SUITE 400, PORTLAND, OREGON 97205
(Address of principal executive offices)
Registrant's telephone number, including area code: (503) 205-1500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $71,619,541 as of February 27, 1998 based upon the last closing
price as reported by the Nasdaq National Market System ($9.3125).
The number of shares outstanding of the Registrant's Common Stock as of February
27, 1998 was 8,608,854 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement for its 1998 Annual Meeting of Shareholders.
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<PAGE>
GARDENBURGER, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 2
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
16
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 22
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
22
PART III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 24
Signatures 25
1
<PAGE>
PART I
ITEM 1. BUSINESS
- - ------ --------
COMPANY OVERVIEW
Gardenburger, Inc. (the "Company" or "Gardenburger") is a leading developer,
producer and marketer of branded low-fat, all-natural, meat replacement
alternatives sold to food service and retail outlets. The Company's products
include a variety of frozen, meatless items that are low in cholesterol and low
in fat. The Company was founded to provide a line of food products in response
to the public's growing awareness of the importance of diet to overall health
and fitness. The Company believes that the majority of consumers who eat its
products are not vegetarians but choose the Company's products for their healthy
ingredients, taste and convenience as part of a healthier lifestyle.
The Company's flagship product, the Gardenburger(R) veggie patty, is the leading
veggie patty in the food service, natural food outlet, and club store channels
of distribution and has become the number two veggie patty in the retail grocery
channel since its national rollout that began in November 1996. The Company's
goal is to extend the Gardenburger(R) brand to mainstream consumers by
aggressively expanding distribution in the retail grocery channel and
stimulating awareness and trial through significantly increased levels of
advertising and promotion. The Company's penetration in the U.S. retail grocery
channel has risen from less than 30 percent at the beginning of 1996 with an
average of 1.8 SKUs to an ACV authorization level of 85 percent and an on-shelf
presence of almost 71 percent (as measured by ACV levels) as of February 28,
1998, with an average of 3.0 SKUs. Each of the Company's products represents a
different SKU. See "Distribution" below for an explanation of ACV levels.
The Company distributes its products to more than 30,000 food service outlets
throughout the U.S. and Canada, including restaurant chains such as T.G.I.
Friday's, Denny's, Applebee's, Red Robin, Subway, Lyon's and Damon's. The
Company's products are also distributed to more than 24,000 retail grocery and
natural foods outlets, as well as to club stores, including Costco Companies,
Inc. ("Costco") and Sam's Club, with over 300 locations.
The Company was organized in 1985 under the name Wholesome & Hearty Foods, Inc.,
and completed its initial public offering in 1992. The Company changed its name
to Gardenburger, Inc., in October 1997. The Company believes that the new name
will increase public awareness and build upon the brand equity of the
Gardenburger(R) veggie patty.
The Company's Common Stock currently trades on the National Market tier of The
Nasdaq Stock Market under the symbol "GBUR."
BACKGROUND
The Company believes that growing numbers of mainstream consumers are looking
for alternative foods that are healthy as well as great tasting and convenient.
This trend appears to be fueled in part by the higher nutritional information
standards imposed by the 1990 Nutritional Labeling Education Act and by the U.S.
Surgeon General's recommendation that no more than 30 percent of calories should
be derived from fat. In particular, the Company believes that the market for
meat replacement foods is growing rapidly due not only to consumers' increasing
interest in a healthy diet, but also to concerns over the potential risks of
eating meat.
2
<PAGE>
The market potential of the veggie patty category as a meat replacement
alternative is substantial. Industry data indicates that the annual fast food
hamburger market is in excess of $40 billion and that the retail grocery ground
beef market is in excess of $30 billion. Recent awareness, attitude and usage
studies show that only 8 to 12 percent of U.S. households have tried veggie
patty products to date. The Company believes that growth in household awareness
and trial has the potential to accelerate substantially in the near future. A
recent study by the U.S. Meat and Meat Products Datamonitor shows that sales of
frozen meat substitute products grew at a compound annual rate over 49 percent
between 1992 and 1996.
The Company believes that although the food service and natural foods channels
will continue to grow, the retail grocery channel will become increasingly
important for veggie patty sales as mainstream consumers continue to enter the
market. According to A.C. Nielsen, retail grocery sales in the meatless burger
category grew by nearly 23 percent in the third quarter of 1997 compared to the
third quarter of 1996. This data indicates a retail grocery market volume
already in excess of $80 million for the 52-week period ending October 25, 1997.
GROWTH STRATEGY
The Company is seeking to become the leading developer, producer and branded
marketer of great tasting, convenient meat replacement alternatives in all major
distribution channels. The Company currently holds the number one overall sales
position in the veggie patty segment, the largest category of meat replacement
foods. The Company's ability to capitalize on the significant mainstream growth
opportunity depends on its success in increasing consumer awareness and
broadening distribution of its products. Accordingly, the Company is focused on
a growth strategy with the following elements:
BRAND THE VEGGIE PATTY CATEGORY. The Company's goal is to leverage its
leadership in the veggie patty segment to make the Gardenburger(R) brand the
premier name in the entire veggie patty meat replacement category. In doing so,
the Company seeks to maximize its long-term share of this market and to sustain
the premium pricing levels associated with category-leading branded products.
LEVERAGE THE BRAND INTO NEW CHANNELS. Currently, the Company enjoys a leadership
position in the food service, club store and natural food channels of
distribution. The Company seeks to leverage this leadership into the retail
grocery store channel over the next several years. Its goal is to achieve at
least a 70 percent ACV authorization level for an average of at least 6.0 SKUs
in 1998. The Company is engaged in continuous efforts at building relationships
with brokers and retailers in this channel.
SUPPORT EXPANSION WITH ADVERTISING AND PROMOTION. The Company believes that
increased awareness and trial are essential to achieving significant growth
among mainstream consumers and to establishing the Gardenburger(R) line as the
brand of choice in the veggie patty segment. The Company is therefore committed
to building consumer demand for its products through aggressive investments in
national television and print advertising, in-store sampling efforts and coupon
promotion. A significant majority of this effort will be focused on developing
the Company's retail grocery distribution channel.
3
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STRENGTHEN LEADERSHIP POSITION IN CURRENT CHANNELS. The Company seeks to further
strengthen its leadership position in the food service, club store and natural
food store channels of distribution. Accordingly, the Company plans to continue
investments in advertising and sampling focused on these channels. Furthermore,
the Company believes that these channels will receive significant cross-channel
benefit as a result of its aggressive advertising and promotion efforts in the
retail grocery distribution channel.
DEVELOP AND INTRODUCE NEW PRODUCTS. The Company continues to improve existing
products as well as develop new products. For example, the Company's new meat
analog products introduced in 1997, Gardenburger Hamburger Style(R) and
Gardenburger Hamburger Style(R) with Cheese, are achieving rapid and broad trade
acceptance. In addition, the Company plans to introduce a number of new items in
1998.
PRODUCTS
The Company is committed to offering healthy, great tasting and convenient
meatless food choices to consumers. The Company offers its meatless items,
primarily patties, under several product names, including Gardenburger(R),
Gardenburger(R) Zesty Bean(TM), Gardenburger(R) Veggie Medley(TM), Gardenburger
Hamburger Style(R), Gardenburger Sub(R), GardenSausage(R), and GardenVegan(TM).
The original Gardenburger(R) veggie patty is the most significant product sold
by the Company in terms of both volume and net sales, accounting for over 80
percent of each in 1997. Variations on the original Gardenburger(R) veggie patty
are the second largest product sales group, accounting for approximately 18
percent of net sales in 1997.
Veggie patties sold by the Company range in size from 2.5 ounces to 5.0 ounces.
Although recipes for the products are proprietary, they contain commonly known
ingredients and fall into two major categories, veggie-grain based and soy-based
meat analog products. The veggie-grain based product line contains fresh
mushrooms, brown rice, onions, rolled oats, low-fat cheeses, bulgur wheat, egg
whites, natural seasonings and spices, is soy-free and does not contain
artificial additives. The soy-based meat-analog product line is seasoned to
taste like ground beef.
4
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The table below gives information about the Company's principal veggie patty
products for the retail market, including three (Gardenburger(R) Savory
Mushroom(TM), Gardenburger(R) Fire Roasted Vegetable(TM) and Gardenburger(R)
Classic Greek(TM)) being introduced in 1998:
<TABLE>
<CAPTION>
VEGGIE-GRAIN BASED PRODUCTS
- - -------------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION KEY INGREDIENTS SIZE (OZ) LOW/NO FAT CALORIES
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gardenburger(R)Original Veggie-grain based See above 2.5 Low fat 130
patty
- - -------------------------------------------------------------------------------------------------------------
Gardenburger(R)Sub Sub shaped patty See above 3.1 Low fat 170
- - -------------------------------------------------------------------------------------------------------------
Gardenburger(R)Zesty Bean(TM) Spicy, Mexican Red and black beans, 2.5 Low fat 120
flavor patty Anaheim chilies, red
and yellow bell
peppers, cilantro
- - -------------------------------------------------------------------------------------------------------------
Gardenburger(R)Veggie Vegetable emphasis Soy cheese, broccoli, 2.5 No fat 100
Medley(TM) patty carrots, red and
yellow bell peppers
- - -------------------------------------------------------------------------------------------------------------
GardenVegan(TM) Vegan patty No animal or soy 2.5 No fat 140
products
- - -------------------------------------------------------------------------------------------------------------
GardenSausage(R) Breakfast patty Maple syrup, natural 2.5 Low fat 140
seasonings
- - -------------------------------------------------------------------------------------------------------------
Gardenburger(R)Savory Gourmet patty Portabella mushrooms, 2.5 Low fat 120
Mushroom(TM) wild rice
- - -------------------------------------------------------------------------------------------------------------
Gardenburger(R)Fire Roasted Gourmet patty Roasted garlic, 2.5 Low fat 120
Vegetable(TM) sun-dried tomatoes
- - -------------------------------------------------------------------------------------------------------------
Gardenburger(R) Gourmet patty Kalamata olives, feta 2.5 Low fat 120
Classic Greek(TM) cheese
- - -------------------------------------------------------------------------------------------------------------
SOY-BASED PRODUCTS
- - -------------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION KEY INGREDIENTS SIZE (OZ) LOW/NO FAT CALORIES
- - -------------------------------------------------------------------------------------------------------------
Gardenburger Hamburger Hamburger analog Soy, wheat gluten 2.5 No fat 90
Style(R) patty
- - -------------------------------------------------------------------------------------------------------------
Gardenburger Hamburger Hamburger analog Soy, wheat gluten, 2.5 Low fat 110
Style(R)with Cheese patty mozzarella and
cheddar cheese
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's products may be purchased in restaurants and from other
institutional food preparers throughout the United States, Canada, Mexico and in
selected European food service outlets. Products may also be purchased for home
consumption from grocery stores, natural foods stores, club stores and specialty
food stores in the United States, Canada and the United Kingdom.
5
<PAGE>
DISTRIBUTION
The Company sells its products primarily in North America through approximately
sixty independent, commissioned food brokers and through approximately five
hundred active distributors. The Company's line of frozen products is shipped by
temperature-controlled truck and inventoried in frozen storage warehouses in
principal cities in the United States and Canada.
Gardenburger products can be found in more than 24,000 grocery, natural food and
club stores nationwide. The Gardenburger(R) veggie patty is also on the menu at
more than 30,000 food service outlets in the United States and abroad. The
following table lists selected retailers, distributors and food service outlets
that are direct customers of the Company or that offer Gardenburger(R) products
for sale to consumers:
Retail Food Service
------ ------------
GROCERY RESTAURANTS
A&P Applebee's
Albertsons Damon's
Buttrey's Denny's
Dominick's IHOP
Food Lion Jeremiah's
Fred Meyer Lyons
Giant Eagle Peppermill
Giant Food Red Robin
HEB Sizzler
IGA Subway
Jewel T.G.I. Friday's
Kroger
Meijers
Publix Super Markets HOTELS
Ralph's Holiday Inn
Red Apple Marriott
Safeway Sheraton
Shop-n-Save
Thriftway UNIVERSITIES
Von's Stanford
Winn-Dixie UCLA
University of California, Berkeley
NATURAL FOODS Harvard
Wild Oats MIT
Whole Foods
SPORTS/ENTERTAINMENT
CLUB STORES Dodger Stadium
Costco Yankee Stadium
Sam's Club Rose Garden
Six Flags
DISTRIBUTORS Universal Studios
Sysco
Rykoff-Sexton
6
<PAGE>
Beginning in 1997, the Company began aggressively expanding its distribution in
the retail grocery channel. The Company's penetration in the U.S. retail grocery
channel has risen from less than 30 percent at the beginning of 1996 with an
average of 1.8 SKUs to an ACV authorization level of 85 percent and an on-shelf
presence of almost 71 percent (as measured by ACV levels) as of February 28,
1998, with an average of 3.0 SKUs.
Each of the Company's products represents a different SKU. ACV stands for
all-commodity volume and relates to a product's penetration in stores
representing the ACV percentage of dollar sales in the entire retail grocery
channel. For example, Gardenburger's 85 percent ACV authorization means that
Gardenburger products are approved for sales through stores that represent 71
percent of U.S. retail grocery dollar sales.
The Company's goal is to achieve at least a 70 percent ACV authorization level
for an average of at least 6.0 SKUs in the retail grocery channel in the U.S.
during 1998 and also to expand its presence in club stores. The costs of entry
and maintenance in these distribution channels are typically higher than in the
food service channel, and the Company plans to invest heavily in securing
additional retail grocery distribution and follow-up promotional activities
during 1998.
Prior to 1997, the Company's product distribution was primarily focused on the
West Coast. However, with the Company's expansion into national retail grocery
in 1997, product availability is now much broader as shown below:
1997 North America Sales by Region
REGION % OF NET SALES
------ --------------
Northeast 28
Southwest 23
Northwest 21
Midwest 13
Southeast 11
Canada 4
----
100%
Although the Company has focused its sales efforts primarily in the North
American market, the Company believes there are substantial opportunities for
worldwide distribution of its meat replacement foods. At present, overseas
distribution does not represent a material portion of the Company's business.
SALES AND MARKETING
SALES. The Company's sales objective is to leverage the original Gardenburger(R)
veggie patty and its flavor variants to increase its position as the number one
veggie patty in each of the food service, natural food store and club store
channels and to become the number one veggie patty in the retail grocery
channel.
Sales activities are organized under an institutional sales division and a
retail sales division. Institutional customers include approximately 30,000 food
service outlets such as restaurants, corporate and industrial cafeterias, hotel
chains, colleges, hospitals, airlines and sports stadiums. Retail customers
include approximately 20,000 grocery and other specialty food stores and over
4,000 natural foods stores. Industry analysts have estimated that Gardenburger
has over a 50 percent share of the food service veggie patty market, a 30
percent share of the supermarket grocery and natural food veggie patty retail
market, and over a 90 percent share of the warehouse/club store veggie patty
market.
7
<PAGE>
MARKETING. The Company's major marketing objective is to build awareness of the
category and the Gardenburger(R) brand, with the goal of making the
Gardenburger(R) brand the premier name in the entire veggie patty meat
replacement category. Gardenburger(R) products are positioned as healthy, good
tasting and convenient in print media and on restaurant menus and point-of-sale
displays. The growth in sales of Gardenburger(R) products is the result, in
part, of the Company's recent significant investments in national marketing
efforts including consumer sampling, couponing and advertising in such magazines
as PEOPLE, ROLLING STONE and SHAPE AND FITNESS, as well as in USA TODAY.
Programs are being created and pursued to encourage the use of the
Gardenburger(R) brand in broadcast and print media, to encourage the use of the
Company's other product names, such as GardenSausage(R), on restaurant menus and
point-of-sale displays, to introduce new meatless products and to expand
distribution geographically and into new channels.
In 1997, the Company's advertising and promotional expenses focused primarily on
print ads in food service trade publications, trade shows, off-invoice
promotions with distributors, in-store sampling and radio advertising. The
Company spent approximately $3,000,000 in 1997 for advertising, $1,500,000 in
1996 and $900,000 in 1995. The Company plans to increase advertising and
promotion in 1998, particularly in national television and print media, with the
goal of driving category growth and establishing the Gardenburger(R) brand as
number one in consumers' minds.
RESEARCH AND DEVELOPMENT
The Company's research and development activities include development of new
products, the improvement of existing products and process development. In the
fourth quarter of 1996, the Company hired a new Vice President of Research and
Development with a background in healthy, frozen food products at companies
including Heinz and Stouffer, a division of Nestle. Other employees, outside
consultants and experts are also involved on an as-needed basis in specific
projects. The Company's research and development resources are focused on
creating healthy, great tasting, convenient, center-of-the-plate entrees.
Recipes and processes are being developed for meatless alternatives to chicken,
beef and pepperoni. The Company conducts its research and development activity
at its development and production facilities in Portland, Oregon.
In 1997, the Company spent approximately $500,000 on research and development
activities. In 1996, the Company spent approximately $1.0 million on such
activities, including $612,000 of acquired in-process research and development.
The amount spent on such activities during 1995 was immaterial.
MANUFACTURING
FACILITIES. In 1997, the Company produced its line of meatless products at its
plant in Portland, Oregon. Beginning in February 1998, the Company began
production at a second facility, formerly a Heinz, USDA-approved, frozen food
plant. The second facility, which is located approximately 20 miles north of
Salt Lake City in an industrial park in Clearfield, Utah, was secured through a
five-year lease that the Company has the option to renew for two successive
five-year terms. The Company commenced operations at its new Utah facility
during the first quarter of 1998 and may eventually transfer all manufacturing
operations to the Utah facility if circumstances so warrant.
8
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The 120,000 square-foot Clearfield facility will be able to handle multiple
manufacturing lines for the Company's products. The Company also intends to
establish a new continuous manufacturing process at the Clearfield facility,
which is expected to improve the quality and consistency of the Company's
products as well as increase operating efficiencies longer term. The facility
provides a more central location than the Portland plant with better
distribution routes and the opportunity for consolidated shipping. The Company
believes the facility will be able to handle its production requirements through
annual sales of over $200 million.
PROCESS. The production process involves cleaning, chopping and mixing
ingredients, forming, baking, and quick freezing patties, and then packaging
them. Products are shipped fully cooked, frozen and packaged via temperature
controlled truck to distributors throughout North America, and by temperature
controlled container to Europe.
COMPETITION
The market for meatless food products is highly competitive. The Company's
products compete primarily on the basis of taste, quality of natural
ingredients, ease of preparation, availability, value, and consumer awareness
and acceptance of the Gardenburger(R) brand. Many of the Company's competitors
have substantially greater resources and operate in broader geographic areas
than the Company.
The Company believes that its principal competitors are Worthington Foods, Inc.,
which distributes its products through institutional food service channels and
retail stores; Pillsbury, which distributes "Green Giant Harvest Burgers" for
Archer-Daniels-Midland into institutional food service and retail sectors; Boca
Burger, which distributes a line of soy-based meat analog burgers in both the
food service and retail sectors; Imagine Foods, Inc., which distributes "Ken &
Robert's" burgers into institutional and retail sectors; and a number of smaller
health or natural foods producers.
The Company believes that its products compare favorably to those offered by
competitors. The Company believes that the Gardenburger(R) brand taste and
texture are superior to that of other veggie or soy-based burgers. The calorie
and fat content of Gardenburger(R) products is generally equivalent to that of
other meatless burger products. While Gardenburger(R) patties generally sell for
a slightly higher price than other meatless patty products, management believes
that the higher price reflects the value consumers place on the Gardenburger(R)
brand.
The Company believes that low-fat meat products, such as ConAgra's Healthy
Choice 96 percent Extra Lean Ground Beef burger and chicken/turkey based
patties, compete with meatless patties in general and, as a result, with the
Gardenburger(R) veggie patty and its variations. However, sales trend data over
the past few years indicates that consumers are actively seeking alternatives to
meat products.
In a broader sense, the Company's products compete with frozen, mass produced
entrees and low calorie/low fat national consumer brands such as Healthy Choice,
Lean Cuisine and Weight Watchers, whose name recognition, advertising budgets
and resources are significantly greater than those of the Company.
9
<PAGE>
EMPLOYEES
The Company has approximately 175 full-time equivalent employees. The Company
also utilizes a temporary workforce during peak, seasonal demand periods, which
averages 70 employees. The Company's employees are not represented by a labor
union, and the Company believes its relations with employees are excellent.
TRADEMARKS
The Company has registered the trademark "Gardenburger" and a number of other
trademarks with the United States Patent and Trademark Office. The Company has
also registered or applied for registration of certain of its trademarks in the
United Kingdom, Australia, Canada, Germany, Switzerland and other countries.
The Company actively monitors use of its trademarks by food service customers
and others and takes action it believes appropriate to halt infringement or
improper usage. The Company defends its intellectual property aggressively and
from time to time is engaged in normal infringement protection activities and
other challenges.
SIGNIFICANT CUSTOMERS
For the fiscal year ended December 31, 1997, NORPAC Food Sales ("Norpac")
accounted for approximately 19 percent of revenue and 7 percent of the accounts
receivable balance at December 31, 1997. Sysco Corporation ("Sysco") accounted
for approximately 10 percent of revenue for the year ended December 31, 1997,
and 7 percent of the accounts receivable balance at December 31, 1997. These two
companies have been significant customers of the Company for several years, and
their loss could have a material adverse effect on the Company's business.
Historically, the Company has not incurred significant losses related to its
accounts receivable.
SOURCES OF SUPPLY
The Company uses natural ingredients such as mushrooms, oats, rice, onions, and
egg whites. These are common agricultural items typically available in most
parts of the United States. In addition, the Company uses packaging and other
materials that are common in the food industry. As a result, the Company
believes, but cannot assure, that its sources of supply are reasonably reliable
and that the Company is at no greater risk on supply matters than other similar
food processors and producers.
FORWARD-LOOKING STATEMENTS; RISK FACTORS
Statements in this Form 10-K Annual Report that are not historical in nature,
including discussion of the Company's expansion plans and research and
development efforts, are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance, or achievements of the Company to be materially
different from historical results or from any future results, performance, or
achievements expressed or implied by the forward-looking statements. In addition
to statements that explicitly describe such risks and uncertainties, readers
should consider statements labeled with the terms "believes," "belief,"
"expects," intends," "anticipates" or "plans" to be uncertain and
forward-looking. Important risks that could cause actual results, performance,
or achievements to differ from those expressed or implied by the forward-looking
statements include those described below, those described in Item 7 and those
described elsewhere in this Form 10-K Annual Report. Given these risks and
uncertainties, investors are cautioned not to place undue reliance on the
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained in this Form 10-K Annual Report to reflect
future events or developments.
10
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RISKS ASSOCIATED WITH NATIONAL ADVERTISING CAMPAIGN. A major element of the
Company's growth strategy includes a significant print and television media
advertising campaign. The Company's past advertising and promotional activities
focused primarily on print ads in food service trade publications, trade shows
and radio advertising; the Company has had limited experience with large-scale
national advertising. Television advertising is relatively expensive compared to
other forms of advertising. Consequently, the Company's increased emphasis on
this medium will significantly increase sales and marketing expenses without any
assurance that consumer demand will increase proportionately, if at all.
PRODUCT CONCENTRATION; INTRODUCTION OF NEW PRODUCTS. The majority of the
Company's net sales have been attributable to its flagship product, the
Gardenburger(R) veggie patty. Sales of the Gardenburger(R) veggie patty and its
variants accounted for substantially all of the Company's net sales in 1997. The
Company believes that the Gardenburger(R) veggie patty will continue to
constitute a substantial portion of net sales. Any decrease in the overall level
of sales of, or the prices for, the Company's Gardenburger(R) veggie patty or
the failure of demand for the Gardenburger(R) veggie patty to increase at the
rate currently anticipated, whether as a result of competition, change in
consumer demand, or other unforeseen events, could have a material adverse
effect upon the Company's business, results of operations and financial
condition.
The Company plans to introduce several new products to its line of meat
replacement products. There can be no assurance that the Company will be able to
successfully introduce these new products or that any of the new products will
gain market acceptance.
CHANGING CONSUMER PREFERENCES. The Company's business is focused on providing
products in response to the public's demand for foods that support overall
health and fitness. Consumer demand for the Company's products is heavily
reliant upon a continued public focus on the desirability of a healthy
lifestyle, as well as the potential risks associated with eating meat and
poultry products, including E. coli and salmonella. There can be no assurance
that public emphasis on a nutritious, healthy diet will continue or that certain
processes will not be developed and utilized to reduce risks associated with
eating meat. For example, the FDA recently approved the irradiation of red meat,
which could significantly reduce the risk of E. coli in hamburger. A decline in
consumer demand for meat alternative products would have a material adverse
effect upon the Company's business, results of operations and financial
condition. Additionally, demand for the Company's products may be affected
generally by consumer preferences, which are subject to frequent and
unanticipated changes. The Company is dependent in significant part on its
ability to continue to produce healthy and appealing products that anticipate,
gauge and respond in a timely manner to changing consumer demands and
preferences. Failure to anticipate and respond to changes in consumer
preferences could lead to, among other things, lower sales, excess inventories,
diminished consumer loyalty and lower margins. There can be no assurance that
the current level of demand for the Company's products will be sustained or
grow.
11
<PAGE>
CUSTOMER CONCENTRATION. In 1997, the Company's two largest accounts were Norpac
and Sysco, which accounted for approximately 19 percent and 10 percent of the
Company's revenues, respectively. There can be no assurance that sales to these
accounts will not decrease or that these customers will not choose to replace
the Company's products with those of competitors. The loss of either of these
accounts or any significant decrease in the volume of products purchased by
these customers would have a material adverse effect on the Company. Continuity
of customer relationships is important and events that impact the Company's
customers, such as labor disputes, may have a material adverse impact on the
Company.
CONCENTRATION OF CAPACITY; RISKS ASSOCIATED WITH OPENING OF NEW FACILITY. The
Company commenced operations at its new Utah facility during the first quarter
of 1998 and may eventually transfer all manufacturing operations to the Utah
facility if circumstances so warrant. There can be no assurance that the Company
will not experience significant difficulties in its transition to the new
facility, including, but not limited to, difficulties in maintaining product
quality and its ability to hire and train a new workforce. In addition, the
Company may experience higher than expected costs in connection with the
transition, including costs associated with operating both new and existing
facilities simultaneously for longer than anticipated. The Company could
experience delays in the manufacture of the Company's products, quality control
problems or the inability to produce products in commercial quantities or on a
cost-effective basis as a result of the transition to the new facility.
COMPETITION. The market for meatless food products is highly competitive. The
Company's competitors in the meatless patty segment may develop and market
products perceived by consumers to be tastier, healthier, or otherwise more
appealing than the Company's products. There can be no assurance that the
Company will not experience competitive pressures, particularly with respect to
pricing, that could have a material adverse effect on the Company's business,
results of operations and financial condition. Additionally, other major food
companies, many of which have substantially greater resources than the Company,
may become more active in the meatless patty business, either directly or
through the acquisition of smaller meatless patty companies.
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY. The Company has experienced
significant quarterly fluctuations in operating results and anticipates that
these fluctuations will continue in future periods. These fluctuations have
resulted, in part, from varying prices of vegetables, new product introductions,
expansion into new markets, sales promotions, the level of marketing
expenditures and competition. The Company has in the past experienced
fluctuations in sales due to seasonal changes in product demand, with net sales
historically higher in the June and September quarters and lower in the March
and December quarters. The Company expects these seasonal trends to continue in
the foreseeable future. A significant portion of the Company's expenses is
relatively fixed and the timing of increases in expenses is based in large part
on the Company's forecasts of future sales. If sales are below expectations in
any given period, the adverse impact on results of operations may be magnified
by the Company's inability to adjust spending quickly enough to compensate for
the sales shortfall. The Company may also choose to reduce prices or increase
spending in response to market conditions, which could have a material adverse
effect upon the Company's business, results of operations and financial
condition.
12
<PAGE>
RAW MATERIALS SUPPLY. As with most food products, the availability and price of
raw materials used in the Company's products may be affected by a number of
factors beyond the control of the Company, such as economic factors affecting
growing decisions, frosts, drought, floods, other weather conditions, various
plant diseases, pests and other acts of nature. Because the Company does not
control the production of raw materials, it is also subject to delays caused by
interruption in production of materials based on conditions not within its
control. Such conditions include job actions or strikes by employees of
suppliers, weather, crop conditions, transportation interruptions, and natural
disasters or other catastrophic events. There can be no assurance that the
Company will be able to obtain alternative sources of raw materials at favorable
prices, or at all, if it experiences supply shortages.
PRODUCT LIABILITY. The Company's business involves the preparation and
processing of food products. The Company has from time to time received
complaints and claims from consumers regarding ill effects allegedly caused by
its products. While such claims have not resulted in any material liability to
date, there can be no assurance that future claims will not be made or that any
such claim will not result in adverse publicity for the Company or monetary
damages, either of which could have a material adverse effect upon the Company's
business, results of operations and financial condition. The Company currently
maintains certain product liability insurance coverage, but there can be no
assurance that such coverage will be sufficient to cover the cost of defense or
related damages in the event of a significant product liability claim.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the continued service of Lyle G. Hubbard, its President and Chief
Executive Officer. The loss of his services could have a material adverse effect
on the Company. Furthermore, the Company is dependent on its ability to
identify, recruit and retain other key personnel. The competition for such
employees is intense, and there can be no assurance the Company will be
successful in such efforts.
GOVERNMENT REGULATION. The manufacturing, packaging, labeling, advertising,
distribution and sale of the Company's products are subject to regulation by
various governmental agencies, principally the Food and Drug Administration
("FDA"). The FDA regulates the Company's products under the Federal Food, Drug
and Cosmetic Act and related regulations. The Company's activities are also
subject to regulation by the Federal Trade Commission. The Company's activities
are also regulated by various agencies of the states, localities and foreign
countries to which the Company distributes its products and in which the
Company's products are sold. The Company believes that it presently complies in
all material respects with the foregoing laws and regulations. There can be no
assurance that future compliance with such laws or regulations will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company may become subject to additional laws or regulations administered by
the FDA or other federal, state or foreign regulatory authorities or more
stringent interpretations of current laws or regulations in the future. Although
the Company is unable to predict the nature of such future laws, regulations,
interpretations or applications, such requirements could include the
reformulation of certain products to meet new standards, the recall or
discontinuance of certain products that cannot be reformulated, imposition of
additional record-keeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling, and scientific
substantiation. Any or all of such requirements could have a material adverse
effect on the Company's business, results of operations and financial condition.
13
<PAGE>
INTELLECTUAL PROPERTY. The Gardenburger(R) trademark and other trademarks are
important to the Company's commercial success. Although the Company aggressively
takes steps to protect its rights in these trademarks, including obtaining
registration of the trademarks in the United States and other countries as it
deems appropriate, there can be no assurance that third parties will not
infringe or misappropriate the Company's trademarks.
The Company's recipes and production processes are protected as trade secrets.
The Company does not hold any patents covering its products or production
methods. Trade secret protection can last indefinitely so long as appropriate
precautions are taken to avoid disclosure. Although the Company seeks to protect
its trade secrets through confidentiality agreements and appropriate contractual
provisions, some or all of the trade secrets and other know-how that the Company
considers proprietary could be developed independently by others, could
otherwise become known by others or could be deemed to be in the public domain.
ITEM 2. PROPERTIES
The Company leases approximately 19,000 square feet of administrative office
space at 1411 SW Morrison, Suite 400 in Portland, Oregon, pursuant to a two-year
lease that terminates on December 31, 1998. The Company has the option to renew
the lease for an additional term of not less than two years in length.
Current monthly rent is $19,265.
The Company leases approximately 20,000 square feet of pre-production, storage
and distribution space at 10264 SE Jennifer, Clackamas, Oregon under a lease
that expires on April 30, 1998. The Company pays the sum of $13,000 per month in
rent for this facility and the equipment in the facility. The Company also
leases 15,000 square feet of distribution space at 215 SE Stark, Portland,
Oregon under a six-month lease that expires on June 30, 1998. On July 1, 1998,
the lease will become a month-to-month lease that is terminable on two-months'
notice. Rental on the Stark Street facility is $8,500 per month in 1998 and
$9,000 per month in 1999.
The Company leases additional space for research and development and production
at 1416 S.E. Eighth Avenue in Portland, Oregon. The facility is leased on a
month-to-month basis from Paul F. Wenner, the Company's Chief Creative Officer,
and Frank S. Card, a shareholder of the Company, at a rental rate of $2,200 per
month, which the Company considers to be consistent with rental rates charged by
unaffiliated property owners in the same market area.
The Company also leases 120,000 square feet of production space at Freeport
Center, Building A-16, in Clearfield, Utah, pursuant to a five-year lease that
terminates on December 31, 2002. The Company has the option to renew the lease
for two successive five-year terms. The Company began utilizing such space for
production in the first quarter of 1998. The monthly rent on this facility is
currently $28,000.
The Company owns 40,000 square feet of production facilities at 1005 S.E.
Washington Street, Portland, Oregon, and a 1,200 square foot annex at the same
location.
14
<PAGE>
The Company owns approximately 18 acres of land near the Portland Airport. The
property was purchased as a site for expansion of the Company's manufacturing
capabilities. The Company has entered into a purchase and sale agreement with an
effective date of March 18, 1998, with Opus Northwest, L.L.C., a Delaware
limited liability company ("Opus Northwest"), to sell the property to Opus
Northwest. The contingent purchase price is $1,874,953, or $3.85 per square foot
of net usable area, and is based on the assumption that the property has 11.18
acres of net usable area. The Company may terminate the purchase and sale
agreement if the purchaser's survey shows that the net usable area is less than
487,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
- - ------ -----------------
There are currently no material, pending legal proceedings to which the Company
or its subsidiaries are a party. From time to time, the Company becomes involved
in ordinary, routine or regulatory legal proceedings incidental to the business
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------ ---------------------------------------------------
At a special meeting of the shareholders held on October 17, 1997, the Company's
shareholders approved the change of the Company's name to Gardenburger, Inc.
from Wholesome & Hearty Foods, Inc.
Voting results were as follows:
For Against Abstain
- - -------------------- -------------------- -----------------
7,562,834 171,066 15,622
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - ------ ---------------------------------------------------------------------
The Company's Common Stock trades on the National Market tier of The Nasdaq
Stock Market under the symbol GBUR. The Common Stock traded under the symbol
WHFI until October 17, 1997, when the symbol was changed to GBUR in connection
with the change in the Company's name from Wholesome & Hearty Foods, Inc. to
Gardenburger, Inc.
The high and low sales prices for the two years in the period ended December 31,
1997 were as follows:
1996 High Low
------------------ --------- ---------
Quarter 1 $9.50 $6.50
Quarter 2 9.38 7.13
Quarter 3 8.38 6.38
Quarter 4 8.25 6.00
15
<PAGE>
1997 High Low
------------------ --------- --------
Quarter 1 $ 7.13 $6.00
Quarter 2 8.50 6.63
Quarter 3 10.13 7.13
Quarter 4 12.00 8.13
The approximate number of shareholders of record and beneficial shareholders at
March 6, 1998 was 800 and 10,500, respectively.
There were no cash dividends declared or paid in 1997 or 1996. The Company does
not anticipate declaring cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
- - ------ -----------------------
<TABLE>
<CAPTION>
IN THOUSANDS:
EXCEPT PER SHARE AMOUNTS 1997 1996(1) 1995 1994 1993
- - ---------------------------------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $ 56,837 $ 40,527 $ 36,818 $ 24,448 $ 13,341
Gross margin 29,601 20,621 18,720 13,057 7,206
Operating expenses 31,662 19,158 15,022 9,466 4,547
Operating income (loss) (2,061) 1,463 3,698 3,591 2,659
Net income (loss) $ (1,393) $ 1,063 $ 2,510 $ 2,391 $ 1,532
Basic net income (loss) per share $ (0.16) $ 0.13 $ 0.33 $ 0.32 $ 0.23
Diluted net income (loss) per $ (0.16) $ 0.12 $ 0.29 $ 0.28 $ 0.19
share
BALANCE SHEET DATA
Working capital $ 11,504 $ 13,393 $ 11,978 $ 11,037 $ 6,710
Total assets 27,245 24,934 19,325 15,320 10,363
Shareholders' equity 19,839 20,979 16,955 14,028 9,151
GROWTH INDICATORS (UNAUDITED)
Net sales growth 40% 10% 51% 83% 92%
Operating income growth (decline) n/a (60%) 3% 35% 149%
Net income growth (decline) n/a (58%) 5% 56% 166%
Net income per share growth n/a (59%) 4% 47% 90%
(decline)
</TABLE>
(1) Operating expenses in 1996 included a $612 one-time charge for acquired
in-process research and development related to the Gorilla Foods
acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - ------ -----------------------------------------------------------------------
OF OPERATION
------------
GENERAL
FORWARD-LOOKING STATEMENTS
Statements in this report which are not historical in nature, including
16
<PAGE>
discussion of the Company's expansion plans and research and development
efforts, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors with respect to the
Company include changes in food manufacturing technology, volatility in raw
materials prices, product acceptance by consumers, the Company's ability to
implement its retail distribution expansion plans, the effectiveness of the
Company's sales and marketing efforts and intensifying competition in the
meatless food products industry. Given these uncertainties, investors are
cautioned not to place undue reliance on the forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained in this report to reflect future events or developments.
A major element of the Company's growth strategy includes a significant print
and television media advertising campaign. The Company's past advertising and
promotional activities focused primarily on print ads, trade shows and radio
advertising; the Company has had limited experience with large scale national
broadcast advertising. Television advertising is relatively expensive compared
to other forms of advertising in terms of dollar outlays. Consequently, the
Company's increased emphasis on this medium will significantly increase sales
and marketing expenses in terms of absolute dollars without any assurance that
consumer demand will increase proportionately, if at all.
The majority of the Company's net sales have been attributable to its flagship
product, the Gardenburger veggie patty. Sales of the Gardenburger veggie patty
and its variants accounted for substantially all of the Company's net sales in
1997. The Company believes that the Gardenburger veggie patty will continue to
constitute a substantial portion of net sales. Any decrease in the overall level
of sales of, or the prices for, the Company's Gardenburger veggie patty or the
failure of demand for the Gardenburger veggie patty to increase at the rate
currently anticipated, whether as a result of competition, change in consumer
demand, or other unforeseen events, could have a material adverse effect upon
the Company's business, results of operations and financial condition.
The Company currently plans to introduce several new products to its line of
meat replacement products during 1998. There can be no assurance that the
Company will be able to successfully introduce these new products or that any of
the new products will gain market acceptance.
The Company commenced operations at its new Utah facility during the first
quarter of 1998 and may eventually transfer all manufacturing operations to the
Utah facility if circumstances so warrant. There can be no assurance that the
Company will not experience significant difficulties in its transition to the
new facility, including, but not limited to, difficulties in maintaining product
quality and its ability to hire and train a new workforce. In addition, the
Company may experience higher than expected costs in connection with the
transition, including costs associated with operating both new and existing
facilities simultaneously for longer than anticipated.
In light of the foregoing factors, as well as other variables, past financial
performance should not be considered a reliable indicator of future performance
and management believes that historical trends should not be relied on to
anticipate results or trends in future periods.
17
<PAGE>
ACQUISITION OF GORILLA FOODS, INC. AND WHOLE FOOD MARKETING
In January 1996 the Company completed the acquisition of Ojai, California-based
Gorilla Foods, Inc., a privately held developer and manufacturer of wheat
protein-based, meatless food products, including the GardenDog. The Company
issued 240,000 shares of the Company's Common Stock in exchange for all
outstanding common shares of Gorilla Foods, and paid $68,750 in cash. In
addition, the Company agreed to issue up to an additional 200,000 shares of the
Company's Common Stock in 50,000 share increments if the Company's sales of
wheat protein-based products reach certain levels over the next five years. The
Company incurred a one-time charge of $612,000 in the first quarter of 1996 as a
result of the acquisition of in-process research and development associated with
this acquisition, with the remainder of the purchase price primarily allocated
to goodwill. Pro forma financial information has not been provided as the pro
forma results are not materially different from actual results.
In a separate transaction in January 1996, the Company completed the acquisition
of the assets of Whole Food Marketing, Inc., a Southern California-based food
broker of the Company's and Gorilla Foods' products. The Company paid $350,000
for the assets of Whole Food Marketing, Inc.
RESULTS OF OPERATIONS
The following table is derived from the Company's Statements of Operations for
the periods indicated and presents the results of operations as a percentage of
net sales.
<TABLE>
<CAPTION>
Calendar year ended December 31, 1997 December 31, 1996 December 31, 1995
- - ------------------------------ ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 47.9 49.1 49.2
--------- --------- ---------
Gross margin 52.1 50.9 50.8
Sales and marketing expense
46.1 33.5 30.3
General and administrative
expense 9.6 12.3 10.5
Acquired in-process research
and development -- 1.5 --
--------- --------- ---------
Operating income (loss) (3.6) 3.6 10.0
Other income (expense) -- 0.8 0.4
--------- --------- ---------
Income (loss) before income
taxes (3.6) 4.4 10.4
Income taxes (benefit) (1.1) 1.8 3.6
========= ========= =========
Net income (loss) (2.5)% 2.6% 6.8%
========= ========= =========
</TABLE>
1997 COMPARED TO 1996
NET SALES. Net sales for 1997 increased 40.2 percent to $56.8 million from $40.5
million for 1996. The Company has increased its sales levels in each of its
major channels, including food service, retail, natural foods and club stores.
Such increases are primarily a result of increased marketing and public
relations activities, which have increased awareness of the Company's products
throughout its channels of distribution. The Company's main area of growth in
1997 was in the retail grocery channel where sales increased 167 percent. This
increase was driven mainly by increasing store penetration from 30 percent U.S.
ACV at the end of 1996 to 70 percent U.S. ACV by the end of 1997.
18
<PAGE>
GROSS MARGIN. Gross margin increased 43.7 percent to $29.6 million (52.1 percent
of net sales) for 1997 from $20.6 million (50.9 percent of net sales) for 1996.
The increase in gross margin as a percentage of net sales is primarily due to an
increased sales base to absorb fixed costs, improvements in manufacturing
efficiencies at its Portland, Oregon manufacturing facility and selected price
increases.
SALES AND MARKETING EXPENSE. Sales and marketing expense increased to $26.2
million (46.1 percent of net sales) for 1997 from $13.6 million (33.5 percent of
net sales) for 1996. The increase is primarily a result of costs associated with
the Company's plan to aggressively expand its retail grocery business nationwide
in 1997 and increased promotional activities, including the launching of a new
national advertising campaign.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
to $5.5 million (9.6 percent of net sales) for 1997 from $5.0 million (12.3
percent of net sales) for 1996. General and administrative expense remained
relatively constant as increases in compensation expense related to additional
personnel to support the growth of the Company and increased bonus accruals in
1997 were substantially offset by a decrease in severance and hiring costs,
absence of litigation costs in 1997 resulting from the settlement of a lawsuit
against the Company during the third quarter of 1996 and a related insurance
refund of $240,000 which was received in the first quarter of 1997.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with the acquisition
of Gorilla Foods, Inc. in 1996, the Company recorded a one-time pretax charge of
$612,000 ($386,000 net of taxes) related to acquired in-process research and
development costs. The value assigned to the in-process research and development
was determined by appraisal and represents those efforts in process at the
acquisition date that had not yet established technological feasibility and that
had no alternative future uses. Accounting rules require that such costs be
charged to expense as incurred. The Company currently believes that these
research and development efforts will result in commercially viable products
over the next several years.
OPERATING INCOME (LOSS). Operating loss was $2.1 million in 1997 compared to
operating income (without the one-time charge for purchased in-process research
and development) of $2.1 million (5.1 percent of net sales) for 1996 as a result
of the individual line item changes discussed above.
OTHER INCOME (EXPENSE). Other income decreased to $9,000 in 1997 from $327,000
in 1996 primarily as a result of decreased cash balances in 1997 and therefore
lower interest income in 1997, as well as a loss in 1997 related to the
disposition of certain property and equipment.
INCOME TAXES. The Company's income tax rate for 1997 decreased to 32.1 percent
compared to 40.6 percent for 1996, primarily due to lower amounts of tax exempt
interest and dividends, as well as a lower effective state rate in 1997.
NET INCOME (LOSS). Net loss was $1.4 million for 1997 compared to net income of
$1.1 million (2.6 percent of net sales) for 1996 as a result of the individual
line item changes discussed above. The Company believes that the impact of
inflation on net income (loss) was not material for fiscal years 1997 and 1996.
<PAGE>
1996 COMPARED TO 1995
NET SALES. Net sales for 1996 increased 10.1 percent to $40.5 million from $36.8
million for 1995. The Company increased its sales levels in each of its major
channels, including food service, retail and club stores. Such increases were
primarily a result of increased marketing and public relations activities, which
increased awareness of the Company's products throughout its channels of
distribution. At the beginning of the second quarter of 1996, the Company
started selling to additional large retail chains in Southern California. In
January 1996, the Company discontinued selling its Alymond Beverage and Alymond
Cheeze products, which resulted in natural foods sales declining $1.0 million
from the prior year.
GROSS MARGIN. Gross margin increased 10.2 percent to $20.6 million (50.9 percent
of net sales) for 1996 from $18.7 million (50.8 percent of net sales) for 1995.
Gross margin as a percentage of net sales remained constant primarily as a
result of continued upward pressures on pricing in certain raw materials, offset
by process improvements at the Company's manufacturing plant in Portland,
increased food service sales, which have higher margins, and start-up costs
associated with a new food service product-type in 1995 that were not duplicated
in 1996.
SALES AND MARKETING EXPENSE. Sales and marketing expenses increased to $13.6
million (33.5 percent of net sales) for 1996 from $11.2 million (30.3 percent of
net sales) for 1995. The increase was primarily attributable to increased
expenditures during 1996 related to the promotion of sales for additional retail
chains that the Company began supplying during the first half of 1996, increased
payroll expense as a result of hiring additional field sales personnel, costs
associated with the Company's plan to aggressively grow its retail grocery
business in 1997 and increased promotional activities in general to support and
promote the growth of the Company.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased
to $5.0 million (12.3 percent of net sales) for 1996 from $3.9 million (10.5
percent of net sales) for 1995. The increase was primarily a result of
non-recurring costs to defend litigation which was settled in the third quarter
of 1996, relocation and recruiting expense in connection with the hiring of
personnel to support the growth of the Company, approximately $400,000 for
management transition costs during the second quarter of 1996 and ongoing costs
related to the overall growth of the Company, including an improved support
infrastructure.
OPERATING INCOME. Operating income (without the one-time charge for purchased
in-process research and development) decreased to $2.1 million (5.1 percent of
net sales) for 1996 compared to $3.7 million (10.0 percent of net sales) for
1995 as a result of the individual line item changes discussed above.
OTHER INCOME (EXPENSE). Other income increased to $327,000 in 1996 from $153,000
in 1995 primarily as a result of increased cash balances and corresponding
increased interest income.
INCOME TAXES. The Company's income tax rate for 1996 was 40.6 percent compared
to 34.8 percent for 1995. The increase from the 34.8 percent rate achieved for
fiscal 1995 was primarily a result of non-deductible goodwill expenditures in
1996, adjustments in 1996 relating to prior years and a one-time tax benefit
received in 1995 from the State of Oregon.
20
<PAGE>
NET INCOME. Net income decreased to $1.1 million (2.6 percent of net sales) for
1996 compared to $2.5 million (6.8 percent of net sales) for 1995 as a result of
the individual line item changes discussed above. The Company believes that the
impact of inflation on net income was not material for fiscal years 1996 and
1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had working capital of $11.5 million, which
included $2.6 million of cash and cash equivalents as compared to $13.4 million
in working capital at December 31, 1996, including $7.8 million of cash and cash
equivalents. The decrease in cash and cash equivalents is primarily due to the
use of $3.6 million in operations and net purchases of $1.7 million of property
and equipment, offset by $247,000 provided by the exercise of stock options and
related income tax benefits.
Accounts receivable increased $6.0 million to $8.8 million at December 31, 1997
from $2.8 million at December 31, 1996, due primarily to growth of the business
and significant sales at the end of the fourth quarter of 1997. Days' sales
outstanding were 34 at December 31, 1997, compared to 32 at December 31, 1996.
Inventories decreased $1.6 million to $3.2 million at December 31, 1997 from
$4.8 million at December 31, 1996, due primarily to a decrease in finished goods
inventory resulting from significant sales at the end of 1997. Inventory turned
9.6 times on an annualized basis in the fourth quarter of 1997 compared to 5.1
times for all of 1996.
Prepaid expenses increased $1.9 million to $2.3 million at December 31, 1997
from $378,000 at December 31, 1996, due primarily to prepaid marketing and sales
expenses.
Accounts payable increased $1.0 million to $3.2 million at December 31, 1997
from $2.2 million at December 31, 1996, due primarily to the growth of the
Company and the timing of payments at year-end.
In May 1997, the Company announced the lease of a production facility in
Clearfield, Utah. The Company leased various production and other equipment for
this facility. There were no lease payments associated with the facility in
1997. Annual lease payments on the facility and equipment will total $1.4
million during 1998.
Capital expenditures of $12.1 million during 1997 resulted primarily from a
capacity expansion project at one of the Company's production facilities,
including building improvements and new processing equipment, and from equipment
purchases for the start-up of the Company's newly leased Utah facility.
The Company is in the process of assessing the impact of Year 2000 related
issues on its business and is currently assessing potential costs to upgrade its
information and operating systems. Management does not expect any Year 2000
modifications to materially impact the Company.
Management believes that the Company's existing working capital, in combination
with cash flow from operations, funds available under credit facilities and
potential new debt and/or equity offerings to support the Company's aggressive
marketing plans should be sufficient to support working capital requirements
over the next year.
21
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued Statement of Financial Accounting Standard 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 expects to adopt SFAS 130 in the first
quarter of 1998 and does not expect comprehensive income to be materially
different from currently reported net income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - ------- ----------------------------------------------------------
No disclosure is required under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ------ -------------------------------------------
The financial statements and notes thereto required by this item begin on page
F-1 as listed in Item 14 of Part IV of this document.
Unaudited quarterly financial data for each of the eight quarters in the
two-year period ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- - ----------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1997
Net sales $ 10,304 $ 13,465 $ 16,071 $ 16,997
Gross margin 5,115 6,842 8,179 9,465
Net income (loss) (355) (1,371) (645) 978
Basic net income (loss) per share (0.04) (0.16) (0.08) 0.11
Diluted net income (loss) per share (0.04) (0.16) (0.08) 0.10
1996
Net sales $ 9,439 $ 11,352 $ 11,431 $ 8,305
Gross margin 4,798 5,879 5,823 4,121
Net income (loss) 58(1) 521 778 (294)
Basic net income (loss) per share 0.01 0.06 0.09 (0.03)
Diluted net income (loss) per share 0.01 0.06 0.09 (0.03)
</TABLE>
(1) Operating expenses in the first quarter of 1996 included a $612 one-time
charge for acquired in-process research and development related to the
Gorilla Foods acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------- --------------------------------------------------
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE in the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- - ------- ----------------------
Information required by this item is included under the captions EXECUTIVE
COMPENSATION, DIRECTOR COMPENSATION, EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS and COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS in the Company's
Proxy Statement for its 1998 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - ------- --------------------------------------------------------------
Information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 1998 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - ------- ----------------------------------------------
Information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its
1998 Annual Meeting of Shareholders and is incorporated herein by reference.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- - ------- ---------------------------------------------------------------
(A) FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Arthur Andersen LLP F-1
Balance Sheets - December 31, 1997 and 1996 F-2
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-3
Statements of Shareholders' Equity - December 31,
1997, 1996 and 1995 F-4
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-5
Notes to Financial Statements F-6
Report of Independent Public Accountants on Financial
Statement Schedule F-15
Schedule II Valuation and Qualifying Accounts F-16
(B) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended December 31,
1997.
(C) EXHIBITS
Exhibits are listed on the Index to Exhibits following the financial statements
included in this report.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: March 27, 1998
--------------
GARDENBURGER, INC.
By: /s/ Lyle G. Hubbard
-------------------------------------
Lyle G. Hubbard
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 27, 1998.
Signature Title
- - --------- -----
/s/ Lyle G. Hubbard
- - --------------------- Director, President and Chief Executive Officer
Lyle G. Hubbard (Principal Executive Officer)
/s/ Richard C. Dietz
- - --------------------- Executive Vice President, Chief Financial
Richard C. Dietz Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)
RICHARD L. MAZER*
- - --------------------- Director
Richard L. Mazer
MARY O. MCWILLIAMS*
- - --------------------- Director
Mary O. McWilliams
MICHAEL L. RAY*
- - --------------------- Director
Michael L. Ray
E. KAY STEPP*
- - --------------------- Chairman of the Board
E. Kay Stepp
PAUL F. WENNER*
- - --------------------- Founder, Chief Creative Officer
Paul F. Wenner and Director
*/s/ Richard C. Dietz
- - ---------------------
Richard C. Dietz
(Attorney-in-Fact)
25
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Gardenburger, Inc.:
We have audited the accompanying balance sheets of Gardenburger, Inc. (an Oregon
corporation) as of December 31, 1997 and 1996 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gardenburger, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon,
February 5, 1998
F-1
<PAGE>
GARDENBURGER, INC.
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents (Note 1) $ 2,602 $ 7,755
Accounts receivable, net of allowances of
$275 and $177 (Note 1) 8,848 2,800
Inventories, net (Notes 1 and 2) 3,203 4,790
Prepaid expenses 2,321 378
Income taxes receivable 475 653
Deferred income tax benefit (Note 6) 713 470
------- -------
Total Current Assets 18,162 16,846
Property, Plant and Equipment, net of accumulated
depreciation of $2,005 and $1,220 (Notes 1 and 3) 7,822 6,814
Other Assets, net of accumulated amortization of
$250 and $122 (Note 1) 1,261 1,274
------- -------
Total Assets $27,245 $24,934
======= =======
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 3,165 $ 2,173
Payroll and related liabilities payable 948 458
Accrued employee bonuses 668 221
Accrued relocation 161 178
Accrued brokers' commissions 469 199
Accrued slotting fees 679 10
Other current liabilities 568 214
------- -------
Total Current Liabilities 6,658 3,453
Deferred Income Tax Liability (Note 6) 438 502
Other Long-Term Liabilities 310 -
Shareholders' Equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; none issued (Note 9) - -
Series A Junior Participating Preferred Stock,
no par value, 250,000 shares authorized;
none issued (Note 9) - -
Common Stock, no par value, 25,000,000 shares
authorized; shares issued and outstanding:
8,608,254 and 8,566,456 8,651 8,468
Additional paid-in capital 4,203 4,139
Retained earnings 6,985 8,372
------- -------
Total Shareholders' Equity 19,839 20,979
------- -------
Total Liabilities and Shareholders' Equity $27,245 $24,934
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net sales $56,837 $40,527 $36,818
Cost of goods sold 27,236 19,906 18,098
------- ------- -------
Gross margin 29,601 20,621 18,720
Operating expenses:
Sales and marketing 26,191 13,583 11,151
General and administrative 5,471 4,963 3,871
Acquired in-process research & development - 612 -
------- ------- -------
31,662 19,158 15,022
------- ------- -------
Operating income (loss) (2,061) 1,463 3,698
Other income (expense):
Interest income 145 365 284
Other, net (136) (38) (131)
------- ------- -------
9 327 153
------- ------- -------
Income (loss) before provision for
(benefit from) income taxes (2,052) 1,790 3,851
Provision for (benefit from) income taxes (659) 727 1,341
======= ======= =======
Net income (loss) $(1,393) $ 1,063 $ 2,510
======= ======= =======
Net income (loss) per share - basic $ (0.16) $ 0.13 $ 0.33
======= ======= =======
Net income (loss) per share - diluted $ (0.16) $ 0.12 $ 0.29
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------------------- Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 7,642,122 $ 7,312 $ 1,927 $ 4,789 $14,028
Exercise of Common Stock Options 59,334 291 - - 291
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 126 - 126
Net income - - - 2,510 2,510
---------- ------- ------- ------- -------
Balance at December 31, 1995 7,701,456 7,603 2,053 7,299 16,955
Exercise of Common Stock Options 625,000 625 - - 625
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 1,336 - 1,336
Issuance of shares for acquisition
of Gorilla Foods, Inc. 240,000 240 750 - 990
Foreign currency translation - - - 10 10
Net income - - - 1,063 1,063
--------- ------- ------- ------- -------
Balance at December 31, 1996 8,566,456 8,468 $ 4,139 8,372 20,979
Exercise of Common Stock Options 41,798 183 - - 183
Income tax benefit of non-qualified stock
option exercises and disqualifying
dispositions - - 64 - 64
Foreign currency translation - - - 6 6
Net loss - - - (1,393) (1,393)
========= ======= ======== ======= =======
Balance at December 31, 1997 8,608,254 $ 8,651 $ 4,203 $ 6,985 $19,839
========= ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996 1995
--------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,393) $ 1,063 $ 2,510
Effect of exchange rate on operating accounts 6 10 -
Adjustments to reconcile net income (loss) to net cash flows provided by
(used in) operating activities:
Depreciation and amortization 977 594 334
Acquired in-process research and development, net of tax - 386 -
Loss on sale of fixed assets 145 52 52
Deferred income taxes (307) (57) (154)
(Increase) decrease in:
Investments - - 507
Accounts receivable, net (6,048) 141 (519)
Inventories, net 1,587 (3,228) 1,398
Prepaid expenses (1,943) (181) (60)
Income taxes receivable, net 178 (922) 2,559
Increase (decrease) in:
Accounts payable 992 1,134 409
Payroll and related liabilities 490 50 178
Other accrued liabilities 1,723 413 239
-------- -------- --------
Net cash provided by (used in) operating activities (3,593) (545) 7,453
Cash flows from investing activities:
Payments for purchase of property and equipment (12,141) (2,428) (2,219)
Proceeds from sale of equipment 10,477 26 1
Cash paid for Gorilla Foods and Whole Food Marketing - (419) -
Other assets, net (143) (87) (137)
-------- -------- --------
Net cash used in investing activities (1,807) (2,908) (2,355)
Cash flows from financing activities:
Proceeds from exercise of common stock options and warrants 183 625 291
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 64 1,336 126
-------- -------- --------
Net cash provided by financing activities 247 1,961 417
Increase (decrease) in cash and cash equivalents (5,153) (1,492) 5,515
Cash and cash equivalents:
Beginning of period 7,755 9,247 3,732
-------- -------- --------
End of period $ 2,602 $ 7,755 $ 9,247
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
GARDENBURGER, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------------------------------
ORGANIZATION AND NATURE OF OPERATIONS
Gardenburger, Inc. was incorporated in Oregon in 1985 to provide a line of food
products in response to the public's awareness of the importance of diet to
overall health and fitness. Toward this end, the Company developed and now
produces and distributes products that include a variety of frozen, meatless
items that are generally low in cholesterol and fat. The Company's products are
principally sold to retail and institutional customers throughout the United
States.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Management believes that the estimates used are reasonable.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities at the
date of purchase of 90 days or less.
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.
GOODWILL
Goodwill is being amortized using the straight-line method over ten years.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided using straight-line and accelerated methods over the estimated
useful lives of the assets. Leasehold improvements are amortized over the lease
term or the estimated useful life of the asset, whichever is shorter.
Estimated useful lives are as follows:
BUILDINGS AND IMPROVEMENTS 3-40 YEARS MACHINERY AND EQUIPMENT 7-30 YEARS
OFFICE FURNITURE AND EQUIPMENT 3-10 YEARS VEHICLES 5 YEARS
F-6
<PAGE>
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company invests its excess cash with high credit quality financial
institutions, which bear minimal risk, and, by policy, limits the amount of
credit exposure to any one financial institution.
For the year ended December 31, 1997, two customers accounted for approximately
19 percent and 10 percent of revenue and 7 percent and 7 percent of the accounts
receivable balance at December 31, 1997, respectively.
For the year ended December 31, 1996, two customers accounted for approximately
23 percent and 12 percent of revenue and 32 percent and 13 percent of the
accounts receivable balance at December 31, 1996, respectively.
For the year ended December 31, 1995, two customers accounted for approximately
23 and 12 percent of revenue and 24 and 8 percent of the accounts receivable
balance at December 31, 1995, respectively.
Historically, the Company has not incurred significant losses related to its
accounts receivable.
REVENUE RECOGNITION
Revenue from the sale of products is generally recognized at time of shipment to
the customer. Promotional and other discounts are accrued at time of shipment
based on historical experience.
ADVERTISING COSTS
Advertising costs, which are included in sales and marketing expense, are
expensed when the advertising first takes place. Advertising expense was
approximately $3,844, $1,539 and $871 in 1997, 1996 and 1995, respectively.
SLOTTING FEES
Slotting fees associated with new products or new territories are deferred and
amortized over the twelve-month period following the initial introductions.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development expense was approximately $565 in 1997 and $1,000 in 1996, which
includes a one-time charge of $612 for in-process research and development in
conjunction with the acquisition of Gorilla Foods (see Note 7). The amount spent
on such activities during 1995 was immaterial.
F-7
<PAGE>
NET INCOME (LOSS) PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
required to be 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. Prior period
amounts have been restated to conform with the presentation requirements of SFAS
128. Following is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- - ----------------------- ----------------------------- ----------------------------- ----------------------------
Per Share Per Share Per Share
BASIC EPS Income Shares Amount Income Shares Amount Income Shares Amount
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) available to
Common Shareholders $(1,393) 8,584 $ (0.16) $ 1,063 8,456 $ 0.13 $ 2,510 7,670 $ 0.33
======= ====== ======
Effect of Dilutive Securities
Stock Options - - - 610 - 969
------- ------ ------- ------ ------- -----
DILUTED EPS
Income (loss) available to
Common Shareholders $(1,393) 8,584 $ (0.16) $ 1,063 9,066 $ 0.12 $ 2,510 8,639 $ 0.29
======= ====== ======
</TABLE>
At December 31, 1997, 1996 and 1995, the Company had options covering 2,447,959
and 394 shares, respectively, of the Company's Common Stock outstanding that
were not considered in the respective diluted EPS calculations since they would
have been antidilutive.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
2. INVENTORIES
- - ---------------
Detail of inventories at December 31, 1997 and 1996 is as follows:
December 31, 1997 1996
- - ---------------------------------------- --------------- -----------------
Raw materials $ 1,148 $ 670
Packaging and supplies 193 243
Finished goods 1,862 3,877
======= =======
$ 3,203 $ 4,790
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
- - ---------------------------------
December 31, 1997 1996
- - ---------------------------------------- --------------- -----------------
Land $ 787 $ 787
Building and improvements 3,374 1,968
Machinery and equipment 3,897 3,825
Vehicles 52 49
Office furniture and equipment 1,717 1,405
------- -------
9,827 8,034
Less accumulated depreciation (2,005) (1,220)
======= =======
$ 7,822 $ 6,814
======= =======
F-8
<PAGE>
4. LINE OF CREDIT
- - -------------------
On June 26, 1997, the Company signed a $10.0 million unsecured line of credit
agreement with a commercial bank. Interest is at the bank's reference rate or,
at the Company's option, at LIBOR plus 1.0 percent or at the Offshore Rate plus
1.0 percent. The line of credit decreases to $5.0 million on April 16, 1998 and
expires July 1, 1998. The line of credit agreement contains certain financial
and other covenants. At December 31, 1997, there were no amounts outstanding
under this line of credit and the Company was in compliance with its covenants.
At December 31, 1997, the bank's reference rate was 8.5 percent.
5. LEASE COMMITMENTS
- - ----------------------
Future minimum lease payments at December 31, 1997 were as follows:
Year Ended December 31,
- - -----------------------
1998 $ 1,691
1999 1,763
2000 1,763
2001 1,793
2002 1,793
Thereafter 3,211
-------
Total $12,014
=======
Rental expense for the years ended December 31, 1997, 1996 and 1995 was $601,
$257 and $180, respectively.
6. INCOME TAXES
- - -----------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards 109, ACCOUNTING FOR INCOME TAXES. The Company realizes tax benefits as
a result of the exercise of nonqualified stock options and the exercise and
subsequent sale of certain incentive stock options (disqualifying dispositions).
For financial reporting purposes, any reduction in income tax obligations as a
result of these tax benefits is credited to additional paid-in capital. Tax
benefits of $64, $1,336 and $126 were credited to additional paid-in capital in
1997, 1996 and 1995, respectively.
The provision for (benefit from) income taxes is as follows:
December 31, 1997 1996 1995
- - ---------------------------- ---------- ---------- ----------
CURRENT:
Federal $ (352) $ 616 $1,309
State - 168 186
------ ------ ------
(352) 784 1,495
DEFERRED (307) (57) (154)
====== ====== ======
$ (659) $ 727 $1,341
====== ====== ======
F-9
<PAGE>
Total deferred income tax assets were $972 and $507 and liabilities were $697
and $539 at December 31, 1997 and 1996, respectively. Individually significant
temporary differences are as follows:
December 31, 1997 1996
- - ----------------------------------- --------------- --------------
Accounts receivable reserves $ 115 $ 74
Inventory 174 238
Book/tax depreciation differences (515) (517)
The Company's deferred tax assets are realizable as a result of past and future
income.
At December 31, 1997, the Company had available federal and state income tax
carryforwards of $111 and $109, respectively. The federal income tax
carryforwards do not expire and the state income tax carryforwards expire
through the year 2012.
The reconciliation between the effective tax rate and the statutory federal
income tax rate is as follows:
December 31, 1997 1996 1995
- - ----------------------------------------------- ------- ------ ------
Statutory federal income tax rate (34.0)% 34.0% 34.0%
State taxes, net of federal income tax benefit (3.5) 5.9 3.4
Tax exempt interest and dividends (1.7) (4.0) (2.3)
Trademark and goodwill amortization 1.5 2.0 --
Meals and entertainment 1.8 -- --
Revision of prior year estimates 1.6 2.0 --
Other 2.2 0.7 (0.3)
------- ------ ------
Effective tax rate (32.1)% 40.6% 34.8%
======= ====== ======
7. ACQUISITIONS
- - -----------------
In January 1996 the Company completed the acquisition of Ojai, California-based
Gorilla Foods, Inc., a privately held developer and manufacturer of wheat
protein-based, meatless food products, including the GardenDog. The Company
issued 240 shares of the Company's Common Stock in exchange for all outstanding
common shares of Gorilla Foods, and paid $69 in cash. In addition, the Company
agreed to issue up to an additional 200 shares of the Company's Common Stock in
50 share increments if the Company's sales of wheat protein-based products reach
certain levels over the next five years. The Company incurred a one-time charge
of $612 in the first quarter of 1996 as a result of the acquisition of
in-process research and development associated with this acquisition, with the
remainder of the purchase price primarily allocated to goodwill.
In a separate transaction in January 1996, the Company completed the acquisition
of the assets of Whole Food Marketing, Inc., a Southern California based food
broker of the Company's and Gorilla Foods' products. The Company paid $350 for
the assets of Whole Food Marketing, Inc., all of which was allocated to
goodwill. This acquisition was accounted for under the purchase method.
F-10
<PAGE>
Pro forma financial information has not been provided for these acquisitions, as
the pro forma results are not materially different from actual results.
8. RELATED PARTY TRANSACTIONS
- - -------------------------------
The Company leases its S.E. 8th Avenue plant facility from the Company's Chief
Creative Officer and one other shareholder. This lease agreement provides for a
$2.2 monthly rent payment. The lease provides for cancellation, without penalty,
by either party with a 30-day notice.
9. SHAREHOLDERS' EQUITY
- - -------------------------
PREFERRED STOCK
The Company has authorized 5,000 shares of preferred stock. Such stock may be
issued by the Board of Directors in one or more series, with the preferences,
limitations and rights of each series to be determined by the Board of
Directors.
PREFERRED SHARE PURCHASE RIGHTS
In April 1996, the Company declared a dividend distribution of one preferred
share purchase right on each outstanding share of the Company's Common Stock.
Each right will entitle shareholders to buy one one-hundredth of a share of
Series A Junior Participating Preferred Stock of the Company at an exercise
price of $47 per share. The rights will be exercisable if a person or group
acquires 15 percent or more of the Company's Common Stock or announces a tender
offer for 15 percent or more of the Common Stock. The Company's Board of
Directors is entitled to redeem the rights at $.01 per right at any time before
a person has acquired 15 percent or more of the outstanding Common Stock.
STOCK OPTIONS AND WARRANTS
On March 10, 1992, the Company granted a non-statutory stock option to its then
Chief Executive Officer exercisable for 1,650 shares of the Company's Common
Stock. Such option is exercisable for a period of ten years from the date of
grant at an exercise price of $1.00 per share, the fair market value of the
Company's Common Stock on the date of grant. During 1996, an option covering 625
of the shares was exercised. At December 31, 1997, an option to purchase 1,025
shares of Common Stock was outstanding, all of which were exercisable. At
December 31, 1997, 1,025 shares of the Company's Common Stock were reserved for
issuance under this option grant.
In addition, the Company has a 1992 First Amended and Restated Combination Stock
Option Plan (the "Plan") which provides for the issuance of incentive stock
options ("ISOs") to employees and officers of the Company and non-statutory
stock options ("NSOs") to employees, officers, directors and consultants of the
Company. Under the Plan, the exercise price of an ISO cannot be less than the
fair market value on the date of grant and the exercise price of an NSO cannot
be less than 85 percent of fair market value on the date of grant. Options
granted under the Plan generally vest three to five years from the date of grant
and generally expire ten years from the date of grant. At December 31, 1997, the
Company had 2,091 shares of Common Stock reserved for issuance under the Plan.
F-11
<PAGE>
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Shares Available Shares Subject to Weighted Average
for Grant Options Exercise Price
-------------------- --------------------- ----------------------
<S> <C> <C> <C>
Balances December 31, 1994 460 240 $ 7.88
Additional shares reserved 1,500 -- --
Options granted (326) 326 11.77
Options canceled 13 (13) 10.19
Options exercised -- (58) 4.95
-------------------- --------------------- ----------------------
Balances, December 31, 1995 1,647 495 10.73
Options granted (902) 902 7.88
Options canceled 21 (21) 12.11
Options exercised -- (9) 3.08
-------------------- --------------------- ----------------------
Balances, December 31, 1996 766 1,367 8.87
Options granted (173) 173 7.16
Options canceled 76 (76) 8.91
Options exercised -- (42) 4.37
==================== ===================== ======================
Balances, December 31, 1997 669 1,422 $ 8.36
==================== ===================== ======================
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for employee stock options and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to continue to
use the accounting treatment in APB 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1997, 1996 and 1995 using the
Black-Scholes option pricing model as prescribed by SFAS 123 using the following
weighted average assumptions for grants:
For the Year Ended
December 31, 1997 1996 1995
-------------- ------------- ---------------
Risk-free interest rate 6.25% 6.0% 6.0%
Expected dividend yield 0% 0% 0%
Expected lives 6.5 years 8 years 8 years
Expected volatility 58.11% 60.94% 64.51%
F-12
<PAGE>
Using the Black-Scholes methodology, the total value of options granted during
1997, 1996 and 1995 was $760, $4,762 and $2,721, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (typically
four years). The weighted average per share fair value of options granted during
1997, 1996 and 1995 was $4.45, $5.55 and $8.47, respectively. If the Company had
accounted for its stock-based compensation plans in accordance with SFAS 123,
the Company's net income (loss) and net income (loss) per share would
approximate the pro forma disclosures below:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997 1996 1995
------------------------- --------------------------- ---------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(1,393) $(3,102) $1,063 $(299) $2,510 $1,046
Basic net income (loss)
per share $(0.16) $(0.36) $0.13 $(0.04) $0.33 $0.14
Diluted net income
(loss) per share $(0.16) $(0.36) $0.12 $(0.04) $0.29 $0.12
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to January 1, 1995,
and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - ------------------------------------------------------------------------------ -----------------------------------
Weighted
Average Weighted Number of Weighted
Range of Exercise Number Remaining Average Shares Average
Prices Outstanding at Contractual Exercise Exercisable at Exercise Price
12/31/97 Life - Years Price 12/31/97
- - ------------------- ---------------- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.00 1,025 4.0 $ 1.00 1,025 $ 1.00
3.08-5.00 14 4.0 3.30 14 3.30
6.51-9.00 1,026 8.3 7.77 405 7.58
9.56-11.75 351 5.7 11.57 308 11.56
11.76-13.25 31 7.4 12.85 31 12.85
============= ====== ===== ======== ======= ========
$ 1.00-13.25 2,447 6.1 $ 5.52 1,783 $ 4.54
============= ====== ===== ======== ======= ========
</TABLE>
At December 31, 1996 and 1995, 1,575 and 2,010 options, respectively, were
exercisable at weighted average exercise prices of $4.05 per share and $2.66 per
share, respectively.
F-13
<PAGE>
10. 401(K) PLAN
- - ----------------
The Company has a 401(k) Salary Deferral Plan, which covers all employees who
have reached the age of 18. The covered employees may elect to have an amount
deducted from their wages for investment in a retirement plan. The Company
matches 100 percent of employee contributions up to two percent of compensation.
The Company's contribution to this plan was approximately $106 in 1997, $74 in
1996 and $51 in 1995.
11. SUPPLEMENTAL CASH FLOW INFORMATION
- - ---------------------------------------
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- - --------------------------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Cash paid during the period for interest $ -- $ -- $ 1
Cash paid during the period for income taxes 13 1,062 96
Issuance of Common Stock in exchange for the assets of
Gorilla Foods, Inc. -- 990 --
</TABLE>
F-14
<PAGE>
Report of Independent Public Accountants
on Financial Statement Schedule
We have audited in accordance with generally accepted auditing standards, the
financial statements included in Gardenburger, Inc.'s Form 10-K, and have issued
our report thereon dated February 5, 1998. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed on
page F-16 is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audit of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
February 5, 1998
F-15
<PAGE>
SCHEDULE II
GARDENBURGER, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- - -------------------------------------- -------------- ---------------------------------- ------------- ---------------
Balance Charged Charged to Balance
at Beginning to Costs and Other Accounts - Deductions - at End
Description of Period Expenses Describe Describe(a) of Period
- - -------------------------------------- -------------- --------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 50 $ 72 $ - $ 2 $ 120
Year Ended December 31, 1996:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 120 $ 70 $ - $ 13 $ 177
Year Ended December 31, 1997:
Reserves deducted from asset accounts:
Allowance for uncollectible accounts $ 177 $ 128 $ - $ 30 $ 275
(a) Charges to the account included in this column are for the purposes for which the reserve was created.
</TABLE>
F-16
<PAGE>
Exhibit Index
Exhibit No. Description
- - ----------- -----------
3.1 Restated Articles of Incorporation as amended October 17, 1997(8)
3.2 1995 Restated Bylaws(6)
4 Instruments defining the rights of security holders. See Article
II, Sections 3, 4 and 5 of Restated Articles of Incorporation and
Article I of 1995 Restated Bylaws(6)(8)
10.1 Business Loan Agreement with Bank of America re: Line-of-Credit,
dated June 26, 1997(9)
10.2 Plant Lease-1416 S.E. 8th, Portland, Oregon(1)
10.3 First Amendment to Plant Lease-1416 S.E. 8th, Portland, Oregon
10.4 Office Lease-975 S.E. Sandy Blvd., Portland, Oregon(4)
10.5 Consent to Assignment and Option to purchase 1005 S.E.
Washington, Portland, Oregon(1)
10.6 Morrison Plaza Office Lease dated October 29, 1996(10)
10.7 First Amendment to Morrison Plaza Office Lease, dated December 9,
1997
10.8 Facility Lease by and between Freeport Center Associates, a Utah
general partnership and Wholesome & Hearty Foods, Inc., an Oregon
corporation, dated May 28, 1997(9)
10.9 Addendum dated August 1, 1997 to Facility Lease by and between
Freeport Center Associates and Wholesome & Hearty Foods, Inc.
10.10 Purchase and Sale Agreement and Receipt For Earnest Money Between
the Iseli Family Partnership, an Oregon Partnership (Seller) and
the Company (Buyer), as amended, dated May 8, 1995(5)
10.11 1992 First Amended and Restated Combination Stock Option
Plan(4)(11)
10.12 Lyle Hubbard Employment Agreement dated April 14, 1996(10)(11)
10.13 Paul F. Wenner Employment Agreement and Amendment thereto(1)(11)
10.14 Paul F. Wenner Stock Option Agreement(2)(11)
10.15 Form of Severance Agreement for Executive Officers(10)(11)
10.16 Form of Indemnification Agreement between the Company and its
Officers and Directors(3)(11)
10.17 Plan and Agreement of Reorganization by Exchange by the Company
of its Voting Stock for Substantially All The Properties of
Gorilla Foods, Inc., dated January 31, 1996(5)
<PAGE>
Exhibit No.
- - -----------
10.18 1998 Executive Annual Incentive Plan(11)
10.19 Consulting Agreement between the Company and E. Kay Stepp, dated
November 1, 1996(10)(11)
10.20 Amendment No. 1 to Consulting Agreement between the Company and
E. Kay Stepp, dated January 1, 1998(11)
10.21 Rights Agreement between the Company and First Chicago Trust
Company of New York, dated April 25, 1996(7)
10.22 Lease Agreement between BA Leasing & Capital Corporation and
Gardenburger, Inc., dated as of December 17, 1997
10.23 Form of Option Agreement for Option grants to executive officers
after May 24, 1995(11)
10.24 Purchase and Sale Agreement with effective date of March 18,
1998, between the Company and Opus Northwest, L.L.C. for the sale
of real property at N.E. 166th and Airport Way in Portland,
Oregon
23 Consent of Arthur Andersen LLP
24 Powers of Attorney
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
(1) Incorporated by reference to the Company's Form S-1 Registration Statement
(Commission File No. 33-46623) as filed with the Securities and Exchange
Commission on May 6, 1992.
(2) Incorporated by reference to the Company's fiscal year ended December 26,
1992 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 23, 1993.
(3) Incorporated by reference to the Company's fiscal year ended December 25,
1993 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 23, 1994.
(4) Incorporated by reference to the Company's fiscal year ended December 31,
1994 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 30, 1995.
(5) Incorporated by reference to the Company's fiscal year ended December 31,
1995 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 29, 1996.
(6) Incorporated by reference to the Company's Form 10-Q Quarterly Report for
the quarter ended September 30, 1996, as filed with the Securities and
Exchange Commission on November 4, 1996.
(7) Incorporated by reference to the Company's Form 8-K Current Report, as
filed with the Securities and Exchange Commission on May 8, 1996.
(8) Incorporated by reference to the Company's Form 10-Q Quarterly Report for
the quarter ended September 30, 1997, as filed with the Securities and
Exchange Commission on November 4, 1997.
(9) Incorporated by reference to the Company's Form 10-Q Quarterly Report for
the quarter ended June 30, 1997, as filed with the Securities and Exchange
Commission on August 14, 1997.
(10) Incorporated by reference to the Company's fiscal year ended December 31,
1996 Form 10-K Annual Report as filed with the Securities and Exchange
Commission on March 25, 1997.
(11) Management contract or compensatory plan or arrangement.
EXHIBIT 10.3
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is made and entered into this 30th day of
September, 1997, 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, on the
one hand and Wholesome & Hearty Foods, Inc. ("WHFI"), on the other.
RECITALS
A. On or about January 1, 1993, Frank S. Card and WHFI entered into a
certain lease agreement (the "Lease") pursuant to which Frank S. Card agreed to
lease to WHFI 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. A copy of the Lease is attached hereto and marked Exhibit A.
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. The term of the Lease expires at midnight on December 31, 1997.
D. The parties hereto desire to amend the Lease to, among other things,
extend its term past December 31, 1997, make the Lease a month-to-month lease
effective January 1, 1998, and increase the monthly rent payment from $1,700 to
2,200.
<PAGE>
AMENDMENT
Now, therefore, in consideration for the mutual covenants contained herein,
the parties hereto agree to amend the Lease as follows:
1. IDENTITY OF LESSOR. The Lessor under the Lease is Paul F. Wenner, and
Frank S. Card and Maralee Jeanne Card, Trustees in the Card Trust U/D/T October
6, 1994.
2. EXTENSION OF TERM. The term of the Lease will not expire on December 31,
1997, and is hereby extended as set forth below.
3. MONTH-TO-MONTH LEASE. Beginning January 1, 1998, the Lease will become a
month-to-month lease. Either Lessor or Lessee may terminate the Lease by giving
the other party not less than 30 days' notice in writing prior to the date
designated in the notice for termination.
4. RENT. Beginning with the rent due for January 1998, Lessee shall pay
Lessor a rental of $2,200 per month.
5. NOTICES. Notices under the Lease shall be given to Lessor and Lessee at
Suite 400, 1411 S.W. Morrison, Portland, Oregon 97205.
6. NO OTHER MODIFICATION TO LEASE. No other modification to the Lease is
made or intended to be made hereby. All terms, conditions, and covenants of 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: WHOLESOME & HEARTY FOODS, INC.
By /s/ Richard C. Dietz
-------------------------------------------
Richard C. Dietz
Chief Financial Officer/Executive Vice
President
EXHIBIT 10.7
FIRST AMENDMENT TO LEASE
December 9, 1997
AMERICAN PROPERTY MANAGEMENT Account #C-8923-02
The following First Amendment shall amend the original Lease (LEASE) dated
October 29, 1996 between AMERICAN PROPERTY MANAGEMENT CORP. as managing agent
and on behalf of WESTON HOLDING CO., L.L.C. (LESSOR) and WHOLESOME & HEARTY
FOODS, INC., an Oregon Corporation (LESSEE) regarding the Premises located at
1411 S.W. Morrison Street, Portland, Oregon.
If any provisions contained in this First Amendment to Lease are inconsistent
with any other provisions of the LEASE, the provisions contained in this First
Amendment to Lease shall control, unless otherwise provided in this First
Amendment to Lease.
The LEASE shall be amended as follows:
The LESSEE name shall be deleted in its entirety and restated as follows:
GARDENBURGER, INC., an Oregon Corporation.
All other terms and conditions of the LEASE shall apply.
LESSOR: LESSEE:
AMERICAN PROPERTY MANAGEMENT CORP. GARDENBURGER, INC., an Oregon Corporation
As agent and on behalf of
WESTON HOLDING CO., L.L.C.
X /s/Douglas D. Lindholm X /s/Richard C. Dietz
--------------------------------- ----------------------------------------
Douglas D. Lindholm Name: Richard C. Dietz
Vice President of Commercial Property Title: Chief Financial Officer
Date: 12/12/97 Date: 12/15/97
-------------------------- ---------------------------------
EXHIBIT 10.9
ADDENDUM TO LEASE
This Addendum to Lease is dated as of this 1st day of August, 1997, by
and between Freeport Center Associates, a Utah general partnership ("Landlord"),
and Wholesome & Hearty Foods, Inc., an Oregon corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into a certain lease agreement dated May 28,
1997, for the lease by Landlord to Tenant of certain real property and
improvements thereon located in the City of Clearfield, County of Davis, State
of Utah (the "Lease").
B. Pursuant to Section 37B of the Lease, Tenant agreed to furnish Landlord
with a letter of credit or other form of security to secure the performance of
Tenant's restoration obligations as that term is defined under Sections 20 and
37B of the Lease. Section 37B of the Lease requires the letter of credit to be
irrevocable and provides that the letter of credit shall not expire for a period
of up to 90 days following expiration of the initial term of the Lease.
C. A standby letter of credit dated May 28, 1997 (the "Letter of Credit"),
has been issued in favor of Landlord by Bank of America ("Issuer") pursuant to
Section 37B of the Lease. A copy of the Letter of Credit is attached hereto as
Exhibit A. The Letter of Credit was amended pursuant to an amendment dated
August 11, 1997, a copy of which is attached hereto as Exhibit B. The Letter of
Credit, by its terms, is not irrevocable and may be terminated by Issuer under
the terms and conditions set forth in the Letter of Credit.
D. The purpose of this Addendum to Lease is to confirm that the Letter of
Credit, as amended, is acceptable to Landlord and to reflect the parties'
agreement that Tenant shall have 45 days in which to furnish Landlord with
another letter of credit or other reasonably acceptable form of security in the
event the Letter of Credit terminates prior to Tenant's extension of the term of
the Lease or, if Tenant does not extend the term of the Lease, prior to March
31, 2003.
<PAGE>
AGREEMENT
1. Landlord hereby consents to the Letter of Credit, as amended, and
agrees that it is in a form and content acceptable to Landlord.
2. In the event Issuer gives notice to Landlord that it will cancel or
not renew the Letter of Credit such that it will terminate prior to Tenant's
extension of the Lease pursuant to Section 2 of the Lease or, if Tenant does not
so extend the Lease, prior to March 31, 2003, Landlord will (1) immediately
provide Tenant with written notice that Landlord has received from Issuer notice
of cancellation or non-renewal of the Letter of Credit, and (2) refrain and
forbear from drawing upon the Letter of Credit for a period of 45 days after
providing Tenant with the foregoing notice of Issuer's notice of cancellation or
non-renewal. If Tenant during such 45-day period does not furnish Landlord with
another standby letter of credit, performance or payment bond, or other form of
security that is reasonably acceptable to Landlord, Landlord will be authorized
to draw in full upon the Letter of Credit.
TENANT: LANDLORD:
WHOLESOME & HEARTY FOODS, INC., FREEPORT CENTER ASSOCIATES,
an Oregon corporation a Utah general partnership
By /s/ James W. Linford By /s/ Robert O'Block
----------------------------- -------------------------
James W. Linford
Vice President, Supply Chain Its General Partner
EXHIBIT 10.18
GARDENBURGER, INC.----1998 PROPOSED EXECUTIVE ANNUAL INCENTIVE PLAN
- - --------------------------------------------------------------------------------
The proposed executive bonus plan for 1998 continues to support the
organization's strategy of branding the category and achieving optimal sales
growth through national distribution in the retail and food service channels.
The 1998 executive bonus plan focuses on achieving sales targets in the retail
and food service channel. Executives responsible for overall corporate
management are held accountable for overall sales objectives.
- - -- Each executive has a target award opportunity which pays out if target
performance is achieved.
-----------------------------------------------------
CEO 55% of base salary
Retail/food service managers 45%
Corporate staff 45%
-----------------------------------------------------
- - -- The award opportunity is focused on achievement of sales growth and
strategic initiatives.
-- Up to 25% of the target award is based on achievement of key strategic
objectives that vary by position.
-- 75% of the award at target is based on sales growth. This portion of
the award is uncapped; an unlimited payout is possible based on actual
results.
- - -- Following is the target award opportunity by executive (assuming current
base salary levels).
- - --------------------------------------------------------------------------------
CURRENT TARGET SALES INDIVIDUAL
BASE GROWTH AWARD AWARD TOTAL
- - --------------------------------------------------------------------------------
CEO Hubbard $280,000 55.0% $115,500 $38,500 $154,000
CCO Wenner 164,000 45.0% 55,350 18,450 73,800
CFO Dietz 145,000 45.0% 48,940 16,310 65,250
HR Brown 100,000 45.0% 33,750 11,250 45,000
RD Traband 110,000 45.0% 37,125 12,375 49,500
SC Linford 145,000 45.0% 48,940 16,310 65,250
FS Monahan 120,000 45.0% 40,500 13,500 54,000
FSM Crandall 100,000 45.0% 33,750 11,250 45,000
FSS Endicott 95,000 45.0% 32,060 10,690 42,750
RM Dillon 145,000 45.0% 48,940 16,310 65,250
RTM Elenz 138,000 45.0% 46,575 15,525 62,100
RS Gates 135,000 45.0% 45,560 15,190 60,750
- - --------------------------------------------------------------------------------
Total 46.7% 782,650
- - --------------------------------------------------------------------------------
- - -- A circuit breaker of $11.1 million operating loss will ensure no awards are
paid below a minimally acceptable level of performance. This measn that
regardless of sales growth achieivement or individual achievement, no
awards incentive will be paid if the operating loss is greater than $11.1
million.
<PAGE>
- - -- The pay/performance schedules for the retail and food service channel
follow. The sales growth portion of corporate awards is based on a weighted
average roll-up of these two channels.
Retail Food Service
------ ------------
Percent of Target Percent of Target
Sales Growth* Award Earned* Sales Growth* Award Earned*
- - ------------- ----------------- ------------- -----------------
-25% 0% -10% 0%
25% 20% 10% 20%
40.4% 60% 13.1% 60%
55.8% 100% 14.7% 80%
73.5% 140% 16.3% 100%
82.3% 160* 29.8% 140%
100% 200% 36.5% 160%
50% 200%
(unlimited) (unlimited)
[graphs to represent above] [graphs to represent above]
EXHIBIT 10.20
FIRST AMENDMENT TO INDEPENDENT
CONSULTANT AGREEMENT
This First Amendment ("First Amendment") is made and entered into as of
January 1, 1998, by and between Gardenburger, Inc. formerly known as Wholesome &
Hearty Foods, Inc. ("Gardenburger"), and E. Kay Stepp ("Stepp").
RECITALS
A. On or about November 1, 1996, Gardenburger and Stepp entered into an
Independent Consulting Agreement dated November 1, 1996 (the "Agreement"), a
copy of which is attached hereto as Exhibit A.
B. Gardenburger and Stepp desire to amend the Agreement in the manner
set forth below.
AMENDMENTS
1. Section 4.1 of the Agreement is amended to provide as follows:
"4.1 QUARTERLY FEE. Gardenburger shall pay to Stepp, as
compensation for the consulting services rendered by her hereunder, a
quarterly fee of $5,000 payable in advance on January 1, April 1, July
1, and October 1 of each year, commencing January 1, 1998. The amount
of the quarterly fee shall be subject to review and adjustment as
provided in Section 4.2 of the Agreement."
2. Section 4.2 of the Agreement is amended to provide as follows:
"4.2 REVIEW/ADJUSTMENT OF QUARTERLY FEES. The Board of Directors
and Stepp will review the above-described consulting fee on an annual
basis to determine whether any adjustments in compensation are
appropriate."
3. Section 5.1 of the Agreement is amended to provide as follows:
"5.1 AUTOMATIC GRANT OF DIRECTOR STOCK OPTIONS. Pursuant to the
provisions of Section 4 of the Gardenburger 1992 First Amended and
Restated Combination Stock Option Plan, Stepp shall receive, so long
as she remains a member of the Board of Directors of Gardenburger and
does not become an employee of Gardenburger, an automatic grant of
nonstatutory stock options each year, as of the date of Gardenburger's
annual meeting of shareholders, to purchase 6,000 shares of common
stock of Gardenburger."
<PAGE>
4. The parties hereby acknowledge that in October 1997, Wholesome &
Hearty Foods, Inc. changed its name to Gardenburger, Inc., and that the rights,
duties, and obligations of the parties under the Agreement will not be affected
by the name change.
5. No other modification or amendment to the Agreement is made or
intended to be made hereby. All terms, conditions, and covenants of the
Agreement, to the extent not inconsistent with the foregoing amendments, shall
remain in full force and effect.
GARDENBURGER, INC., formerly
known as Wholesome & Hearty Foods, Inc.,
an Oregon corporation
By: /s/Richard C. Dietz /s/E. Kay Stepp
------------------------------ -----------------------------------
E. Kay Stepp
Title: Executive VP and CFO Date: February 16, 1998
--------------------------- ------------------------------
Date: February 16, 1998
---------------------------
EXHIBIT 10.22
Lease No. 970098
LEASE AGREEMENT ("Lease") dated as of December 17, 1997 between BA LEASING
& CAPITAL CORPORATION, a California corporation with an office at 555 California
Street, 4th Floor, San Francisco, California 94104 ("Lessor") and GARDENBURGER,
INC., an Oregon corporation with its principal office at 1411 S. W. Morrison
Street, Suite 400, Portland, Oregon 97205 ("Lessee").
Lessor agrees to acquire and lease to Lessee and Lessee agrees to hire from
Lessor certain personal property (the "Units" and individually a "Unit")
described in the appendix to the Lease attached hereto and made a part hereof,
or any other appendix hereto that Lessor and Lessee may enter into from time to
time (each an "Appendix") hereof, on the terms and conditions set forth herein
and in the relevant Appendix.
Section 1. PROCUREMENT, DELIVERY AND ACCEPTANCE.
- - --------- ------------------------------------
1.1 Lessee has ordered or shall order the Units pursuant to one or more
purchase orders or other contracts of sale ("Purchase Agreements") from one or
more vendors ("Vendors"). If, before the date of any Appendix, Lessee receives
title to or possession of any Unit described in such Appendix, Lessee shall
convey the Unit to Lessor under a bill of sale in form and substance
satisfactory to Lessor. Lessee shall, on the date of each Appendix, assign to
Lessor all of Lessee's right, title and interest in and to the Purchase
Agreements for the Units described in the Appendix by executing and delivering
to Lessor a Purchase Agreement Assignment in the form of Exhibit A (a "Purchase
Agreement Assignment"). Lessor agrees to (a) accept the assignment and (b)
subject to Section 1.2, assume the obligations of Lessee under the Purchase
Agreements to purchase and pay for the Units, but no other duties and
obligations thereunder. Nevertheless, Lessee shall remain liable to Vendor with
respect to its duties and obligations in accordance with the Purchase
Agreements.
1.2 The obligation of Lessor to pay for each Unit is subject to
satisfaction of the conditions precedent set forth in Paragraph B.2 of the
relevant Appendix. If any of those conditions is not met with respect to any
Unit, Lessor shall assign to Lessee all of Lessor's right, title and interest in
and to the Unit and any bill of sale or Purchase Agreement previously assigned
to Lessor as it relates to the Unit.
1.3 Lessee shall forward to Lessor original invoices relating to each Unit
to be accepted under the terms of this Lease and the relevant Appendix. If
Lessee has received title and possession of the Unit before executing a Purchase
Agreement Assignment relating thereto, Lessee will execute a bill of sale
conveying title thereto to Lessor. Lessor shall prepare an Acceptance
Certificate in the form of Exhibit B (an "Acceptance Certificate") together with
a Schedule to the Acceptance Certificate in the form of Exhibit C (a "Schedule")
based upon the criteria in the relevant Appendix. Lessee shall execute and
return the Acceptance Certificate and Schedule within five business days after
the preparation of such Schedule confirming the date Lessee has received such
Unit, or, the date when any required installation and testing is completed (the
"Delivery Date"), and confirming that the Lessee has accepted the Unit under
Lease as of its Delivery Date. Upon receipt of the executed Acceptance
Certificate and Schedule, Lessor shall pay the Purchase Price (as defined in the
relevant Appendix) with respect to the Units described therein.
<PAGE>
Section 2. TERM, RENT AND PAYMENT.
- - --------- ----------------------
2.1 The term of this Lease for each Unit (its "Lease Term") shall begin on
the date of the Appendix describing the Unit and continue as specified in its
Appendix and Schedule.
2.2 Lessee shall pay Lessor rent for each Unit in the amounts and at the
times specified in its Appendix and Schedule.
2.3 Rent and all other sums due Lessor hereunder shall be paid at the
office of Lessor set forth below, unless otherwise specified by Lessor.
2.4 THIS LEASE IS A NET LEASE AND LESSEE SHALL NOT BE ENTITLED TO ANY
ABATEMENT OR REDUCTION OF RENT OR ANY SETOFF AGAINST RENT, WHETHER ARISING BY
REASON OF ANY PAST, PRESENT OR FUTURE CLAIM OF ANY NATURE BY LESSEE AGAINST
LESSOR OR OTHERWISE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LEASE
SHALL NOT TERMINATE, NOR SHALL THE OBLIGATIONS OF LESSOR OR LESSEE BE OTHERWISE
AFFECTED BY ANY CIRCUMSTANCE, including, without limitation, (a) any defect in,
damage to, loss of possession or use or destruction of any Unit, however caused,
(b) the attachment of any lien, encumbrance, security interest or other right or
claim of any third party to any Unit, (c) any prohibition or restriction of or
interference with Lessee's use of any Unit by any person or entity, (d) the
insolvency of or the commencement by or against Lessee of any bankruptcy,
reorganization or similar proceeding, or (e) any other cause, whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. IT IS THE INTENTION OF THE PARTIES THAT ALL RENT AND OTHER
AMOUNTS PAYABLE BY LESSEE HEREUNDER SHALL BE PAYABLE IN ALL EVENTS IN THE MANNER
AND AT THE TIMES HEREIN PROVIDED UNLESS LESSEE'S OBLIGATIONS IN RESPECT THEREOF
HAVE BEEN TERMINATED PURSUANT TO EXPRESS PROVISIONS HEREOF.
2.5 Payments shall be applied in the following order: (a) Lessor's
expenses, including without limitation those set forth in Sections 8.3 and 19;
(b) interest on late payments; and (c) rent and all other sums due hereunder.
Payments shall be conclusively evidenced by entries in records maintained by
Lessor.
Section 3. REPRESENTATIONS AND WARRANTIES.
- - --------- ------------------------------
Lessee hereby represents and warrants to Lessor as follows:
(1) Lessee is a corporation duly organized and existing under the laws
of the state of its incorporation, is qualified to do business in every
state in which the quantity or nature of its business or property make such
qualification necessary, is in good standing in each such state and has
full and adequate corporate powers to carry on and conduct its business as
now conducted.
(2) The Lease has been duly authorized, executed and delivered by
Lessee and is a legal, valid and binding agreement of Lessee.
(3) Lessee has full right, power and authority to execute and deliver
the Lease and perform its obligations under this Lease; and the execution
and delivery of the Lease by Lessee does not, and performance by Lessee
thereof will not, contravene any charter or by-law provision of Lessee or
of any indenture, covenant, instrument or agreement of to which Lessee is a
party or by which Lessee or any of its properties is bound or affected.
(4) No approval, consent, exemption, authorization or other action by,
or notice to or filing with, any government authority is necessary in
connection with the execution, delivery, performance by Lessee or
enforcement by Lessor of the Lease, or if necessary the same has been
obtained.
<PAGE>
(5) There is no law, rule or regulation that would be contravened by
the execution, delivery, performance by Lessee or enforcement by Lessor of
the Lease, nor to Lessee's knowledge are there, as of the date hereof, any
actions, suits, or proceedings (whether or not purportedly on behalf of
Lessee) pending, or to Lessee's knowledge, threatened against or affecting
Lessee, at law or in equity or before any Federal, state, municipal or
other governmental department, commission, board, bureau, agency, court or
instrumentality, which involve the possibility of any judgment, or
liability, which items are not fully covered by insurance, or which may
result in any material adverse change in the business, operations,
properties or assets or in the condition, financial or otherwise, of
Lessee, or the ability of Lessee to carry on its business and the
performance of its obligations hereunder, and Lessee has no knowledge of
any default on Lessee's part with respect to any order, writ, injunction or
decree of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, that may
result in such material adverse change.
(6) The Lease is enforceable against Lessee in accordance with its
terms, except as such enforcement may be subject to applicable bankruptcy,
rehabilitation, liquidation, conservation, dissolution, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and is subject to general principles
of equity (regardless of whether enforcement is sought in a proceeding at
law or in equity.
LESSEE ACKNOWLEDGES AND AGREES THAT (A) EACH UNIT IS OF A SIZE, DESIGN,
CAPACITY AND MANUFACTURE SELECTED BY LESSEE, (B) LESSEE IS SATISFIED THAT THE
SAME IS SUITABLE FOR ITS PURPOSES, (C) LESSOR IS NOT A MANUFACTURER THEREOF NOR
A DEALER IN PROPERTY OF SUCH KIND AND (D) LESSOR HAS NOT MADE, AND DOES NOT
HEREBY MAKE, ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE TITLE,
MERCHANTABILITY, CONDITION, QUALITY, DESCRIPTION, DURABILITY, FITNESS FOR
PURPOSE OR SUITABILITY OF ANY UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR
THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to the extent
assignable, any warranties, covenants and representations of Vendor with respect
to any Unit, but any action taken by Lessee by reason thereof shall be at
Lessee's expense and shall be consistent with Lessee's obligations under Section
2.
Section 4. POSSESSION, USE AND MAINTENANCE.
- - --------- -------------------------------
4.1 Lessee shall not (a) use, operate, maintain or store any Unit
improperly, carelessly or in violation of any applicable law or regulation of
any government authority, (b) abandon any Unit, (c) sublease any Unit or permit
its use by anyone other than Lessee without the prior written consent of Lessor,
(d) permit any Unit to be removed from the location or principal base, as the
case may be, specified in the relevant Appendix or permit any Unit that is a
motor vehicle to be registered in any state other than as specified in the
relevant Appendix without the prior written consent of Lessor, (e) affix or
place any Unit to or on any other personal property or any real property without
first obtaining and delivering to Lessor such waivers as Lessor may reasonably
require to assure Lessor's ownership and right to remove the Unit free from any
lien, encumbrance, right or claim asserted by any third party or (f) sell,
assign or transfer, or directly or indirectly create, incur or suffer to exist
any lien, encumbrance, right or claim of any kind on any of its rights hereunder
or in any Unit.
<PAGE>
4.2 Lessee shall at its expense maintain each Unit during its Lease Term in
good operating order, repair, condition and appearance and in accordance with
the manufacturer's recommended procedures.
4.3 Lessee shall not alter any Unit or install any accessory, equipment or
device on any Unit that would impair any applicable warranty, the originally
intended function or the value of the Unit. All repairs, parts, accessories,
equipment and devices furnished, affixed to or installed on any Unit, excluding
temporary replacements, shall thereupon become the property of Lessor but, if no
Event of Default exists, Lessee may, at its expense, remove them from the Unit
at the end of its Lease Term, if they are readily removable and their removal
will not impair the originally intended function or use of the Unit.
4.4 If Lessor supplies Lessee with a label, plate or other marking stating
each Unit is leased from Lessor, Lessee shall affix and keep it on a prominent
place on each Unit during its Lease Term.
4.5 Upon prior notice to Lessee, Lessor and its designees shall have the
right at all reasonable times to inspect any Unit, observe its use and inspect
records related thereto.
Section 5. GENERAL TAX INDEMNITY.
- - --------- ---------------------
5.1 Lessee shall pay or reimburse Lessor for, and indemnify and hold Lessor
harmless from, all fees (including, but not limited to, license, documentation,
recording or registration fees) and all sales, use, gross receipts, property,
occupational, value-added or other taxes, levies, imposts, duties, assessments,
charges or withholdings of any nature whatsoever, together with any penalties,
fines or additions to tax, or interest thereon (each of the foregoing being
hereafter referred to as an "Imposition"), arising at any time before or during
the term of this Lease, or upon any termination of this Lease or return of the
Units to Lessor, and levied or imposed on Lessor, directly or otherwise, by any
federal, state or local government or taxing authority in the United States or
by any foreign country or foreign or international taxing authority on or with
respect to (a) any Unit, (b) the exportation, importation, registration,
purchase, ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, transportation, return, sale, transfer of title or other
disposition thereof, (c) the rents, receipts, or earnings arising from any Unit
or (d) this Lease or any payment made hereunder, excluding, however, taxes
measured by Lessor's net income imposed or levied by the United States or any
state thereof unless such taxes are in lieu of or in substitution for any
Impositions Lessee would otherwise have been obligated to pay, reimburse or
indemnify hereunder. Lessee shall not be responsible for any taxes in connection
with any sale or lease of the Unit by Lessor after Lessee has returned the Unit
pursuant to Section 9 of this Lease.
5.2 Lessor shall pay directly each Imposition for which Lessor is primarily
responsible and as to which Lessor gives Lessee notice Lessor will pay directly;
and Lessee shall promptly reimburse Lessor for any such Imposition so paid
(except any Imposition excluded by Section 5.1) upon presentation of a bill
therefor.
5.3 Lessee shall pay on or before the time or times prescribed by law any
Imposition for which Lessee is primarily responsible under applicable law and
any other Imposition (except any Imposition excluded by Section 5.1) not payable
by Lessor pursuant to Section 5.2, but Lessee shall have no obligation to pay an
Imposition that Lessee is contesting in good faith and by appropriate legal
proceedings and the nonpayment thereof does not, in the opinion of Lessor,
adversely affect the title, property, use, disposition or other rights of Lessor
with respect to the Units. Lessee shall furnish on Lessor's request proof of
payment of any Imposition paid by Lessee.
<PAGE>
5.4 If Lessor is not entitled to a corresponding and equal deduction with
respect to any Imposition Lessee is required to pay or reimburse under Section
5.1, 5.2, or 5.3 and the payment or reimbursement constitutes income to Lessor,
then Lessee shall also pay to Lessor the amount of any Imposition Lessor is
obligated to pay in respect of (a) such payment or reimbursement by Lessee and
(b) any payment by Lessee made pursuant to this Section 5.4.
5.5 Lessor shall prepare and file all required property tax reports or
returns as "Owner" of the Units but Lessee must timely provide Lessor with all
information that Lessor requires to prepare properly any such report or return.
Lessee shall report the Units as "Equipment Leased from Others" on any property
tax reports or returns required to be filed by Lessee. Lessee shall furnish on
Lessor's request copies of reports or returns so filed.
Section 6. RISK OF LOSS; CASUALTIES; INDEMNITY.
- - --------- -----------------------------------
6.1 If any Unit is worn out, lost, stolen, destroyed or irreparably
damaged, from any cause whatsoever, or taken or requisitioned by condemnation or
otherwise (any such occurrence being hereinafter called a "Casualty Occurrence")
before or during the term of this Lease as to such Unit, Lessee shall give
Lessor prompt notice thereof. On the first rent payment date after the Casualty
Occurrence or, if there is no such rent payment date, 30 days after the Casualty
Occurrence, Lessee shall (i) pay to Lessor, in addition to any other amounts
then due and owing, an amount equal to the rent payment, if any, due on such
date, any "Other Charges" required under the relevant Appendix and a sum equal
to the Casualty Value for all, but not less than all, of the Units as of such
date, determined according to the relevant Appendix, or (ii) provided there is
no Event of Default hereunder, Lessee shall have the option to substitute Units
that have suffered a Casualty Occurrence with equipment of like-kind or equal or
value, utility and estimated useful like (the "Replacement Unit"). Prior to or
at the time of any substitution, Lessee shall, at its expense, take all actions
reasonably requested by Lessor to document, perfect, and protect Lessor's
interest in the Replacement Unit. Lessee shall represent, warrant and covenant
that each Replacement Unit shall be free and clear of all claims, liens,
security interests and encumbrances of any kind.
Upon the making of such payment by Lessee , the rent for the Unit shall
cease to accrue, its Lease Term shall terminate and Lessor shall be entitled to
recover possession of the Unit. If Lessor receives the Casualty Value for a
Unit, Lessee shall be entitled to the proceeds of any recovery in respect of the
Unit from insurance or otherwise, including any excess proceeds over Casualty
Value, . Except as provided in this Section 6.1, Lessee shall not be released
from its obligations hereunder in the event of, and shall bear the risk of, any
Casualty Occurrence to any Unit before or during its Lease Term.
6.2 Except for any claims of breach of this Lease by Lessor, Lessee waives
and releases any claim now or hereafter existing against Lessor, any company
controlled by, controlling, or under common control with Lessor and all of their
directors, officers, employees, agents, attorneys, successors and assigns (each,
an "Indemnified Person") on account of, and shall indemnify, reimburse and hold
each Indemnified Person harmless from, any and all claims (including, but not
limited to, claims based on or relating to copyright, trademark or patent
infringement, environmental liability, negligence, strict liability in tort,
statutory liability or violation of laws), losses, damages, obligations,
penalties, liabilities, demands, suits, judgments or causes of action
(collectively, "Claims"), and all legal proceedings, and any reasonable costs or
expenses in connection therewith, including reasonable attorneys' fees,
including reasonable allocated time charges of internal counsel, in each case
imposed on, incurred by or asserted against the Indemnified Person in any way
relating to or arising in any manner out of (a) the registration, purchase,
taking or foreclosure of a security interest in, or the ownership, delivery,
condition, lease, assignment, storage, transportation, possession, use,
operation, return, repossession, sale or other disposition of, any Unit, before
or during the term of this Lease as to the Unit, (b) any alleged or actual
defect in any Unit (whether arising from the material or any article used
therein, the design, testing, use, maintenance, service, repair or overhaul
thereof or otherwise) regardless of when such defect is discovered or alleged,
whether or not the Unit is in Lessee's possession and no matter where it is
located or (c) this Lease or any other related document, the enforcement hereof
or thereof or the consummation of the transactions contemplated hereby or
thereby.
<PAGE>
Section 7. INSURANCE.
- - --------- ---------
Lessee, at its own cost and expense, shall keep each Unit insured against
all risks for the value of the Unit and in no event for less than the Casualty
Value of the Units, and shall maintain public liability insurance against such
risks and for such amounts as Lessor may require. All such insurance shall be in
such form and with such companies as Lessor shall approve, shall specify Lessor
and Lessee as insureds and shall provide that such insurance may not be canceled
as to Lessor or altered in any way that would affect the interest of Lessor
without at least 30 days prior written notice to Lessor (10 days in the case of
nonpayment of premium). All insurance shall be primary, without right of
contribution from any other insurance carried by Lessor, shall contain a "breach
of warranty" provision satisfactory to Lessor, and shall provide that all
amounts payable by reason of loss or damage to the Units, up to the amount of
Scheduled Casualty Value, shall be payable solely to Lessor, unless Lessor
otherwise agrees. Lessee shall provide Lessor with evidence satisfactory to
Lessor of the required insurance at the time specified in Paragraph B.2 of the
relevant Appendix.
Section 8. DEFAULTS; REMEDIES.
- - --------- ------------------
8.1 The following shall constitute events of default ("Events of Default")
hereunder:
(a) Lessee fails to make any payments to Lessor in the case of Rent
within 5 business days and in all other cases within 10 business days of,
when due hereunder;
(b) any representation or warranty of Lessee contained herein or in
any document furnished to Lessor in connection herewith is incorrect or
misleading in any material respect when made and (i) such
misrepresentations cannot be cured within 15 business days, or (ii) if
curable within 15 business days, Lessee does not proceed promptly to effect
such cure.
(c) Lessee fails to observe or perform any other covenant, agreement
or warranty made by Lessee hereunder or under any document delivered
pursuant hereto and such failure continues for 10 business days after
written notice thereof to Lessee;
(d) any default occurs under any other agreement for borrowing money
or receiving credit under which Lessee or any guarantor or general partner
of Lessee 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;
(e) Lessee, any guarantor of this Lease or any general partner of
Lessee makes an assignment for the benefit of creditors or files any
petition or action under any bankruptcy, reorganization, insolvency or
moratorium law, or any other law or laws for the relief of, or relating to,
debtors;
(f) any guarantor of this Lease breaches or fails to perform any
covenant in its guaranty, or any letter of credit required by this Lease
expires or terminates without Lessor's consent, or Lessor receives notice
that the letter of credit will not be renewed in accordance with its terms;
<PAGE>
(g) an involuntary petition is filed under any bankruptcy statute
against Lessee, any guarantor of this Lease or any general partner of
Lessee, or any receiver, trustee, custodian or similar official is
appointed to take possession of the properties of Lessee, any guarantor of
this Lease or any general partner of Lessee, unless such petition or
appointment is set aside or withdrawn or ceases to be in effect within 60
days from the date of the filing or appointment; or
(h) Lessee, any guarantor of this Lease or any general partner of
Lessee (i) liquidates, dissolves, dies or enters into any partnership,
joint venture (other than in its ordinary course of business), or enters
into any consolidation, merger or other combination, or sells, leases or
disposes of a substantial portion of its business or assets, (ii) the event
referred to in clause (i) results in a material adverse change in Lessee's
net worth, debt to equity ratio, or financial condition and (iii) Lessee is
the surviving entity.
8.2 If any Event of Default occurs, Lessor, at its option, may:
(a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by Lessee of the applicable covenants of
this Lease or to recover damages for the breach thereof; or
(b) by notice in writing to Lessee terminate this Lease, whereupon all
rights of Lessee to use the Units shall terminate, but Lessee shall remain
liable as hereinafter provided; and thereupon Lessor may enter upon the
premises of Lessee or other premises where any of the Units may be and take
possession of all or any of such Units and thenceforth hold the same free
from any right of Lessee, its successors or assigns, but Lessor shall,
nevertheless, have a right to recover from Lessee any and all amounts that
under the terms of this Lease may be then due or that may have accrued to
the date of such termination (computing the rent for any number of days
less than a full rent period by multiplying the rent for such full rental
period by a fraction of which the numerator is such number of days and the
denominator is the total number of days in such full rent period) and also
to recover forthwith from Lessee: (i) as damages for loss of the bargain
and not as a penalty, a sum, with respect to each Unit, that equals (x) the
present value, at the time of such termination, of the entire unpaid
balance of all rent for the Unit that would otherwise have accrued
hereunder from the date of such termination to the end of its Lease Term
minus (y) the then present value of the rent Lessor reasonably estimates to
be obtainable for the Unit during such period, such present value to be
computed in each case by discounting at a rate equal to the then judgment
rate of interest fixed under California law, compounded at the same
frequency as rent is payable hereunder, from the respective dates upon
which rent would have been payable hereunder had the Lease not been
terminated and (ii) any damages and expenses in addition thereto that
Lessor sustains because of the breach of any covenant, representation or
warranty contained in this Lease other than for the payment of rent.
Lessee hereby waives any rights now or hereafter conferred by statute
or otherwise that may require Lessor to sell, lease or otherwise use any
Unit in mitigation of Lessor's damages upon any default by Lessee, except
as may be set forth in this Section 8.2, or that may otherwise limit or
modify any of Lessor's rights or remedies under Section 8.2.
8.3 Lessee agrees to pay all allocated time charges, costs and expenses of
internal counsel for Lessor and any other attorneys' fees, expenses or
out-of-pocket costs incurred by Lessor in enforcing this Lease.
8.4 The remedies herein provided in favor of Lessor shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other
remedies in its favor existing at law or in equity.
8.5 If Lessee fails to perform any of its agreements contained herein,
Lessor may (if practical, after notice to Lessee) perform such agreement, and
Lessee shall pay the expenses incurred by Lessor in connection with such
performance upon demand.
<PAGE>
Section 9. RETURN OF UNITS.
- - --------- ---------------
Upon expiration of the Lease Term of each Unit, or if Lessor rightfully
demands possession of any Unit pursuant to this Lease or otherwise, Lessee, at
its expense, shall forthwith deliver possession of the Unit to Lessor, together
with its manuals and maintenance records, in the condition required by Section 4
and any additional return requirements specified in the relevant Appendix by
preparing and appropriately protecting the Unit for shipment and, at the option
of Lessor, surrendering it to Lessor at a location in the Continental United
States selected by Lessor in such condition that the Unit could be installed
without delay and operate at manufacturers recommended specifications and
production capacity, all at Lessee's expense. Lessee shall safely store, insure
and maintain the equipment for an additional 60 days after the expiration of the
Lease Term of each Unit.
Section 10. ASSIGNMENT.
- - ---------- ----------
Lessor may at any time assign or transfer all or any of the right, title or
interest of Lessor in and to this Lease, and the rights, benefits and advantages
of Lessor hereunder, including the rights to receive payment of rent or any
other payment hereunder, Lessor's title to the Units and any and all obligations
of Lessor in connection herewith, without increasing the costs or liabilities of
Lessee hereunder. Lessor may disclose to any potential or actual assignee or
transferee any information in the possession of Lessor or any of its affiliates
relating to Lessee or this Lease. Any such assignment or transfer shall be
subject and subordinate to this Lease and the rights and interests of Lessee
hereunder. NO ASSIGNMENT OF THIS LEASE OR ANY RIGHT OR OBLIGATION HEREUNDER MAY
BE MADE BY LESSEE OR ANY ASSIGNEE OF LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR.
Section 11. FURTHER ASSURANCES.
- - ---------- ------------------
Lessee confirms there is no pending litigation, tax claim, proceeding or
dispute that may adversely affect its financial condition or impair its ability
to perform its obligations hereunder. Lessee will, at its expense, maintain its
legal existence in good standing and do any further act and execute,
acknowledge, deliver, file, register and record any further documents Lessor may
reasonably request in order to protect Lessor's title to the Units and Lessor's
rights and benefits under this Lease.
Section 12. LATE PAYMENTS.
- - ---------- -------------
Lessee shall pay to Lessor, on demand, interest at the rate set forth in
the relevant Appendix on the amount of any payment not made when due hereunder
from the date due until payment is made.
<PAGE>
Section 13. EFFECT OF WAIVER.
- - ---------- ----------------
No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breach or default under this Lease must
be in writing specifically set forth.
Section 14. SURVIVAL OF COVENANTS.
- - ---------- ---------------------
All obligations of Lessee under Sections 1, 2, 4, 5, 6, 7, 8, 9, 11 and 12
hereof and under each Appendix shall survive the expiration or termination of
this Lease to the extent required for their full observance and performance.
Section 15. APPLICABLE LAW; SEVERABILITY.
- - ---------- ----------------------------
This Lease shall be governed by and construed under the laws of California,
to the jurisdiction of which, and of federal courts in California, the parties
hereto submit. If any provision hereof is held invalid, the remaining provisions
shall remain in full force and effect.
Section 16. FINANCIAL INFORMATION.
- - ---------- ---------------------
Lessee shall, and shall cause any guarantor to, keep its books and records
in accordance with generally accepted accounting principles and practices
consistently applied and shall, and shall cause any guarantor to, deliver to
Lessor (i) its annual CPA-audited financial statements within 120 days of its
fiscal year end, (ii) its quarterly Forms 10Q within 45 days of its quarter end,
(iii) a certificate from a responsible officer delivered with its quarterly and
year-end financial statements to the effect that Lessee is in compliance with
all the terms and conditions of the Lease, and (iv) such financial statements
and information, including without limitation quarterly company prepared
financial statements, as may be set forth in the relevant Appendix or as Lessor
may reasonably request. Annual statements shall be accompanied by an unqualified
opinion of the auditor. Credit information relating to Lessee, any guarantor or
any general partner of Lessee may be disseminated among Lessor and any of its
affiliates and any of their respective successors and assigns.
<PAGE>
Section 17. NOTICES.
- - ---------- -------
All demands, notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered or when
deposited in the mail, first class postage prepaid, or delivered to an express
carrier, charges prepaid, or sent by facsimile transmission (with electronic
confirmation of receipt) addressed to each party at the address set forth below
the signature of such party on the signature page, or at such other address as
may hereafter be furnished in writing by such party to the other.
Section 18. COUNTERPARTS.
- - ---------- ------------
Two counterparts of this Lease have been executed by the parties hereto.
One counterpart has been prominently marked "Lessor's Copy". One counterpart has
been prominently marked "Lessee's Copy". Only the counterpart marked "Lessor's
Copy" shall evidence a monetary obligation of Lessee.
Section 19. TRANSACTION COSTS.
- - ---------- -----------------
Lessee will reimburse Lessor for any out-of-pocket costs or expenses
incurred in connection with the preparation and negotiation of the lease
documents, including but not limited to UCC searches, UCC filings, appraisals,
title searches and title insurance. If Lessor uses counsel in connection with
negotiating, drafting or altering this Lease or any related documents, Lessee
shall reimburse Lessor for any legal expenses of Lessor (including allocated
time charges of internal counsel for Lessor).
Section 20. NONINTERFERENCE.
- - ---------- ---------------
So long as no Event of Default or event that, upon giving of notice or
lapse of time, could become an Event of Default exists, Lessor will not
interfere with the rights of enjoyment and use of the Units by Lessee.
Section 21. EFFECT AND MODIFICATION OF LEASE.
- - ---------- --------------------------------
This Lease exclusively and completely states the rights of Lessor and
Lessee with respect to the leasing of the Units and supersedes all prior
agreements, oral or written, with respect thereto. No variation or modification
of this Lease shall be valid unless in writing.
/s/RCD
-------------------
(LESSEE'S INITIALS)
<PAGE>
The parties hereto have executed this Lease as of the day and year first
written above.
BA LEASING & CAPITAL CORPORATION GARDENBURGER, INC.
By: /s/Albert Norona By: /s/Richard C. Dietz
Title: Vice President Title: Executive Vice President
Address: 555 California Street Address: 1411 S. W. Morrison Street
Fourth Floor Suite 400
San Francisco, CA 94104 Portland, Oregon 97205
Attn: Contract Administration Attn: Richard C. Dietz
Executive Vice President
Telecopier No.: 415/765-7373 Telecopier No.: (503) 205-1650
<PAGE>
APPENDIX NO. 1 (this "Appendix") dated December 17, 1997 to
LEASE AGREEMENT NUMBER 970098 (the "Lease Agreement" and, together with
this Appendix, the "Lease") dated as of December 17, 1997 between BA
LEASING & CAPITAL CORPORATION ("Lessor") and GARDENBURGER, INC.
("Lessee"), defined terms therein not defined herein being used herein
as so defined.
A. UNITS.
-----
The Unit(s) to be leased under the Lease Agreement by this Appendix
consists of new and used food processing equipment, and all modifications,
replacements and substitutions, subject to Lessor's right to disapprove any
particular equipment for leasing hereunder.
B. PURCHASE PRICE; CONDITIONS PRECEDENT; ADVANCES.
----------------------------------------------
1. PURCHASE PRICE.
(a) "Purchase Price" with respect to each Unit means the amount
Lessor pays for the Unit. Without the prior written consent of Lessor: (a) the
purchase price of the Units shall not exceed $12,000,000.00 (the "Maximum
Purchase Price"); (b) the Purchase Price of each Unit shall not exceed, in the
case of Units delivered to Lessee not more than 90 days before the date hereof,
the amount invoiced by Vendor therefor and, in the case of Units delivered to
Lessee more than 90 days before the date hereof, the fair market value for
similar used equipment; (c) the aggregate amount of installation,
transportation, any applicable sales, use or similar front-end tax, any software
costs or licensing fees and any similar costs with respect to any Unit shall not
exceed 30% of the total Purchase Price therefor; and (d) Lessor shall not be
obligated to make payments of the Purchase Price of Units leased under this
Appendix more frequently than once in each calendar month and in aggregate
amounts on each such occasion of less than $100,000.
(b) Lessor shall pay the Purchase Price directly to the relevant
Vendor, unless (i) Lessee pays any portion of the Purchase Price to the relevant
Vendor (cancelled checks to be provided to Lessor) or (ii) Lessee has already
acquired title to the Units, in either of which cases Lessor shall pay the
relevant amount to Lessee.
2. The obligation of Lessor to pay for each Unit is subject to
satisfaction of the following conditions precedent:
(a) Lessee shall have executed and delivered to Lessor
the Acceptance Certificate and any Purchase Agreement
Assignment or bill of sale and any invoice therefor
as required under Sections 1.1 and 1.3 of the Lease
Agreement;
(b) the Delivery Date of the Unit shall be during the
Utilization Period set forth below;
(c) there shall exist no Event of Default (nor any event
which, with notice or lapse of time or both, would
become an Event of Default);
(d) no material adverse change in Lessee's or any
guarantor's or general partner of Lessee's financial
condition shall have occurred since the date hereof;
(e) satisfactory resolution of any environmental issues;
and
(f) delivery to Lessor, no later than the first
assignment by Lessee of a Purchase Agreement under
this Appendix (or, in the case of a sale and
leaseback, the first Delivery Date), at Lessee's sole
expense, of the following documents, in form and
substance satisfactory to Lessor:
(i) evidence of Lessee's and any guarantor's
authority to enter into and perform its
obligations under the Lease, and of the
incumbency of corporate or partnership
officers or identity of individuals
authorized to execute and deliver the Lease
and any other agreement or document required
thereunder, including specimen signatures of
such persons;
(ii) an opinion of counsel of Lessee and any
guarantor;
<PAGE>
(iii) underwriters' certificates or other evidence
acceptable to Lessor that Lessee has
complied with Section 7 of the Lease
Agreement;
(iv) UCC financing statements executed by Lessee
together with, at Lessor's option,
certificates of filing officers as to the
nonexistence of any prior UCC filings and,
in the case of a sale and leaseback,
evidence satisfactory to Lessor that each
Unit is free and clear of all claims, liens,
security interests and encumbrances;
(v) an agreement of any lessor or mortgagee of
the premises on which the Units are located
consenting to their removal therefrom;
(vi) an appraisal of the Units, satisfactory to
Lessor, by an independent appraiser
acceptable to Lessor; and
(vii) any other documents specified in this
Appendix and such other documents as Lessor
may reasonably request.
3. ADVANCES. Lessor agrees, during the Utilization Period, to advance
funds for the purchase of a Unit before its Delivery Date ("Advances") if, with
respect to each Advance, (a) Lessee executes and delivers to Lessor, no later
than three days before the date of such advance, a Request for Advance
substantially in the form of Exhibit D to the Lease Agreement (an "Advance
Request") and (b) the conditions specified in Paragraph B.2 (except clauses (a)
and (b) thereof) are satisfied. "Advance Rent" will accrue on each Advance and
be payable as set forth below. If Lessee fails to accept, pursuant to Section
1.3 of the Lease Agreement, any Unit for which Lessor advances funds as set
forth above, Lessee shall on demand of Lessor purchase the Unit from Lessor for
the amount of the funds advanced by Lessor or which Lessor may be obligated to
advance and any other costs or obligations incurred by Lessor in connection
therewith, plus all accrued and unpaid Advance Rent with respect to the Unit to
the date of purchase of the Unit by Lessee from Lessor.
C. BASE TERM.
---------
The "Base Term" for each Unit will begin on, and include, its Base Date
and continue for the number of months specified below. The "Base Date" for each
Unit referenced in Schedule 001, delivered in December, 1997, shall be December
30, 1997 and for each Unit to be referenced in a subsequent Schedule, delivered
on or after January 1, 1998, shall be April 1, 1998 or such other date mutually
agreeable to both Lessee and Lessor.
If Lessee does not execute and deliver to Lessor the Acceptance
Certificate and the Schedule for the Unit pursuant to Section 1.3 of the Lease
Agreement, Lessor may either terminate the Lease as to such Unit (and will do so
if any Unit requires installation or testing and the same is not completed to
Lessee's satisfaction) or reschedule the Base Date to the next succeeding month,
in which event the provisions of this sentence shall continue to apply.
D. UTILIZATION PERIOD.
------------------
All Delivery Dates for Units leased hereunder must occur between the
date of this Appendix and April 15, 1998, inclusive, which date may be extended
by Lessor by written notice to Lessee and any guarantor (the "Utilization
Period").
E. RENT.
----
1. ADVANCE RENT. Advance Rent shall accrue from, and including, the
date of any Advance with respect to a Unit pursuant to an Advance Request to,
but excluding, its Delivery Date. Advance Rent shall be computed on the amount
of such advance at a rate per annum equal to 0.25 percentage points in excess of
the Reference Rate. The "Reference Rate" is the rate of interest publicly
announced from time to time by Bank of America National Trust and Savings
Association in San Francisco, California ("Bank") as its Reference Rate, with
any change in the Reference Rate to take effect on the day specified in the
public announcement of such change. The Reference Rate is set by Bank 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. Loans may be priced at, above or below the Reference Rate.
Advance Rent is determined, in part, on the basis of a 360-day year and
actual days elapsed which results in a higher rent than if a 365-day year is
used. Advance Rent is due and payable when billed by Lessor.
<PAGE>
2. BASE RENT.
The Base Rent for each Unit delivered in December, 1997 shall be set
forth below:
(a) One quarterly installment in the amount of $0.00 due March
30, 1998; followed by
(b) One installment for the period March 30 to March 31, 1998
in the amount of $3,968.64 due April 1, 1998; followed by
(c) 28 quarterly installments each in the amount of $357,177.21.
The Base Rent installments for each Unit delivered on or after January
1, 1998 shall be determined on the date, following Lessor's receipt of the
Acceptance Certificate therefor signed by Lessee, on which Lessor allocates
funds for the final payment of the Purchase Price, as set forth in the relevant
Schedule.
The Base Rent installments for each Unit will be adjusted by amounts
that preserve Lessor's economics with respect to the depreciation deductions
available to Lessor due to any differences between the Base Date assumed in the
Indicative Base Rent installments for the Unit and the actual Base Date of the
Unit.
F. LOCATION; CASUALTY VALUES.
-------------------------
1. LOCATION. The Units shall be located, or in the case of mobile
equipment, principally based in any city and county of the states of Oregon and
Utah unless otherwise specified in the Acceptance Certificate. Lessee shall give
Lessor at least 10 days prior written notice of any change in such location.
Notwithstanding the foregoing, in no event will Lessee use the Unit
outside the continental United States without the prior written consent of
Lessor.
2. CASUALTY VALUES. The Casualty Value of each Unit shall be the
percentage of the Purchase Price as set forth in the Attachment to the relevant
Schedule entitled "Casualty Values".
G. OTHER CHARGES.
-------------
1. LATE CHARGES. The interest rate on late payments shall be 16% per
annum computed daily on the basis of a 360-day year and actual days elapsed
which results in more interest than if a 365-day year is used.
2. INTEREST UPON OCCURRENCE OF CERTAIN EVENTS OF DEFAULT. Upon the
occurrence of an Event of Default as defined in the Lease, Lessee shall pay, in
addition to and on the same date each Base Rent payment is due, additional rent
("Daily Supplemental Rent") as reflected in Lessor's invoice, which Lessor shall
calculate as follows:
Daily Supplemental Rent shall be the amount obtained by multiplying the
Casualty Value (as defined in paragraph F.2 of this Appendix,
determined as of the Base Rent payment date next preceding the
occurrence of any Event of Default, by two percent (2%), and dividing
the product by 360 days (which results in more interest than if a
365-day year is used).
This subparagraph shall not be construed to limit or waive any of
Lessor's rights and remedies available to after the occurrence on any Event of
Default.
<PAGE>
H. INCOME TAX INDEMNITY.
--------------------
1. DEFINITION OF LOSS. For all Federal, state and local income tax
purposes, if due to any Lessee Act (as defined below):
(a) DEPRECIATION. Lessor is not entitled to annual accelerated cost
recovery deductions (the "Depreciation Deductions") for each Unit as provided by
Section 168(a) of the Internal Revenue Code of 1986, as amended (the "Code")
based on (i) a basis for depreciation equal to the Purchase Price of the Unit,
(ii) use of the 200% declining balance method, switching to the straight-line
method as provided in Section 168(b)(1) of the Code, (iii) a recovery period of
7 years as provided in Section 168(c) of the Code, (iv) a salvage value equal to
zero and (v) the half-year convention;
(b) INCLUSIONS. Lessor is required to include in gross income (an
"Inclusion") any amount with respect to the Lease other than (i) Advance Rent,
Interim Rent, Base Rent and rent payable with respect to any extension of the
term of the Lease, (ii) any commitment fee and nonutilization fee payable under
the Lease, (iii) any amounts payable with respect to a casualty with respect to
any Unit or any other event giving rise to a payment of Casualty Value or an
amount determined by reference thereto, (iv) any amounts payable with respect to
an election to purchase the Units, (v) any amounts payable as interest on
overdue payments, and (vi) the amount of any indemnity payment; in each case at
the time and in the amount each such payment accrues under the terms of the
Lease; or
(c) FOREIGN TAX CREDITS. Lessor's federal income tax liability is
increased as a result of a reduction in the foreign tax credits available for
utilization by Lessor; (any of the foregoing being a "Loss"), then, except as
provided in paragraph 6, Lessee shall indemnify Lessor with respect to such Loss
by making payments in the amounts and at the times specified herein. Any Loss
suffered for federal income tax purposes will be deemed to give rise to a
corresponding loss for state and local income tax purposes, and no Loss will be
considered suffered for state and local income tax purposes unless there is a
corresponding Loss for federal income tax purposes.
2. DEFINITION OF LESSEE ACT.
A "Lessee Act" means any act or failure to act by Lessee, any assignee
or sublessee of Lessee, any user of the Units or any affiliate of any of the
foregoing or a breach of any representation, warranty or agreement by Lessee in
paragraph 3 below, in each case other than (A) an act or failure to act required
by the Lease, (B) the exercise of any purchase or renewal option under the
Lease, or (C) the making of any non-severable improvement permitted by Revenue
Procedure 79-48.
<PAGE>
3. LESSEE'S TAX REPRESENTATIONS.
(a) All information supplied by Lessee, its affiliates or agents to
Lessor and relied upon by Lessor and any appraiser reporting to Lessor with
respect to the Units was, in all material respects, complete and accurate at the
time given, and Lessee shall notify Lessor and any such appraiser of any
material change in the accuracy or completeness of such information before the
Delivery Date.
(b) On the Delivery Date, the Units being delivered will not require
additions or modifications to make them suitable for their intended use, other
than ancillary modifications or additions normally made by lessees of similar
assets.
(c) For all purposes, the Lessee (i) will treat the lease as a "true
lease" for federal income tax purposes, (ii) will take no position inconsistent
with ownership of the Units by Lessor, and (iii) will not claim any depreciation
deductions with respect to the Units.
(d) Each Unit will be eligible for MACRS depreciation as "7-year
property" as defined in Section 168(e)(1) of the Code.
(e) In any taxable year of Lessor, no deductions or losses arising
from the lease financing transaction will arise from sources without the United
States under Section 863 of the Code and the Treasury Regulations promulgated
thereunder.
(f) Each Unit will be placed in service by Lessor on the Delivery
Date.
4. (a) LESSEE'S PAYMENTS. If a Loss occurs, Lessee shall pay Lessor an
amount which, after reduction by the net amount of all additional taxes payable
by Lessor in respect of the receipt or accrual of such amount under the laws of
the United States and California (the amount of such taxes to be computed
assuming Lessor is subject to the highest marginal Federal and California
statutory rate for income or franchise taxes then generally applicable to
corporations), is equal to the sum of (i) the net additional Federal income
taxes payable by Lessor as a result of such Loss, plus (ii) any interest,
penalties or additions to tax payable by Lessor as a result of such Loss, such
sum to be determined (A) in the case of a loss of a Depreciation Deduction, by
assuming that Lessor's combined marginal federal, state and local income tax
rate will be 40.2%, (B) in the case of an Inclusion, by assuming Lessor is
subject to the highest marginal Federal and California statutory rate for income
or franchise taxes then generally applicable to corporations and (C) in the case
of a loss of foreign tax credits, by assuming Lessor can fully and currently
utilize all available credits for foreign taxes to reduce its federal income tax
liability.
<PAGE>
(b) LESSOR'S PAYMENTS. Lessor shall pay Lessee an amount equal to
the sum of (i) the net reduction in Federal income taxes, if any, realized by
Lessor attributable to any Loss or circumstances resulting in a Loss, such sum
to be determined utilizing the rates set forth in Paragraph 2(a)(A) or (B) as
applicable and (ii) the net amount of any additional reduction in Federal and
California income and franchise taxes, if any, realized by Lessor as a result of
any payment pursuant to this sentence. However, the aggregate amount paid by
Lessor to Lessee hereunder with respect to any Loss shall not exceed the
aggregate amount paid by Lessee to Lessor with respect to such Loss.
5. (a) TIME OF LESSEE'S PAYMENTS. Any amount payable to Lessor shall be
paid within 30 days after written notice to Lessee by Lessor that a Loss has
occurred (which notice shall describe the Loss in reasonable detail and set
forth the computation of the amount payable). The time at which a Loss occurs
shall be deemed to be the date the additional Federal income taxes resulting
from the Loss would become due under the assumptions set forth in paragraph 7.
(b) TIME OF LESSOR'S PAYMENTS. Any amount payable to Lessee shall be
paid within 30 days after the date on which Lessor would realize the reduction
in Federal income tax under the assumptions set forth in paragraph 7, and shall
be accompanied by a written statement describing the computation of the amount
so payable as determined by Lessor.
6. EXCLUSIONS. Notwithstanding any Lessee Act that is a cause of a loss
of a tax benefit described above, Lessee shall not be required to make any
payment hereunder in respect thereof if such loss of tax benefit is primarily
caused by any of the following:
(a) the failure of Lessor to have sufficient taxable income to
benefit from the depreciation deductions described in paragraph 1 (if, absent
such failure, the benefit of such deductions would have been realized);
(b) the failure of Lessor to claim timely or properly any tax
benefit or treatment referred to in paragraph 1 in a tax return of Lessor,
unless such failure is based on a good faith determination of Lessor that it is
not entitled to claim such tax benefit or treatment;
(c) a voluntary disposition by Lessor of all or any part of its
interest in a Unit before any default by Lessee;
(d) any event giving rise to a payment of Casualty Value or an
amount determined by reference thereto, but only if such payment has been made
in full;
(e) a foreclosure of a lien on any Unit by any person holding such
lien through Lessor which foreclosure results solely from an act of Lessor; or
(f) the failure of Lessor to qualify for the half-year convention
provided by Code ss.168(d)(1).
7. COMPUTATIONS. Whenever it may be necessary to determine (i) whether
there has been a Loss or (ii) the amount of any payment required to be made
hereunder by either Lessee or Lessor, such determination shall be made assuming
(A) Lessor could fully benefit from any deductions and would suffer the full
detriment of any additional income, (B) Lessor pays its annual federal income
and state and local franchise or income taxes on quarterly estimated payment
dates in accordance with the following schedule: 25% of the total income taxes
for each year is paid on each April 15, June 15, September 15 and December 15 of
the year with respect to which such taxes are imposed ("Estimated Tax Payment
Dates") and (C) Lessor will compute its taxable income under the accrual method
of accounting.
8. CONTEST. (a) Lessor shall have no obligation to contest any
disallowance or adjustment or other action that may result in a Loss unless: (i)
Lessor receives a written notification by any taxing authority of a proposed
disallowance or adjustment (a "Disallowance"), (ii) Lessee requests Lessor to
contest the Disallowance within 30 days after Lessor has notified Lessee thereof
and within 15 days thereafter delivers to Lessor an opinion of tax counsel
satisfactory to Lessor that Lessor should prevail in the contest, (iii) Lessee
promptly pays the amount required under paragraph 2 if Lessor elects to pay the
tax and sue for a refund, (iv) the amount at issue in such contest exceeds
$100,000, and (v) Lessee fully indemnifies Lessor for the tax and for all costs
and expenses incurred by Lessor in connection with such contest including
allocated time charges of internal counsel for Lessor and any other attorney's
fees and expenses, and promptly reimburses Lessor for all such costs and
expenses as incurred.
(b) Lessor shall have full control over any contest.
<PAGE>
9. SURVIVAL. All of Lessor's rights and privileges arising from the
indemnities contained herein shall survive the expiration or other termination
of this Lease.
10. LESSOR. For purposes of this Income Tax Indemnity, "Lessor" shall
include any affiliated group (within the meaning of Section 1504 of the Code) of
which Lessor is or becomes a member for any year in which a consolidated income
tax return is filed for such affiliated group.
I. COMMITMENT FEE (NON-REFUNDABLE)
-------------------------------
Lessee has paid to Lessor a commitment fee of $20,000.00. No part of
---------
the fee will be refunded to Lessee.
J. NONUTILIZATION FEE.
------------------
If upon the expiration of the Utilization Period the Purchase Price of
all Units leased hereunder is less than $6,000,000.00, then Lessee shall pay to
Lessor 0.5% of the difference between the Purchase Price and $6,000,000.00.
Such amount shall be due and payable on March 31, 1998.
K. COVENANTS.
---------
If that certain Business Loan Agreement dated as of June 26, 1997 (the
"Loan Agreement") between Bank of America National Trust and Savings Association
("BANTSA"), as lender, and Lessee, as borrower, terminates or ceases for any
reason to be binding upon Lessee without being replaced by a replacement credit
agreement with BANTSA or an affiliate (a "Termination"), then the covenants and
agreements of Lessee contained in Article 6 of the Loan Agreement as such
covenants and agreements may be from time to time amended or replaced shall be
deemed incorporated herein and shall survive such Termination.
L. SALE-LEASEBACK.
--------------
Section 1.1 shall not be applicable with respect to the Units
identified in Annex A to the bill of sale in a form acceptable to Lessor. The
following provisions shall govern the procurement, delivery and acceptance of
such Units:
1. On a date or dates to be agreed upon by Lessor and Lessee
(individually a "Delivery Date"), Lessor will purchase from and lease back to
Lessee for an amount equal to the agreed upon value of the Units identified in
Annex A to the bill of sale, and Lessee will sell to and lease back from Lessor
each Unit, but all Delivery Dates for such Units must be during the Utilization
Period set forth in this Appendix.
2. The obligation of Lessor to pay for each Unit is subject to the
following additional conditions:
(a) On or before its Delivery Date, Lessee shall execute and
deliver to Lessor a bill of sale with respect to the Unit, dated as of the
Delivery Date; and
(b) Lessor shall receive evidence, satisfactory to Lessor, that
each Unit is free and clear of all claims, liens, security interests and
encumbrances.
If any of the foregoing conditions is not met with respect to any such
Unit, Lessor shall have no obligation to either Lessee or any third party to pay
the purchase price for such Unit.
Any attempted or purported sale of a Unit by Lessee to Lessor after its
Delivery Date shall not be effective whether or not accepted by Lessor and
Lessor shall not incur any obligations with respect to the Unit, including the
obligation to pay for the Unit.
3. Lessee represents, warrants and covenants with respect to each Unit
that (a) Lessee has the right to sell the Unit as set forth herein, (b) both the
Unit and Lessee's right, title and interest in the Unit are, or will be as of
its Delivery Date, free from all claims, liens, security interests and
encumbrances, (c) Lessee will defend the sale against claims and demands of all
persons and (d) the purchase price of the Unit is equal to its fair market value
at the time of the sale.
<PAGE>
The parties hereto have executed this Appendix as of the day and year
first above written.
BA LEASING & CAPITAL CORPORATION GARDENBURGER, INC.
By: /s/Albert Norona By: /s/Richard C. Dietz
Title: Vice President Title: Executive Vice President
Address: 555 California Street, 4th Floor Address: 1411 S. W. Morrison Street
Suite 400
San Francisco, CA 94104 Portland, Oregon 97205
Attn: Contract Administration Attn: Richard C. Dietz
Executive Vice President
Telecopier No.: 415/765-7373 Telecopier No.: 503/205-1650
<PAGE>
EXHIBIT A TO
LEASE AGREEMENT
PURCHASE AGREEMENT ASSIGNMENT dated _________________, 19____ between
GARDENBURGER, INC., an Oregon corporation ("Assignor"), and BA LEASING & CAPITAL
CORPORATION, a California corporation ("Assignee").
INTRODUCTION
------------
Assignor has entered into a purchase agreement no. ___________________,
dated __________________, 19________, (the "Purchase Agreement") with
____________________________________ ("Vendor"), a copy of which Purchase
Agreement is attached hereto, providing for the sale to Assignor of food
processing equipment (the "Units"), which Assignor desires to lease from
Assignee under a Lease Agreement dated as of December 17, 1997 between Assignor
and Assignee (the "Lease"; defined terms therein not otherwise defined herein
being used herein as so defined).
NOW, THEREFORE, the parties hereto agree as follows:
1. Assignor hereby assigns to Assignee all of Assignor's right, title
and interest in and to the Purchase Agreement and the Units. Assignee hereby
accepts such assignment. Notwithstanding such assignment, Assignor may pay for
or make advances toward the purchase of one or more Units and then, subject to
satisfaction of the relevant conditions precedent in the Appendix, obtain
reimbursement from Assignee for such advances. Assignee hereby appoints Assignor
as its agent solely for the purpose of purchasing such Units on behalf of
Assignee under the Lease.
2. Neither Assignor nor Assignee may amend, modify, rescind, or
terminate the Purchase Agreement without the prior express written consent of
the other.
3. Notwithstanding this assignment, (a) Assignor shall at all times
remain liable to Vendor under the Purchase Agreement to perform all the duties
and obligations of the purchaser thereunder to the same extent as if this
Purchase Agreement Assignment had not been executed, (b) the exercise by
Assignee of any of the rights assigned hereunder shall not release Assignor from
its duties or obligations to Vendor under the Purchase Agreement, (c) Assignee
shall not be obligated to make any payment to Vendor other than an amount equal
to the purchase price of the Units as shown on the Purchase Agreement attached
hereto and (d) the obligation of Assignee to purchase the Units is conditioned
upon acceptance of the Units by Assignor and the fulfillment by Assignor of the
conditions set forth in the Lease.
4. Assignor represents and warrants that (a) Assignor has the right to
assign the Purchase Agreement without the Vendor's consent or, if not
assignable, consent has been obtained and a copy of which is attached hereto,
(b) the right, title and interest of Assignor in the Purchase Agreement so
assigned is and shall be free from all claims, liens, security interests and
encumbrances, (c) Assignor will warrant and defend the assignment against claims
and demands of all persons, (d) the Purchase Agreement contains no conditions
under which Vendor may reclaim title to any Unit after delivery, acceptance and
payment therefor and (e) the Purchase Agreement is and when the Purchase
Agreement Assignment is executed and delivered it will be in full force and
effect and enforceable in accordance with its terms and Assignor is not and will
not then be in default thereunder.
5. At any time and from time to time, upon the written request of
Assignee, Assignor agrees to promptly and duly execute and deliver any and all
such further documents and take such further actions as Assignee may reasonably
request in order to obtain the full benefits of this Purchase Agreement
Assignment and of the rights and powers herein granted.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement Assignment to be duly executed as of the day and year first written
above.
BA LEASING & CAPITAL CORPORATION GARDENBURGER, INC.
(Assignee) (Assignor)
[NOT FOR EXECUTION] [NOT FOR EXECUTION]
By: By:
Title: Title:
By: By:
Title: Title:
<PAGE>
EXHIBIT B
TO
LEASE AGREEMENT
---------------
ACCEPTANCE CERTIFICATE NO.
------------------------------------
Reference is made to the Lease Agreement dated as of December 17, 1997
between BA LEASING & CAPITAL CORPORATION, as Lessor, and GARDENBURGER, INC., as
Lessee (together with Appendix No.____________ thereto dated __________________,
19___, the "Lease"); capitalized terms not otherwise defined herein having the
same meanings as in the Lease). The Lease is incorporated herein by reference.
1. ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
equipment delivered in Annex A have been delivered to, are in the possession of
and are accepted by Lessee for leasing under, and constitute "Units" subject to
and governed by, the Lease, (B) the Units (I) have been fully inspected by
qualified agents of Lessee and are in good order, operating condition and
repair, (ii) have been properly installed (subject only to any minor
undischarged obligations of suppliers, manufacturers or installers thereof to
promptly update and conform the same as provided by their respective agreements
and warranties), (iii) meet all recommended or applicable safety standards, (iv)
are, as of the Delivery Date set forth below, available for use and service by
Lessee and Lessor and (v) have been marked or labeled showing Lessor's interest
in the form and to the extent required by the Lease, (C) the dollar amounts set
forth in Annex A with respect to such equipment are correct and (D) Lessee must
pay the rent and all other sums provided for in the Lease with respect to such
Units.
2. DELIVERY DATE. The Delivery Date of the Units is ___________________
____________, 19_________.
3. PURCHASE PRICE. The Purchase Price of the Units is $_______________,
as set forth in Annex A.
4. SCHEDULE. The Base Date and the Base Rent and any Interim Rent for
the Units will be determined pursuant to the relevant Appendix and set forth in
a Schedule to this Acceptance Certificate.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.
Lessor: Lessee:
BA LEASING & CAPITAL CORPORATION GARDENBURGER, INC.
[NOT FOR EXECUTION] [NOT FOR EXECUTION]
By: By:
Title: Title:
<PAGE>
ANNEX A
TO
ACCEPTANCE CERTIFICATE NO.
--------------------------------------
SEE ANNEX A ATTACHMENTS
================================================================================
Description (Quantity;
Manufacturer, Make, Location (Street Address, Delivery Purchase
Model No.; Serial No.) City, County, State) Date Price
================================================================================
================================================================================
Total Sales Tax $
-------------------
Total Transportation $
-------------------
Total Installation $
-------------------
Total Purchase Price $
-------------------
Less Advances $
-------------------
Remaining Balance $
-------------------
<PAGE>
EXHIBIT C
TO
LEASE AGREEMENT
SCHEDULE NO. 1
--------------
SCHEDULE (this "Schedule") dated December 30, 1997 to Acceptance
Certificate No. 1 dated December 30, 1997 (the "Acceptance Certificate") to the
Lease Agreement dated as of December 17, 1997 between BA LEASING & CAPITAL
CORPORATION, as Lessor, and GARDENBURGER, INC., as Lessee (together with
Appendix No. 1 thereto, the "Lease"; capitalized terms not otherwise defined
herein having the same meanings as in the Lease).
1. SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
described in the Acceptance Certificate (the "Units") is dated December 30,
1997. The Base Date for the Units is dated April 1, 1998.
2. INDEX RATE. The Index Rate on the Scheduling Date is 5.7251% per
annum.
3. RENT. The Interim Rent for the Units is $3,968.64 due and payable on
April 1, 1998. The Base Rent for the Units is comprised of 28 quarterly
installments, each in the amount of $357,177.21, with the first such installment
due on July 1, 1998. Lessor will invoice Lessee for any Advance Rent due as
described in the terms of the Appendix and based upon the Delivery Date.
4. CASUALTY VALUES. As set forth in Annex 1 to this Schedule.
5. ADVANCE REQUEST. Lessee hereby requests Lessor to reimburse Lessee
for advances made by Lessee to the Vendors in the amounts indicated below and
hereby certifies that in accordance with the terms of the relevant Purchase
Agreement(s) the requisite amount of equipment has been or will be delivered or
the requisite amount of work has been or will be completed so that the Vendors
are entitled to progress payments in the amounts specified below. Lessee further
confirms that Lessee is obligated to pay any Advance Rent provided in the
relevant Appendix with respect to such advances.
Amount of Date of Lessee Purchase Order Vendor's Name
Requested Advance Requested Advance Number and Date and Address
- - ----------------- ----------------- --------------------- -------------
$2,449,425.24 December 30, 1997 See attached Annex 2 Various
6. CHATTEL PAPER COUNTERPARTS. Two counterparts of this Schedule have
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterparts has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee.
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.
Lessor: Lessee:
BA LEASING & CAPITAL CORPORATION GARDENBURGER, INC.
[NOT FOR EXECUTION] [NOT FOR EXECUTION]
By: By:
Title: Title:
<PAGE>
ANNEX 1
CASUALTY VALUES
SCHEDULE NO. 001
The Casualty Value of each Unit shall be the percentage of the Purchase
Price set forth below opposite the Base Rent payment due on the Base Rent
payment date next following the date of the Casualty Occurrence. If the Casualty
Occurrence takes place before the Base Date, the Casualty Value shall be the
percentage of the Purchase Price set forth opposite the first Base Rent payment
number. If the Casualty Occurrence takes place after the last Base Rent payment
date, the Casualty Value shall be the percentage of the Purchase Price set forth
opposite such last Base Rent payment number.
Base Rent (excluding base rent)
Payment Date % of Purchase Price
- - ------------ ---------------------
Jul-01-98 104.21067085
Oct-01-98 101.98072833
Jan-01-99 99.65861056
Apr-01-99 97.25190181
Jul-01-99 94.77435262
Oct-01-99 92.22575052
Jan-01-00 89.60517762
Apr-01-00 86.91240685
Jul-01-00 84.15955241
Oct-01-00 81.34293932
Jan-01-01 78.46174393
Apr-01-01 75.51223317
Jul-01-01 72.50964508
Oct-01-01 69.44782275
Jan-01-02 66.32600097
Apr-01-02 63.13793339
Jul-01-02 59-89370674
Oct-01-02 56.58712428
Jan-01-03 53.21738048
Apr-01-03 49.77818815
Jul-01-03 46.27959264
Oct-01-03 42.71535531
Jan-01-04 39.08462817
Apr-01-04 35.38108104
Jul-01-04 31.62761946
Oct-01-04 27.81491179
Jan-01-05 23.94219266
Apr-01-05 20.00000000
<PAGE>
EXHIBIT D
TO
LEASE AGREEMENT
REQUEST FOR ADVANCE
Reference is made to the Lease Agreement dated as of December 17, 1997
between BA LEASING & CAPITAL CORPORATION, as Lessor and GARDENBURGER, INC., as
Lessee (the "Lease"). All capitalized terms used herein shall have the same
meaning as the terms have in such Lease.
Lessee hereby requests Lessor to make advances to the Vendors in the
amounts indicated below and hereby certifies that in accordance with the terms
of the relevant Purchase Agreement(s) the requisite amount of equipment has been
or will be delivered or the requisite amount of work has been or will be
completed so that the Vendors are entitled to progress payments in the amounts
specified below. Lessee further confirms that Lessee is obligated to pay any
Interim Rent provided in the relevant Appendix with respect to such advances.
Amount of Date of Lessee Purchase Order Vendor's Name
Requested Advance Requested Advance Number and Date and Address
- - ----------------- ----------------- --------------------- -------------
IN WITNESS WHEREOF, Lessee has executed this REQUEST FOR ADVANCE on
_________________, 19_____.
GARDENBURGER, INC.
[NOT FOR EXECUTION]
By: ______________________
Title:____________________
By:_______________________
Title:____________________
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
BA LEASING & CAPITAL CORPORATION
Contract Administration Department 15811
555 California Street, 4th Floor
San Francisco, CA 94104
SPACE ABOVE THIS LINE FOR RECORDER'S USE
- - --------------------------------------------------------------------------------
CONSENT TO REMOVAL OF PERSONAL PROPERTY
---------------------------------------
KNOW ALL MEN BY THESE PRESENTS:
(i) The undersigned has an interest as [OWNER] [MORTGAGE HOLDER] [TRUST
DEED HOLDER] [LESSOR] [SELLER UNDER CONDITIONAL CONTRACT OF PURCHASE AND SALE]
in the real property described below, (the "Real Property"):
That certain real property at__________________________________________
in the County of __________________, State of _________________ legally
described in ANNEX A:
(ii) GARDENBURGER, INC. ("Lessee") has entered into or will enter into
a Lease Agreement with BA LEASING & CAPITAL CORPORATION ("Lessor"); the Lease
covers certain personal property (the "Personal Property") which is or will be
located upon the Real Property, and is described as follows:
FOOD PROCESSING EQUIPMENT
(iii) Lessor, as a condition to entering into the Lease, requires that
the undersigned consent to the removal by Lessor of the Personal Property from
the Real Property, no matter how it is affixed thereto, and to the other matters
set forth below.
NOW, THEREFORE, for a good and sufficient consideration, receipt of
which is hereby acknowledged, the undersigned consents to the placing of the
Personal Property on the Real Property, and agrees with Lessor as follows:
1. The Personal Property shall be considered to be personal property
and shall not be considered part of the Real Property regardless of whether or
by what means it is or may become attached or affixed to the Real Property.
2. The undersigned has not and will not claim any interest in the
Personal Property.
3. The undersigned will permit Lessor to enter upon the Real Property
for the purpose of exercising any right it may have under the terms of the
Lease, or otherwise including, without limitation, the right to remove the
Personal Property from the Real Property. But if Lessor, in removing the
Personal Property damages any improvements of the undersigned on the Real
Property, Lessor will at its expense cause same to be repaired.
4. This agreement shall be binding upon the heirs, successors and
assigns of the undersigned.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this CONSENT TO
REMOVAL on ___________________, 19____.
---------------------------------------------
By:
------------------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Title:
---------------------------------------
INSTRUCTION TO LESSEE: THE FOREGOING CONSENT TO REMOVAL
MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC AND RETURNED TO:
BankAmerica Leasing & Capital Group
Contract Administration Department 15811
555 California Street, 4th Floor
San Francisco, CA 94104
<PAGE>
ANNEX A
TO
CONSENT TO REMOVAL
------------------
That certain real property at ________________
in the County of ____________________________,
State of ______________, legally described as:
[LEGAL DESCRIPTION]
<PAGE>
COPY CONSENT FORM FOR 2 ADDITIONAL EQUIPMENT LOCATIONS
BILL OF SALE
------------
For valuable consideration GARDENBURGER, INC. ("Seller") sells to BA
LEASING & CAPITAL CORPORATION ("Buyer"), the property listed on Annex A (the
"Property").
Seller covenants and warrants that:
(1) it is the owner of, and has absolute title to, the Property which
is free and clear of all claims, liens and encumbrances;
(2) it has the present right, power, and authority to sell the
Property to Buyer;
(3) this Bill of Sale is a legal, valid and binding obligation of
Seller;
(4) both the Property and Lessee's right, title and interest in the
Property are free from all claims, liens, security interests and
encumbrances; and
(5) the purchase price paid by Buyer for the Property is equal to its
fair market value.
Seller shall forever warrant and defend the sale of the Property to
Buyer, its successors and assigns, against any person claiming an interest in
the Property.
This Bill of Sale is binding on the successors and assigns of Seller
and inures to the benefit of the successors and assigns of Buyer.
Dated __________________, 19____.
GARDENBURGER, INC.
By:
Title:
By:
Title:
<PAGE>
BANKAMERICA LEASING & CAPITAL GROUP Lease no. 970098
----------------
- - --------------------------------------------------------------------------------
LEASE INSURANCE AUTHORIZATION
Agent Name
-------------------------------
Company
-------------------------------
Address
-------------------------------
City, State, Zip
-------------------------------
Phone:
-------------------------------
The undersigned Lessee hereby authorizes and requests you to provide
the insurance coverages described below for the following Lessor with respect to
food processing equipment (the "Leased Equipment") to be leased by the
undersigned from Lessor under a lease agreement and located at _________________
_________________________.
LESSOR: BA LEASING & CAPITAL CORPORATION
Contract Administration Department 15811
555 California Street, 4th Floor
San Francisco, CA 94104
ATTN: Risk Manager
Evidence of insurance in the form of agent's binder(s) is acceptable
until underwriter's certificates can be issued. Mail or deliver binder(s) to
Lessor at above address.
I. PUBLIC LIABILITY
A. Coverage: $____________ single limit Bodily Injury and Property Damage
-------- Coverage.
B. Endorsements:
------------
1. Lessor as an additional insured;
2. Waiver of right of contribution from Lessor's insurance;
3. Breach of warranty; and
4. 30 days' notice of cancellation or reduction or restriction of
coverage.
II. PROPERTY INSURANCE
A. Coverage: "All-Risk Coverage for not less than $12,000,000.00.
-------- --------------
B. Endorsements:
------------
1. Lessor as sole loss payee with respect to any [DAMAGE IN EXCESS OF
$_________ OR] total actual or constructive loss of the Equipment;
2. No right of contribution from Lessor's insurance;
3. Breach of warranty; and
4. 30 days' notice of cancellation or reduction or restriction of
coverage.
GARDENBURGER, INC. Date:
----------------------
By:
---------------------------
Title:
---------------------------
By:
---------------------------
Title:
---------------------------
EXHIBIT 10.23
Option No.___________
No. of Shares________
GARDENBURGER, INC.
NONSTATUTORY STOCK OPTION
AND
NONSTATUTORY STOCK OPTION AGREEMENT
This Nonstatutory Stock Option is granted and this
Nonstatutory Stock Option Agreement (the "Agreement") is executed by and between
Gardenburger, Inc., an Oregon corporation (the "Company"), and ____________ (the
"Optionee"), effective ________, 199___.
RECITALS
A. The Company has duly adopted that certain GARDENBURGER, INC., 1992
FIRST AMENDED AND RESTATED COMBINATION STOCK OPTION PLAN, a copy of which is
attached hereto as Exhibit A (the "Plan").
B. The Plan authorizes a committee appointed by the Board of Directors
of the Company (the "Administrative Committee") to grant nonstatutory stock
options (referred to in the Plan as "Non-ISOs") to employees, officers,
directors, agents, consultants and independent contractors of the Company.
C. The Administrative Committee has selected the Optionee to receive a
nonstatutory stock option under the Plan.
NOW, THEREFORE, THE COMPANY AND THE OPTIONEE COVENANT AND AGREE AS FOLLOWS:
1. Number of Shares Subject to Option and Option Price. The Company
hereby grants to the Optionee a nonstatutory stock option (the "Option") to
purchase from the Company ________ shares of the no par value common stock of
the Company (the "Common Stock") at an exercise price of $______ per share. The
Option is exercisable upon the terms and conditions contained herein.
<PAGE>
2. Additional Terms of the Option. Subject to the provisions of
Paragraph 3 below, the Option shall have the following terms:
2.1 The effective date of the grant of the Option shall be the date
first set forth above.
2.2 The Option shall vest as follows:
Cumulative Date Percentage Vested
___________, ____ _______%
___________, ____ _______%
___________, ____ _______%
___________, ____ _______%
___________, ____ _______%
2.3 The Option shall expire on ___________, _____ (the "Expiration
Date").
2.4 To the extent vested, the Option may be exercised in whole or
in part at any time and from time to time prior to the Expiration Date.
2.5 The Option must be exercised, if at all, as to a whole number
of shares.
3. Incorporation By Reference of the terms and Conditions of the Plan.
The terms and conditions of this Option shall be subject to all of the terms and
conditions of the Plan, which terms and conditions are expressly incorporated by
reference into this Agreement to the same extent and with the same effect as if
such terms and conditions were set forth herein. In the event of a conflict or
inconsistency between the terms and conditions set forth in this Agreement and
the terms and conditions of the Plan, those of the Plan shall control.
<PAGE>
4. Exercise of the Option; Delivery of Certificates.
4.1 The Option may be exercised only in accordance with the
terms and conditions of Section 9 of the Plan and by (1) delivery to the Company
of a Notice of Exercise substantially in the form of Exhibit B attached hereto
specifying the number of shares of Common Stock for which the exercise is to be
effective, (2) tendering full payment of the Option Price for such shares, and
(3) tendering to the Company, or otherwise making arrangements satisfactory to
the Company, of any amounts that the Company determines must be withheld for
federal and state income tax purposes as the result of the exercise of the
Option and the issuance of shares hereunder.
4.2 Within a reasonable time after its receipt of the
Optionee's Notice of Exercise, the Company shall deliver to the Optionee a
certificate for the shares of Common Stock for which exercise of the Option was
effective.
5. Transferability of the Option. The Option is transferable only in
accordance with Section 10 of the Plan.
6. Warranties and Representations of the Optionee. By executing this
Agreement, the Optionee accepts the Option and agrees to be bound by all of the
terms of this Agreement and the Plan. In addition, the Optionee acknowledges
that exercise of the Option and the sale of the shares of Common Stock acquired
upon exercise thereof may have tax implications for which the Optionee should
seek individual above by his or her own tax counselor or advisor.
7. Indemnification by the Optionee. The Optionee agrees to indemnify
and hold the Company harmless from any loss or damage, including attorney's fees
or other legal expenses, incurred in the defense or payment of any such claim
against the Company resulting from a breach by the Optionee of the
representations, warranties or provisions contained in this Agreement.
8. No Right to Continued Relationship. Nothing herein shall confer upon
the Optionee the right to continue as an officer or employee of or with the
Company, nor affect any right which the Company may have to terminate its
relationship with the Optionee.
9. Rights as Shareholders. The Optionee shall have no rights as a
shareholder of the Company on account of the Option nor on account of shares of
Common Stock subject hereto until such time as the Company shall have issued and
delivered stock certificates to the Optionee.
10. Further Assurances. From time to time and upon request by the
Company, the Optionee agrees to execute such additional documents as the Company
may reasonably require in order to effect the purposes of the Plan and this
Agreement.
<PAGE>
11. Binding Effect. This Agreement shall be binding upon the Optionee
and the Optionee's heirs, successors and assigns, including the Qualified
Successor of the Optionee (as that term is defined in Section 10.2 of the Plan).
12. Waivers/Modifications. No waivers, alterations or modifications of
this Agreement shall be valid unless in writing and duly executed by the party
against whom enforcement of such waiver, alteration or modification is sought.
The failure of any party to enforce any of its rights against the other party
for breach of any of the terms of this Agreement shall not be construed a waiver
of such rights as to any continued or subsequent breach.
13. Governing Law. This Agreement shall be governed by the laws of the
State of Oregon.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
GARDENBURGER, INC.: OPTIONEE:
By:
------------------------------- ---------------------------
Stock Option Plan Administrator Signature
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF NONSTATUTORY OPTION
UNDER THE GARDENBURGER, INC.,
1992 FIRST AMENDED AND RESTATED COMBINATION STOCK OPTION PLAN
I, _________________, hereby exercise the option to purchase ________shares of
no par value common stock (the "Shares"), of Gardenburger, Inc. (the "Company"),
granted to me pursuant to the terms and conditions of the GARDENBURGER, INC.,
1992 FIRST AMENDED AND RESTATED COMBINATION STOCK OPTION PLAN (the "Plan") and
the Nonstatutory Stock Option and Nonstatutory Stock Option Agreement dated
__________, 199_, bearing Option No. ___ (the "Option").
Accompanying this Notice is: [select one]
/ / cash, certified or cashier's check in the amount of $________;,
/ / _____ shares of the Company's Common Stock valued at $_______
(their fair market value as of the date of this Notice); or
/ / I hereby request that this Option be exercised through a cashless
transaction and have provided the name and address of my broker below.
I understand that if I elect a cashless transaction, the Company will
request and authorize its stock transfer agent to issue the
certificate(s) in the name of my broker to facilitate the completion of
the transaction.
Optionee acknowledges that, absent an agreement with the Company as to an
alternative source for the payment of any federal and state withholding taxes
owing with respect to this exercise, the Company shall be entitled to withhold
from any amounts tendered by the Optionee such amounts as the Company shall
determine necessary to satisfy any such withholding obligations.
______________________ Date: __________________
(Optionee's Signature)
Optionee's Name:_____________________________
Optionee's Address: _________________________
_________________________
_________________________
Broker's Name:_____________________________
Broker's Address: _________________________
_________________________
_________________________
<PAGE>
RECEIPT OF STOCK CERTIFICATE
I hereby acknowledge receipt of Stock Certificate No.___ from the
Company on _________, 199_, representing ___ shares of the Company's common
stock acquired upon exercise of the Option bearing Option No.___________.
_______________________ Date: ___________
(Optionee's Signature)
EXHIBIT 10.24
N.E. 166th & Airport Way
Portland, Oregon
PURCHASE AND SALE AGREEMENT
THIS REAL ESTATE PURCHASE AND SALE AGREEMENT (this "Agreement") is made
by and between OPUS NORTHWEST, L.L.C., a Delaware limited liability company, and
("Buyer"), GARDENBURGER, INC., an Oregon corporation ("Seller"), and has an
Effective Date determined pursuant to Section 10.10.
Seller is the owner of certain unimproved real property in the City of
Portland, Multnomah County, Oregon, consisting of approximately 18 gross acres
and 11.18 net useable acres located at N.E. 166th and Airport Way, (the "Land")
described on EXHIBIT A attached hereto and shown on the drawing attached hereto
as EXHIBIT B.
As used in this Agreement, "Property" means collectively the following:
(i) the Land and all rights, privileges and appurtenances thereunto belonging or
appertaining (the "Real Property"); (ii) all improvements and fixtures located
on the Land (the "Improvements"); and (iii) all assignable continuing business
licenses, utility contracts, warranties, governmental approvals and development
rights related to the Real Property or the Improvements or any part thereof
including the plans and all governmental permits, licenses and approvals, and
any studies or other reports or information in the possession of available to
Seller which pertain to the condition and/or present or potential development
and/or use of the Property including environmental site assessments of the
property (collectively, the "Development Documents").
Seller wishes to sell the Property to Buyer and Buyer wishes to
purchase the Property from Seller, all on the terms, covenants and conditions
set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other valuable consideration, receipt and
sufficiency of which is fully, completely, and unconditionally acknowledged by
Buyer and Seller, Seller and Buyer do hereby agree as follows:
1. AGREEMENT. Seller agrees to sell the Property to Buyer in accordance
with the terms of this Agreement. Buyer agrees to purchase the Property subject
to and in accordance with the terms and conditions of this Agreement.
2. PURCHASE PRICE AND PAYMENT. The total purchase price for the
Property (the "Purchase Price") shall be Three Dollars and Eighty-Five Cents
($3.85) times the "Net Usable Area" of the Land, as certified to Seller and
Buyer in the Survey arising out of Section 5.3. Assuming the Land has 11.18 Net
Usable Acres, the Purchase Price would be $1,874,953. "Net Usable Area" means
the number of square feet of the Land less all portions of the Land: presently
lying in public roadways or subject to public road rights of way; proposed to be
dedicated as public road rights of way; or within the boundaries of any area
that is not buildable because it is part of a culvert area or constitutes a
sensitive or critical area (including geologic hazard areas) or wetlands, and
any associated buffers or setbacks, as determined by the City of Portland,
Oregon, or the U.S. Army Corps of Engineers. If the Survey shows that the Net
Useable Area is less than 487,000 square feet, Seller may terminate this
Agreement by notice to Buyer within ten (10) days of Seller's receipt of the
Survey. Upon such termination, the Earnest Money Note shall be returned to
Buyer.
<PAGE>
The Purchase Price shall be payable:
(a) By Buyer paying Seller on or before Closing cash in the
amount of twenty-five percent (25%) of the Purchase Price (the "Down
Payment") less the Earnest Money Deposit and any Extension Deposit; and
(b) The remaining balance of the Purchase Price shall be paid
by Buyer executing and delivering to Seller a deed of trust note (the
"Note") in form and content of EXHIBIT C attached hereto, providing
that the principal balance shall be due and payable, without interest,
on or before October 31, 1998. The Note shall be secured by a deed of
trust (the "Deed of Trust") in form and content of EXHIBIT D attached
hereto.
3. EARNEST MONEY. Upon full execution of this Agreement by Buyer and
Seller, Seller shall open an escrow with First American Title Insurance Company
of Oregon ("Escrow Company"), 200 SW Market Street, Suite 1776, Portland, Oregon
97201, and, within five (5) Business Days thereafter, Buyer shall deposit with
Escrow Company an earnest money note in the amount of Fifty Thousand Dollars
($50,000) (the "Earnest Money Note") in the form of EXHIBIT E. The Earnest Money
Note shall be converted to cash upon satisfaction or waiver of all Feasibility
Contingencies pursuant to Section 4.3 of this Agreement. The proceeds of the
Earnest Money Note and any Extension Deposit deposited with Escrow Company and
interest earned thereon, are hereinafter referred to collectively as the
"Earnest Money". The Earnest Money shall be held by Escrow Company in an
interest-bearing account as directed by Buyer, with the interest accruing to
Buyer's benefit. If this transaction Closes as provided herein, the Earnest
Money shall apply towards the Purchase Price at Closing.
If the transaction fails to Close due to default by Buyer, Seller's
sole and exclusive remedy shall be to terminate this Agreement and collect and
retain any Earnest Money paid to Escrow Company, as liquidated damages. Seller
hereby releases any and all right to specific performance of this Agreement
and/or to recover actual damages incurred as a result of Buyer's default. In
establishing this liquidated damages amount, the parties agree that the amount
is a reasonable estimate, as of the time this Agreement is being executed, of
the risks and damages Seller could suffer as a result of Buyer's failure to
close this transaction, including, without limitation, the risk of freezing the
purchase price or losing the opportunity to sell for a higher price, the risk
that the market for the Property could drop substantially, the lost time value
of Seller's equity resulting from any delay in receiving payment of its equity,
lost opportunities for other investments, changes in the availability and cost
of financing for Seller's subsequent investments, and costs that Seller could
incur as a result of the Buyer's default. The foregoing provisions represent the
agreement of the parties as to what the Seller's remedy will be if the Buyer
defaults by failing to close this transaction. In addition to that remedy,
Seller retains any cause of action arising from any other breach or default by
Buyer under this Agreement, including all indemnification obligations.
<PAGE>
In the event of any breach of this Agreement by Seller, the Earnest
Money Note or Earnest Money, as the case may be, and any Extension Deposit,
shall be returned to Buyer and Buyer shall be entitled to available legal and
equitable remedies, including the right to specific performance; provided;
however, that in no event shall Seller be liable to Buyer for damages in excess
of Fifty Thousand Dollars ($50,000).
BUYER AND SELLER ACKNOWLEDGE THAT THEY HAVE READ AND SPECIFICALLY
NEGOTIATED THE FOREGOING PROVISIONS AND LIMITATIONS ON REMEDIES AFTER
CONSULTATION WITH LEGAL COUNSEL OF THEIR RESPECTIVE CHOICE.
4. REVIEW OF PROPERTY; CONTINGENCIES; CONTINGENCY PERIOD.
4.1 SELLER'S DELIVERIES. Seller shall within fifteen (15) days
after the Effective Date deliver to Buyer copies of the following (collectively,
the "Review Materials"), if any, which are available to Seller:
(a) All plans and specifications related to any civil,
landscape or site plans for the Property;
(b) All entitlement documents and correspondence;
(c) Surveys of any nature;
(d) Mitigation agreements with any governmental agency, and
any traffic studies for this site or surrounding properties;
(e) Zoning agreements with Multnomah County or the City of
Portland;
(f) Phase I or Phase II environmental assessments;
(g) Geotechnical or soils reports; and
(h) Wetlands reports.
Seller shall deliver to Buyer any new Review Materials obtained by Seller within
seven (7) days of Seller's obtaining possession thereof.
4.2 BUYER'S REVIEW. Seller shall provide Buyer and its
authorized agents and consultants with access to and entry upon the Property,
from the Effective Date to the earlier of Closing or termination of this
Agreement to inspect each and every part thereof to determine its present
condition, and, at Buyer's sole cost and expense, to prepare such reports, tests
and studies, including without limitation, any tests, geological reports,
surveys, hazardous/toxic materials investigations and other physical
investigations of, on, or in the Property. Buyer shall indemnify and hold
harmless the Seller from any mechanics or materialmen's liens filed against the
Property as a result of Buyer's entry upon the Property in accordance with this
Section 4.2. If Buyer wishes to engage in any testing that will damage or
disturb any portion of the Property, including, without limitation,
environmental studies, Buyer shall obtain Seller's prior written consent
thereto, which shall not be unreasonably withheld or delayed. Buyer shall
indemnify, hold harmless and defend Seller from any and all liabilities, claims,
liens, costs and expenses, including without limitation reasonable attorneys'
fees and costs, arising from or relating to Buyer's entry upon the Property.
Buyer shall repair any damage to the Property caused by any such tests or
investigations, and shall indemnify and defend Seller (except where such claim
results from an act or omission of Seller) from any and all liabilities, claims,
costs and expenses, including without limitation, reasonable attorneys' fees and
costs resulting from such testing or studies. The indemnification obligations in
this paragraph shall survive Closing or the termination of this Agreement.
<PAGE>
4.3 FEASIBILITY CONTINGENCIES. The obligations of Buyer under
this Agreement and consummation of Closing are, at Buyer's option and in its
sole and complete discretion, subject to the complete satisfaction or waiver, on
or before expiration of the Feasibility Contingency Period (as defined in
Section 4.4 of this Agreement), of the following contingencies (individually and
collectively, the "Feasibility Contingencies"): (i) the Property and its
physical condition, zoning and land use restrictions, and all systems,
utilities, and access rights pertaining to the Property are suitable in every
respect for Buyer's intended use; (ii) all permits, approvals and licenses,
including, without limitation, final plat approval, building permit, any
required shoreline permit, a determination of non-significance, and any other
approval or permit with respect to Buyer's intended development of the Property
("Governmental Approvals") are or will be available with such conditions as are
acceptable to Buyer and that all appeal periods thereto have expired without any
appeal or challenge having been made thereof; (iii) all Review Materials are
acceptable to Buyer in the exercise of Buyer's sole discretion; and (iv) it is
economically feasible for Buyer to own and operate the Property in a manner and
upon terms and conditions satisfactory to Buyer. Buyer may, in Buyer's sole
discretion, terminate this Agreement at any time by written notice to Seller if
Buyer determines that the Feasibility Contingencies set forth in this Section
4.3 will not be satisfied by the expiration of the Feasibility Contingency
Period. If Buyer fails to give notice to Seller that the Feasibility
Contingencies have been satisfied or waived on or before expiration of the
Feasibility Contingency Period, as extended, if at all, as permitted by Section
4.4, Buyer shall be deemed to have terminated this Agreement. If Buyer elects to
terminate this Agreement, Buyer shall return the Review Materials to Seller and
deliver to Seller, for information only, and without warranty or representation
of any kind whatsoever, a copy of any and all plans, studies, reports, permits
and permit applications undertaken by Buyer in connection with its investigation
and analysis of the Property. Upon such termination, the Earnest Money Note
shall be returned to Buyer, any Extension Deposits paid by Buyer (together with
any accrued interest accrued thereon) shall be paid to Seller and neither party
shall have any further rights or obligations whatsoever arising out of, or in
connection with, this Agreement.
4.4 FEASIBILITY CONTINGENCY PERIOD; EXTENSION. Subject to
extension pursuant to this Section 4.4, Buyer shall have until sixty (60) days
after the Effective Date (the "Feasibility Contingency Period") to determine in
its sole discretion whether the Feasibility Contingencies set forth in Section
4.3 can be waived or removed. Buyer shall have the right to extend the
Feasibility Contingency Period for one one-month extension by depositing with
Escrow Company, on or before the expiration of the initial Feasibility
Contingency Period, the sum of Ten Thousand Dollars ($10,000) (the "Extension
Deposit") for such extension. The Extension Deposit shall be non-refundable
unless Seller is in default or this Agreement is terminated because of
unacceptable title pursuant to Section 5.2 or condemnation pursuant to Section
6.1 and shall apply to the Purchase Price at Closing. If Buyer fails to deposit
the Extension Deposit prior to expiration of the initial Feasibility Contingency
Period, Buyer shall have forty-eight (48) hours after notice thereof from Seller
to pay the Extension Deposit in order to extend the then existing Feasibility
Contingency Period as contemplated herein.
<PAGE>
5. TITLE.
5.1 CONVEYANCE. Upon Closing, Seller shall execute and deliver
to Buyer a Statutory Warranty Deed in the form attached hereto as EXHIBIT F (the
"Deed"), conveying fee title to the Property, subject only to the Permitted
Exceptions, if any, approved by Buyer in accordance with Section 5.2.
5.2 TITLE INSURANCE.
(a) At Closing Seller shall furnish to Buyer an ALTA Standard
Coverage Owner's Policy of Title Insurance (the "Policy") issued by
First American Title Insurance Company of Oregon, an Oregon corporation
("Title Company"), insuring Buyer, as holder of fee title to the Real
Property and Improvements, in the amount of the Purchase Price, against
any loss or damage by reason of defect in Seller's title to the
Property, other than the Permitted Exceptions as determined hereunder
and the usual printed exceptions. Seller agrees to cooperate with Title
Company and Buyer in connection with (but at no cost to Seller), and
execute and deliver to Title Company appropriate certifications,
affidavits, and indemnities confirming that Seller has not, prior to
Closing, done anything on or about the Property which would prevent
Title Company from issuing the Policy required hereby or from issuing
Form 103.7 (access), 116.1 (land same as survey), 123.1 (zoning)
endorsements or a contiguity endorsement.
(b) Within ten (10) days after the Effective Date, Seller
shall furnish to Buyer, from Title Company, a preliminary title report
showing the condition of title to the Property, together with copies of
all exceptions listed therein (the "Title Report"). Buyer will have ten
(10) days from receipt of the Title Report to review the Title Report
and to notify Seller, in writing, of Buyer's disapproval of any
exceptions shown in the Title Report. Those exceptions not objected to
by Buyer are referred to herein as the "Permitted Exceptions." Zoning
ordinances, building restrictions, taxes due and payable for the
current tax year, and reservations in federal patents and state deeds
shall be deemed Permitted Exceptions. If Buyer notifies Seller of
disapproval of any exceptions, Seller shall have fifteen (15) days
after receiving the disapproval notice to either remove the exceptions
or provide Buyer with reasonable assurances of the manner in which the
exceptions will be removed before the Closing Date. If Seller does not
remove the exceptions or provide Buyer with such assurances, Buyer may
terminate this Agreement by written notice to Seller given within ten
(10) days after expiration of such fifteen (15) day period, in which
event the Earnest Money shall be refunded to Buyer and this Agreement
shall be null and void.
<PAGE>
5.3 SURVEY. On or before expiration of the Feasibility
Contingency Period, Buyer shall obtain, at Buyer's cost, a currently dated and
certified ALTA/ACSM survey of the
Property (the "Survey"), prepared by a registered Oregon land surveyor, setting
forth (a) the legal description of the Property; (b) the location of all
improvements on the Property (including without limitation, light standards and
utility poles and vaults, culverts, curb cuts, driveways, signs, etc.), and all
"setback" or building lines and other restrictions in respect thereof that are
of record or that have been established by an applicable zoning or building code
or ordinance, and the Net Useable Area of the Land; (c) the location of all
easements and rights-of-way on the Property, identifying each by a recorded
document number; (d) all encroachments of improvements onto the Property from
adjoining property, and all encroachments of improvements from the Property onto
adjoining property or upon or over any such "setback" or building lines; (e)
access to the Property from a public street or highway; (f) a vicinity map
showing the property surveyed in reference to nearby highways and major street
intersections, including any fire hydrants located within three hundred feet of
any portion of the Property boundary; and (g) flood zone designation (with
proper annotation based on Federal Flood Insurance Rate Maps or state or local
equivalent by scaled map location and graphic plotting only). The plat or map of
such survey must bear the name, address and signature of the surveyor who made
the survey, his official seal and license number, the date of the survey and the
caption "ALTA/ACSM Land Title Survey" with the following certification:
To: Opus Northwest, L.L.C., Gardenburger, Inc.
and First American Title Insurance Company
This is to certify that this map or plat and the survey on
which it is based were made (i) in accordance with the
"Minimum Standard Detail Requirements for ALTA/ACSM Land Title
Surveys," jointly established and adopted by ALTA and ACSM in
1992, and (ii) pursuant to the accuracy standards (as adopted
by ALTA and ACSM and in effect on the date of this
certification) of an "urban survey"; and that there are no
improvements, encroachments or uses except as shown thereon;
and that the area represented for the land is correct.
6. INTERIM ACTIONS.
6.1 CONDEMNATION. In the event that the Property, or any part
thereof, is or becomes the subject of a condemnation proceeding prior to
Closing, then Buyer may elect either to (i) terminate this Agreement, in which
event the Earnest Money (and interest accrued thereon) shall be returned to
Buyer and all rights and obligations of the parties hereunder shall cease, or
(ii) proceed to consummate and Close the purchase of the Property hereunder, in
which event the Purchase Price for the Property, shall be reduced by the total
of any awards or other proceeds received by Seller at or prior to Closing with
respect to any such condemnation proceeding; whereupon, at Closing, Seller shall
assign to Buyer all rights of Seller in and to any awards or other proceeds
payable by reason of any such condemnation proceeding. Seller agrees to notify
Buyer in writing of any condemnation proceedings within five (5) days after
Seller learns thereof.
<PAGE>
6.2 DEVELOPMENT APPROVALS. So long as this Agreement remains
in effect, Buyer shall have the exclusive right to pursue and obtain all
necessary approvals for developing the Property. Seller hereby grants to Buyer
the right to (i) enter into discussions and negotiations regarding the Property
with all governmental authorities having jurisdiction, and (ii) apply for,
prosecute, participate in and/or cause to issued and finally approved any
permit, development agreement, variance or conditional use request, binding site
plan, local improvement district, or other approval which may be required
incident to Buyer's planned development. Seller shall reasonably cooperate with
Buyer in connection with obtaining such governmental approvals, which
cooperation may include execution and delivery of applications, agreements,
approvals, licenses, plans, permits and other instruments and assurances as may
be required by Buyer to develop the Property. Notwithstanding anything herein to
the contrary, Buyer shall not irrevocably commit Seller or the Property to any
rezone, dedication, change of comprehensive plan designation, development
agreement, local improvement district, or other binding contractual, financial
or governmental restriction or obligation, without Seller's prior written
consent, which shall not be unreasonably withheld. Seller, however, shall give
its consent to any financial obligation which is fully paid in advance by Buyer,
or which is secured by cash deposit or letter of credit furnished by Buyer.
7. CLOSING.
7.1 ESCROW. "Closing" and any of its noun or verb variants
shall mean the date the deed for the Property from Seller to Buyer is recorded
and Seller is entitled to the use of Buyer's funds. Closing shall occur through
an escrow (the "Escrow") in the Portland, Oregon office of Escrow Company on or
before that date (the "Closing Date") which is not more than thirty (30) days
after Buyer's notice to Seller of satisfaction or waiver of the Feasibility
Contingencies. Buyer and Seller shall deposit with Escrow Company all
instruments and monies necessary to complete the Closing in accordance with this
Agreement, including all instructions and closing statements not inconsistent
herewith.
7.2 PRORATIONS. General real property taxes for the current
year, rents, water, and other utilities shall be prorated as of the Closing. All
assessments against the Property shall be paid in full by Seller at Closing.
Seller shall also be responsible for any taxes or other charges that may be
assessed against the Property based on the fact, if at all, that it has been
classified or specially zoned for farm or forest use on the tax rolls for years
prior to the year in which Closing occurs and Seller will pay any such taxes or
charges if and when they become due.
7.3 POSSESSION. Buyer shall be entitled to possession on
Closing.
7.4 COSTS. Seller shall pay the cost of the Policy (except the
cost of extended coverage or endorsements), all excise taxes imposed upon the
sale, and one-half (1/2) of the Escrow Company's escrow fee. Buyer shall pay the
cost of recording the Deed and the Deed of Trust, the cost of the policy in
excess of the cost of ALTA standard owner's coverage and any endorsements to the
Policy required by Buyer, and one-half (1/2) of the Title Company's escrow fee.
<PAGE>
7.5 SELLER'S DELIVERIES TO ESCROW.
On or before closing, Seller shall duly execute and deposit
into the Escrow with Escrow Company:
(a) the Deed for the Property in the form and content of
EXHIBIT F attached hereto; and
(b) assignments or other appropriate transfers or conveyances,
in form and content reasonably acceptable to Buyer, of Seller's
interests in the Development Documents and the Review Materials, if
reasonably requested by Buyer.
7.6 BUYER'S DELIVERIES TO ESCROW. On or before Closing, Buyer
shall duly execute and deposit into the Escrow with Escrow Company:
(a) the Note; and
(b) the Deed of Trust.
(c) the Down Payment as defined in Section 2(a) of the
Agreement; and
(d) the amount due Seller, if any, after the prorations are
computed in accordance with Section 7.2 of this Agreement.
7.7 ESCROW INSTRUCTIONS. This Agreement is intended by the
parties to set forth the Escrow instructions to Title Company. Nonetheless,
Seller and Buyer agree to execute and deliver to Title Company any additional
instructions requested by Escrow Company for the purpose of consummating this
transaction, provided that any such additional instructions are not inconsistent
herewith.
7.8 LIABILITIES NOT ASSUMED. Seller shall be responsible for
all claims arising out of or in connection with the Sale Property of any nature,
existing or accrued as of Closing, or arising out of any acts or omissions of
Seller occurring prior to Closing. Buyer is not to be deemed to be a successor
of Seller, it being understood that Buyer is acquiring only the Property and
except as otherwise expressly herein provided, Buyer has not and does not hereby
assume or agree to assume nor shall Buyer be deemed to have assumed any
liability whatsoever of Seller under any contract, agreement, indenture or any
other document to which Seller is a party or by which Seller is or may be bound
or which in any manner affects the Sale Property or any part thereof except as
specifically set forth herein or in any of the Closing documents, and Seller
agrees to defend, hold harmless and indemnify Buyer with respect to any such
claim, expense or liability which Buyer has not agreed to assume.
<PAGE>
8. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Buyer that the following facts are true as of the date of Seller's
execution hereof and as of Closing, or as of such other date as may be set forth
herein:
8.1 ORGANIZATION, STANDING, AUTHORITY. Seller is a corporation
organized under the laws of the State of Oregon and qualified to do business
within the State of Oregon. Seller has the legal power, right, and authority to
enter into this Agreement and the instruments referred to herein and to
consummate the transactions contemplated herein. All requisite corporate action
has been taken by Seller in connection with entering into this Agreement, the
instruments referred to herein, and the consummation of the transactions
contemplated herein. The persons executing this Agreement and the instruments
referred to herein on behalf of Seller have the legal power, right and actual
authority to bind Seller to the terms and conditions of this Agreement.
8.2 MARKETABLE TITLE. Seller has, as of the Effective Date,
and will have as of the
Closing Date fee simple title to the Property.
8.3 NO VIOLATIONS AND ACTIONS. To Seller's actual knowledge
the execution, delivery and performance by Seller of its obligations under this
Agreement do not constitute a default under any of the provisions of any law,
governmental rule, regulations, judgment, decree or order by which the Seller is
bound. The execution, delivery and performance by Seller of its obligations
under this Agreement do not constitute a default under any of the provisions of
any contract to which the Seller is a party or by which the Seller is bound or,
if Seller is not an individual, by the Seller's declaration of trust,
certificate of incorporation, bylaws, limited liability company operating
agreement, or partnership agreement, as the case may be.
8.4 LIENS. All persons and entities supplying labor,
materials, and equipment to the Property at Seller's request have been paid, and
to Seller's actual knowledge there are no claims of liens and there are no
service contracts applicable to the Property.
8.5 ASSESSMENTS. To Seller's actual knowledge, there are no
currently due and payable assessments for public improvements against the
Property, there is no local improvement district or other taxing authority in
the process of formation that would create a lien on the Property and there are
no pending or proposed special assessments against the Property.
8.6 HAZARDOUS MATERIALS. To Seller's actual knowledge, the
Property is not in violation of any federal, state, local or administrative
agency ordinance, law, rule, regulation, order or requirement relating to
environmental conditions or Hazardous Material ("Environmental Laws"). To
Seller's actual knowledge, Seller has not used, manufactured, generated,
treated, stored, disposed of, or released any Hazardous Material on, under or
about the Property or transported any Hazardous Material over the Property. To
Seller's actual knowledge, Seller has not used or removed any storage tank on,
from or in connection with the Property, and, to Seller's actual knowledge,
there are no storage tanks or wells (whether existing or abandoned) located on
under or about the Property, except as may be disclosed by that Phase I
environmental site assessment dated June 21, 1995, prepared by Hahn and
Associates, Inc., for the Iseli Family Partnership. References to Seller's
<PAGE>
actual knowledge means the actual knowledge of Richard C. Dietz, the chief
financial officer of Seller. For the purposes hereof, "Hazardous Materials"
shall mean any substance, chemical, waste or other material which is listed,
defined or otherwise identified as "hazardous" or "toxic" under any federal,
state, local or administrative agency ordinance or law, including without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss.ss. 9601 ET SEQ.; the Resource Conservation and Recovery Act,
42 U.S.C. ss.ss. 6901 ET SEQ.; the Federal Water Pollution Control Act, U.S.C.
ss.ss. 1251 ET SEQ.; the Clean Air Act, 42 U.S.C. ss.ss. 7401 ET SEQ.; the
Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1471 ET SEQ.; Toxic
Substances Control Act, 15 U.S.C. ss.ss. 2601 ET SEQ.; Refuse Act, 33 U.S.C.
ss.ss. 407 ET SEQ.; Emergency Planning and Community Right-To-Know Act, 42
U.S.C. ss.ss. 11001 ET SEQ.; Occupational Safety and Health Act, 29 U.S.C.
ss.ss. 65 ET SEQ., to the extent it includes the emission of any Hazardous
Material and includes any Hazardous Material for which hazard communication
standards have been established; Federal Insecticide, Fungicide, and Rodenticide
Act, Federal Pesticide Act of 1978, 7 U.S.C. ss.ss. 136 ET SEQ.; Federal Safe
Drinking Water Act, 42 U.S.C. ss.ss. 300(f) ET SEQ.; or any similar or analogous
state or local statute or ordinance, or any regulation, order, rule, or
requirement adopted thereunder, as well as any formaldehyde, urea,
polychlorinated biphenyls, petroleum, petroleum product or by-product, crude
oil, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas
usable for fuel or mixture thereof, radon, asbestos, and "source," "special
nuclear" and "by-product" material as defined in the Atomic Energy Act of 1985,
42 U.S.C. ss.ss. 3011 ET SEQ.
8.7 CONTRACTS. Seller has not committed nor obligated itself
in any manner whatsoever to sell the Property to any person other than Buyer.
Without limiting the generality of the foregoing, no right of first refusal
regarding the Property exists under the organizational documents of Seller or
under any separate agreement by which Seller may be bound. Seller will not,
prior to Closing, offer to or enter into any backup or contingent option or
other agreement to sell the Property to any other person.
8.8 LEASES. There are no existing leases, tenancies, rental
agreements or occupancy or use agreements affecting all or any portion of the
Property.
8.9 CLOSING CONTINGENCIES. Buyer's obligation to Close this
transaction shall be further conditioned upon all of Seller's representations
and warranties set forth in Section 8 hereof being true, correct and complete as
of the Closing.
The representations and warranties made by Seller shall be
true and correct as of the date hereof and shall be deemed automatically
reaffirmed on the Closing Date as true and correct. Buyer's rights to enforce
such representations and warranties and covenants shall survive the Closing and
such rights to enforce shall not be merged into any documents delivered by
Seller at Closing. Seller shall indemnify, defend and hold Buyer harmless from
and against any cause, claim, loss, damage or expense, including attorneys'
fees, which Buyer suffers as a result of a breach of the representations,
warranties and covenants contained in this Agreement. If this transaction fails
to Close due to failure of the condition set forth in this Section 8.9, then the
Earnest Money shall be returned to Buyer.
<PAGE>
9. BUYER'S REPRESENTATIONS AND WARRANTIES. In addition to other
representations herein, Buyer represents and warrants to Seller that:
9.1 POWER AND AUTHORITY. Buyer is a limited liability company
organized and validly existing under the laws of the State of Delaware and
qualified to do business in the State of Oregon, and execution of this Agreement
by Buyer and consummation of the transactions contemplated herein has been duly
authorized by Buyer's members and no further action is necessary on the part of
Buyer to make this Agreement fully and completely binding upon Buyer in
accordance with its terms. The persons executing this Agreement and the
instruments referred to herein on behalf of Buyer have the legal power, right,
and actual authority to bind Buyer to the terms and conditions of this
Agreement.
9.2 NO VIOLATIONS AND ACTIONS. The execution, delivery and
performance by Buyer of its obligations under this Agreement do not constitute a
default under any of the provisions of any law, governmental rule, regulations,
judgment, decree or order by which the Buyer is bound, or by any of the
provisions of any contract to which the Buyer is a party or by which the Buyer
is bound, or by the Buyer's certificate of incorporation, operating agreement,
or other organizational documents, as the case may be.
The representations and warranties made by Buyer shall be true and
correct as of the date hereof and shall be deemed automatically reaffirmed on
the Closing Date as true and correct. Seller's rights to enforce such
representations and warranties and covenants shall survive the Closing and such
rights to enforce shall not be merged into any documents delivered by Buyer at
Closing. Buyer shall indemnify, defend and hold Seller harmless from and against
any cause, claim, loss, damage or expense, including attorneys fees, which
Seller suffers as a result of a breach of the representations, warranties and
covenants contained in this Agreement.
10. MISCELLANEOUS.
10.1 GENERAL PROVISIONS. This is the entire agreement of the
parties with respect to the Property and supersedes all prior written or oral
agreements or understandings. This Agreement may be modified only in writing
signed by both parties. This Agreement shall be construed according to the laws
of the State of Oregon. Paragraph headings are for convenience only and shall
not be deemed a part of this Agreement for any purpose. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identification of the person or persons, firm or
firms, corporation or corporations may require. The parties have been
represented by their respective legal counsel in connection with negotiation of
this Agreement, and accordingly waive the rule of construction that this
Agreement shall be construed against its drafter. The word "person" shall mean
an individual, firm, association, corporation, limited liability company,
general or limited partnership, trust, or any other form of business or legal
entity. Whenever the adverbs "herein," "hereunder," "hereto," "hereinafter,"
etc., appear herein, they shall be deemed to mean and refer to this Agreement in
its entirety and not to any specific paragraph or section hereof. If the date
for any performance under this Agreement falls on a weekend or holiday, the time
shall be extended to the next business day. "Business day" means a day that
national banks and Title Company are not closed.
<PAGE>
10.2 NOTICES. Any demand, request or notice which either party
hereto desires or may be required to make or deliver to the other shall be in
writing and shall be deemed given upon receipt (including by confirmed
facsimile), or when delivered by private courier service (such as Federal
Express), or three days after being deposited in the United States Mail in
registered or certified form, return receipt requested, addressed as follows:
If to Seller: Gardenburger, Inc.
Attn: Mr. Richard C. Dietz
1411 SW Morrison Street, Suite 400
Portland, OR 97205
Facsimile: (503) 205-1648
with a copy to: Miller, Nash, Wiener, Hager & Carlsen LLP
Attn: James F. Dulcich
3500 U.S. Bancorp Tower
111 SW Fifth Avenue
Portland, OR 97204
Facsimile: (503) 224-0155
If to Buyer: Opus Northwest, L.L.C.
Attn: John Solberg, Vice President
200 112th Avenue N.E., Suite 205
Bellevue, WA 98004
Facsimile: (425) 453-1712
with a copy to: Tousley Brain PLLC.
Attn: Russell F. Tousley, P.S.
56th Floor, Key Tower
700 Fifth Avenue
Seattle, WA 98104-5056
Facsimile: (206) 682-2992
and to: Opus U.S. Corporation
Attn: Brad Osmundson, Esq.
800 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Facsimile: (612) 936-9809
Either party may change its address which is not a post office box for purposes
of notices by giving notice to the other in the manner herein prescribed.
<PAGE>
10.3 ATTORNEYS' FEES. In the event any litigation ensues
between Opus and Gardenburger, Inc. arising out of this Agreement, the
prevailing party in any such action shall be entitled to recover from the
nonprevailing party, the prevailing party's reasonable attorneys' fees and
costs, including in connection with appeals.
10.4 COMMISSIONS. Seller warrants and represents to Buyer that
except for Brad Pihas and Associates, Inc. (collectively "Broker ") no broker or
finder has been engaged by it in connection with the transaction contemplated by
this Agreement. Buyer warrants and represents to Seller that no broker or finder
has been engaged by it in connection with the transaction contemplated by this
Agreement. Seller shall, upon closing, pay and indemnify, and hold Buyer
harmless from and against commission based on the Purchase Price to Broker. In
the event any other claims for additional brokers' or finders' fees or
commissions are made in connection with the negotiation, execution, or
consummation of this Agreement, then Buyer shall indemnify, hold harmless, and
defend Seller from and against such claims if they are based upon any statement,
representation or agreement made by Buyer, and Seller shall indemnify, hold
harmless, and defend Buyer if such claims shall be based on any statement,
representation or agreement made by Seller.
10.5 ASSIGNMENT. Buyer may not assign all or any of its
interest in this Agreement without Seller's prior written consent, which shall
not be unreasonably withheld. If Buyer assigns its interest in this Agreement to
any other person, it will not be released from liability hereunder and will
cosign the Note with the Buyer's assignee.
10.6 MEMORANDUM. This Agreement shall not be recorded. Seller
and Buyer shall execute a short form Memorandum hereof in the form of EXHIBIT G.
Buyer shall retain possession of the Memorandum and may, at Buyer's option,
record it. If Buyer relinquishes its right to purchase the Property at any time,
Buyer shall execute and deliver to Seller a recordable release of the
Memorandum.
10.7 EXHIBITS. All Exhibits attached hereto are incorporated
herein by this reference.
10.8 ADDITIONAL DOCUMENTS. Each party agrees to take such
action and to execute, acknowledge and deliver any and all documents and
instruments as may be desired by the other party more effectively to carry out
the purposes of this Agreement.
10.9 ACCEPTANCE OF AGREEMENT. If Seller does not return to
Buyer, four fully executed counterparts of this Agreement on or before 5:00 p.m.
on March 9, 1998, this Agreement shall be null and void and Seller
shall no longer have any power or authority to accept this Agreement. Any such
assignment shall not relieve Buyer from its obligations under this Agreement. If
Buyer makes such assignment, it shall unconditionally guarantee the full and
punctual payment of the Note.
10.10 EFFECTIVE DATE. "Effective Date" means the date this
Agreement has been executed by Seller, and Buyer has received two (2)
fully-executed counterparts thereof.
<PAGE>
10.11 ORS 93.040(1). THIS INSTRUMENT WILL NOT ALLOW USE OF THE
PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS
AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON
ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR
COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES AND TO DETERMINE ANY LIMITS
ON LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930.
10.12 ZONING. THE PROPERTY DESCRIBED IN THIS INSTRUMENT MAY
NOT BE WITHIN A FIRE PROTECTION DISTRICT PROTECTING STRUCTURES. THE PROPERTY IS
SUBJECT TO LAND USE LAWS AND REGULATIONS, WHICH IN FARM OR FOREST ZONES, MAY NOT
AUTHORIZE CONSTRUCTION OR SITING OF A RESIDENCE. BEFORE SIGNING OR ACCEPTING
THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK
WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES
AND EXISTENCE OF FIRE PROTECTION FOR STRUCTURES.
BUYER:
OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company
By: /s/ John Solberg
---------------------------------
John Solberg
Vice President
AGREED AND ACCEPTED this 9th day of March, 1998.
SELLER:
GARDENBURGER, INC.,
an Oregon corporation
By: /s/ Richard C. Dietz
---------------------------------
Its: Executive VP and CFO
---------------------------
<PAGE>
LIST OF EXHIBITS
Exhibit A: Land
Exhibit B: Drawing
Exhibit C: Deed of Trust Note
Exhibit D: Deed of Trust Promissory Note
Exhibit E: Earnest Money Note
Exhibit F: Form of Statutory Warranty Deed
Exhibit G: Form of Recordable Memorandum
<PAGE>
EXHIBIT A
TO
PURCHASE AND SALE AGREEMENT
LAND
<PAGE>
EXHIBIT B
TO
PURCHASE AND SALE AGREEMENT
DRAWING
<PAGE>
EXHIBIT C
TO
PURCHASE AND SALE AGREEMENT
DEED OF TRUST NOTE
- - --------------------------------------------------------------------------------
N.E. 166th & Airport Way
Portland, OR
DEED OF TRUST NOTE
$________________ _______________, 1998
1. PAYMENT; INTEREST CALCULATIONS. FOR VALUE RECEIVED, the undersigned ("Maker")
promises to pay in lawful money of the United States, on or before October 31,
1998, to the order of GARDENBURGER, INC., an Oregon corporation ("Holder"), at
1411 S.W. Morrison Street, Suite 400, Portland, Oregon 97205 or such other place
as Holder may designate the sum of
________________________________________________ Dollars ($____________). Every
payment received with respect hereto shall be applied, in any order that may be
determined by Holder in its sole discretion, to sums due under this Note,
including, without limitation: (a) late charges; (b) expenses paid or funds
advanced by Holder with interest thereon at the Default Rate when applicable (as
hereinafter defined); (c) any other premiums which may remain unpaid; (d)
accrued interest on the principal balance from time to time remaining unpaid;
and (e) the principal balance hereunder.
2. WAIVER. To the extent permitted by law, each and every maker, surety,
endorser or signator to this Note, in whatever capacity, hereby waives
presentment, demand, protest, notice of dishonor and all other notices, and
agrees that Holder may exercise its rights hereunder in any order and at any
time, and may, without notice to or consent of any such person, and without in
any way diminishing the obligations of any such person: (a) deal with any such
person with reference to this Note by way of forbearance, extension,
modification, compromise or otherwise, (b) extend, release, surrender, exchange,
compromise, discharge or modify any right or obligation secured by or provided
by the Deed of Trust securing this Note (the "Deed of Trust") or any other
instrument securing this Note, or (c) take any other action which Holder may
deem reasonably appropriate to protect its security interest in the property
securing this Note (the "Trust Property").
3. DEFAULT; DEFAULT RATE. Time is material and of the essence hereof. Each of
the following shall be an Event of Default under this Note: (a) failure of Maker
to make any payment of principal and/or interest or any other payment required
by the provisions of this Note or of any instrument securing this Note on the
date such payment or payments are due; (b) failure of Maker to perform any other
provision of this Note or of any instrument securing this Note; or (c) falsity
in any material respect of the warranties in the Deed of Trust or of any
representation, warranty or information furnished by Maker or its agents to
Holder in connection with the extension of credit evidenced by this Note (the
"Loan"). Upon the occurrence of any Event of Default, any sum not paid as
provided in this Note or in any instrument securing this Note, shall at the
option of Holder, without notice, bear interest from such due date at the rate
<PAGE>
of eighteen percent (18%) per annum (the "Default Rate") or the maximum rate of
interest permitted by law, whichever is the lesser, and, at the option of
Holder, if the default continues three (3) business days after Holder's delivery
of notice of default, the unpaid balance of principal, accrued interest, plus
any other sums due under this Note, or under any instrument securing this Note
shall at once become due and payable, without notice, and shall bear interest at
the Default Rate. 4. PREPAYMENT RESTRICTIONS, CHARGES. There are no restrictions
or penalties for partial or complete prepayment of the indebtedness owing under
this Note.
5. ACKNOWLEDGMENTS REGARDING DEFAULT RATE, LATE CHARGES AND PREPAYMENT
CHARGES.
(a) Maker acknowledges and agrees that (i) a default in making the
payments herein agreed to be paid when due will result in
Holder incurring additional expense in servicing the Loan,
loss to Holder of the use of the money due, and in frustration
to Holder in meeting its other commitments, (ii) if for any
reason it fails to pay any amounts due hereunder, Holder shall
be entitled to damages for the detriment caused thereby, but
that it is extremely difficult and impractical to ascertain
the extent of such damages, and (iii) the Default Rate and the
late charge described in this Note are a reasonable estimate
of such damages.
(b) Maker represents that it is a knowledgeable real estate
investor and fully understands the effect of the charges,
waivers and agreements contained above. Maker acknowledges and
agrees that the making of the loan by Holder at the interest
rate and with the other terms described herein is sufficient
consideration for such charges, waivers and agreements, and
that Holder would not make this loan on these terms without
such charges, waivers and agreements.
6. EXPENSES AND ATTORNEYS' FEES. If Holder refers this Note to an attorney for
collection or seeks legal advice following a default alleged in good faith under
the Note; if Holder is the prevailing party in any litigation instituted in
connection with the Note; or if Holder or any other person initiates any
judicial or nonjudicial action, suit or proceeding in connection with Note or
the security therefor, and an attorney is employed by Holder to (a) appear in
any such action, suit or proceeding, or (b) reclaim, seek relief from a judicial
or statutory stay, sequester, protect, preserve or enforce Holder's interest in
the Note, the Deed of Trust, or any other security for the Note (including but
not limited to proceedings under federal bankruptcy law, in eminent domain,
under probate proceedings, or in connection with any state or federal tax lien),
then in any such event, Maker shall pay attorney's fees and costs and expenses
incurred by Holder and/or its attorney in connection with the above-mentioned
events and any appeals related to such events, including but not limited to
costs incurred in searching records, the cost of title reports, the cost of
appraisals, and the cost of surveyor's reports. If not paid within ten days
after such fees, costs and expenses become due and written demand for payment is
made upon Maker, such amount may, at Holder's option, be added to the principal
of the Note and shall bear interest at the Default Rate.
<PAGE>
7. NO USURY. In no event shall any payment of interest or any other sum payable
hereunder both (a) violate the usury laws of the state in which the Trust
Property is located and (b) allow Maker to bring a claim for usury or raise
usury as a defense in any action on this Note. If it is established that both
(a) and (b) have occurred, and any payment exceeding lawful limits has been
received, Holder shall refund such excess or, at its option, credit the excess
amount to principal, but such payments shall not affect the obligation to make
periodic payments required herein.
8. SECURITY. The indebtedness evidenced by this Note is secured by the Deed of
Trust of even date and may be secured by other security instruments.
9. DUE ON SALE OR TRANSFER. Except as set forth in Section 10, this Note is
personal to Maker and not assignable. In making the Loan, Holder has relied on
Maker's credit, Maker's interest in the Trust Property, and the financial market
conditions at the time the Loan is made. Subject to Section 10, in the event of
a sale, conveyance, transfer or encumbrance of the title to or possession of all
or part of the Trust Property, directly or indirectly, either voluntarily,
involuntarily or by operation of law, without the prior written consent of
Holder (which consent may be withheld at Holder's sole discretion), Holder may
declare the entire balance of the indebtedness evidenced by this Note
immediately due and payable. Without limiting the generality or effect of the
foregoing, waiver by Holder of its right to accelerate the indebtedness upon any
transfer or contract to transfer, or to require satisfaction of the conditions
set forth in this paragraph, shall not be deemed a waiver by Holder of its right
to accelerate the indebtedness upon any other transfer or contract to transfer
or of its right upon such transfer or contract to transfer to require
satisfaction of the conditions set forth above in this paragraph. For the
purpose of, and without limiting the generality of the foregoing, but subject to
Section 10, the occurrence at any time of any of the following events, without
Holder's prior written consent, shall be deemed to be a transfer of title to the
Trust Property:
(i) Any sale, conveyance, assignment or other transfer of, or the
grant of a security interest in, all or any part of the legal
and/or equitable title to the Trust Property; or
(ii) Any sale, conveyance, assignment or other transfer of, or the
grant of a security interest in, any share of stock of Maker
to other than an affiliate of Maker.
10. PERMITTED TRANSFERS AND SUBORDINATION. Notwithstanding anything in Section 9
to the contrary, Maker may, without Holder's consent, assign its interest in the
Trust Property to any affiliate of Maker, including but not limited to, a
limited liability company or other legal entity controlled by Maker or an
affiliate of Maker. Such assignment shall NOT release Maker or its successor in
interest from personal liability for payment and performance of the terms and
conditions of this Note. "Affiliate" means a person or entity controlling,
controlled by or under common control with Maker.
11. COMMERCIAL PURPOSE. The obligation evidenced by this Note is exclusively for
commercial or business purposes.
12. GOVERNING LAW. The law of the state of Oregon shall govern the validity,
interpretation, construction and performance of this Note.
<PAGE>
13. SUCCESSORS AND ASSIGNS. Whenever used herein, the words "undersigned",
"Maker" and "Holder" shall be deemed to include their respective heirs, personal
representatives, successors and assigns.
BUYER:
OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company
By:
--------------------------------------
John Solberg
Vice President
<PAGE>
EXHIBIT D
TO
PURCHASE AND SALE AGREEMENT
FORM OF DEED OF TRUST
- - --------------------------------------------------------------------------------
Recorded at the Request of
and after Recording Return to:
James F. Dulcich
Miller, Nash, Wiener, Hager & Carlsen LLP
111 S.W. Fifth Avenue
Portland, Oregon 97204
N.E. 166th & Airport Way
Portland, OR
DEED OF TRUST
THIS DEED OF TRUST made this ______ day of _____________, 199___, is
between OPUS NORTHWEST, L.L.C., a Delaware limited liability company ("Trustor")
and FIRST AMERICAN TITLE INSURANCE COMPANY OF OREGON ("Trustee"), and
GARDENBURGER, INC., an Oregon corporation ("Beneficiary").
Trustor irrevocably grants, bargains, sells, and conveys to Trustee in
trust for the benefit and security of Beneficiary, with power of sale, that
property in the City of Portland, Multnomah County, Oregon, described on
SCHEDULE A, attached hereto and incorporated herein by reference (the
"Property") together with (a) all buildings and improvements now or hereafter
located thereon, and all appurtenances, easements, right in party walls, water
and water rights, pumps and pumping plants and all shares of stock evidencing
the same; (b) all awards, compensation and settlements in lieu thereof made as a
result of the taking by power of eminent domain of the whole or any part of the
Property; (c) all interests, estate or other claims, both in law and in equity,
which Trustor now has or may hereafter acquire in the Property; and (d) all
right, title, and interest of Trustor, now owned or hereafter acquired, in and
to any land lying within the right-of-way of any street, open or proposed,
adjoining the Property. The Property and all of the foregoing shall constitute
the "Trust Property". To the extent such Trust Property constitutes personal
property or fixtures, Grantor grants Trustee a security interest in such Trust
Property, together with all proceeds and products thereof, for the benefit of
Beneficiary.
This Deed of Trust is made for the purpose of securing, in such order
of priority as Beneficiary may elect: (a) payment of the indebtedness evidenced
by that certain Deed of Trust Note of even date herewith in the original
principal amount of $_________________________ (the "Note") made by Trustor,
delivered to Beneficiary and payable to its order and any and all modifications,
extensions or renewals thereof, whether hereafter evidenced by the Note or
<PAGE>
otherwise; (b) payment of interest on said indebtedness according to the terms
of the Note; (c) payment of all other sums, with interest as herein provided,
becoming due and payable under the provisions hereof to Trustee or Beneficiary;
(d) performance of each and every condition, obligation, covenant, promise and
agreement of Trustor contained herein or in the Note, (e) payment of such
additional sums with interest thereon as may be hereafter advanced by or
borrowed from the Beneficiary, its successors or assigns, by the then record
owner or owners of the Trust Property when evidenced by another promissory note
or notes which are by the terms thereof secured by this Deed of Trust. To the
extent permitted by law, any sums hereafter advanced by or borrowed from
Beneficiary, its successors or assigns, shall have the same priority as the
original sums advanced by Beneficiary and secured hereby.
TRUSTOR'S COVENANTS AND WARRANTIES. Trustor hereby warrants that: (a)
Trustor is the owner in fee simple absolute of the Property and every part
thereof; (b) the Trust Property is free, and will be kept free, from all liens
and encumbrances, except those of record as of the date hereof and Trustor will
defend the title hereby granted to and in favor of Trustee and Beneficiary as
against all and every person claiming or to claim the same; (c) the loan
proceeds are not for use primarily for personal, family or household purposes;
(d) except in the ordinary course of site work and construction of improvements
in the Trust Property, Trustor will not use, generate, manufacture, produce,
store, release, discharge, dispose of on, under, or about the Trust Property or
place or permit to be placed on the Trust Property any Hazardous Substances (as
defined below); (e) the Property is zoned for the existing or contemplated use
of the Property; (f) there are no actions, lawsuits, or other proceedings
pending or threatened against or affecting Trustor which might adversely affect
the ability of Trustor to perform its obligations under the Note or other loan
documents, or which might adversely affect the priority of Beneficiary's lien on
the Trust Property; and (g) consummation of the loan and payment of the Note
secured hereby will not conflict with or result in a breach of any law,
regulation or court order applicable to Trustor or the Trust Property. As used
in this Deed of Trust, Hazardous Substance means: (i) any "hazardous waste" as
defined in the Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.
6901 et seq.), as amended from time to time, and regulations promulgated
thereunder; (ii) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.
9601 et seq.), as amended from time to time, and regulations promulgated
thereunder; (iii) radon, asbestos, polychlorinated biphenyls (PCB's),
explosives, radioactive substances, and material quantities of petroleum
products; (iv) any substance the presence of which on the Trust Property is
regulated by any federal, state or local law relating to the protection of the
environment or public health; and (v) any other material, substance, or waste
that is or becomes regulated or that is or becomes classified as hazardous,
dangerous, or toxic under any federal, state, or local statute, ordinance, rule,
regulation, or law.
A. TRUSTOR AGREES AS FOLLOWS:
1. PAYMENT OF INDEBTEDNESS; PERFORMANCE OF COVENANTS. Trustor shall pay
each and every installment of principal and interest on the Note and all other
indebtedness secured hereby, as and when the same shall become due, and shall
perform and observe all of the covenants, agreements and provisions contained
herein or in the Note.
<PAGE>
2. MAINTENANCE; COMPLIANCE; LIENS. Trustor shall: keep the Trust
Property in good condition and repair; comply with all laws, ordinances,
regulations, covenants, conditions and restrictions affecting the Trust Property
or requiring any alteration or improvements to be made thereon; not commit or
permit waste thereon; not commit, suffer or permit any act upon the Trust
Property in violation of law; cultivate, irrigate, fertilize, prune and do all
other acts which from the character or use of the Trust Property may be
reasonably necessary, the specific enumeration herein not excluding the general;
and keep the Trust Property free from all encumbrances, except those accepted by
Beneficiary in writing.
3. HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL REQUIREMENTS. Trustor
shall keep and maintain the Trust Property in compliance with, and shall not
cause or permit all or any portion of the Trust Property, including groundwater,
to be in violation of any Environmental Law. As used herein, "Environmental Law"
means any federal, state, or local law, statute, ordinance, or regulation
pertaining to Hazardous Substances, health, industrial hygiene, or environmental
conditions, including without limitation the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 USC ss.ss.
9601-9675, and the Resource Conservation and Recovery Act of 1976, as amended,
42 USC ss.ss. 6901-6992. Trustor shall promptly notify Beneficiary of its
receipt of any notice of (a) a violation of any such Environmental Law, standard
or regulation; and (b) all claims made or threatened by any third party against
Trustor or the Trust Property relating to any loss or injury resulting from any
such Hazardous Substances. Trustor shall hold Beneficiary, its directors,
officers, employees, agents, successors, and assigns, harmless from, indemnify
them for, and defend them against any and all losses, damages, liens, costs,
expenses, and liabilities directly or indirectly arising out of or attributable
to any violation of any Environmental Law, any breach of Trustor's covenants and
warranties set forth above, or the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal, or presence of a
Hazardous Substance on, under, or about the Trust Property, including without
limitation the costs of any required repair, cleanup, containment, or
detoxification of the Trust Property, the preparation and implementation of any
closure, remedial or other required plans, attorneys' fees and costs (including
but not limited to those incurred in any proceeding and in any review or
appeal), fees, penalties, and fines. This indemnity shall survive the
reconveyance of this Deed of Trust, or the extinguishment of the lien of this
Deed of Trust by foreclosure or action in lieu thereof.
4. CONSTRUCTION AND CASUALTY. Trustor shall complete, in good and
workmanlike manner, any building, structure or improvement being built or about
to be built on the Property and shall promptly restore any such building,
structure or improvement thereon which may be damaged or destroyed.
5. INSURANCE.
(a) Property and Other Insurance. Trustor shall obtain and
maintain in full force and effect during the term of this Deed of Trust all risk
property insurance, in an amount not less than the full replacement cost of all
improvements, including the cost of debris removal, and commercial general
liability insurance with limits, coverages, risks insured and waiver of
subrogation clauses acceptable to Beneficiary.
<PAGE>
(b) Insurance Companies and Policies. All such insurance:
shall be written by a company or companies acceptable to Beneficiary; shall
contain a beneficiary clause in favor of Beneficiary; shall be satisfactory to
Beneficiary as to form, substance, and, except as specifically designated in
Section A5(a), amount; shall provide for thirty (30) days' prior written notice
of cancellation to Beneficiary; shall contain endorsements specifying that no
act or negligence of Trustor or any occupant, and no occupancy or use of the
Trust Property for purposes more hazardous than permitted by the terms of the
policy will affect the validity or enforceability of such insurance as against
Beneficiary; shall be in full force and effect on the date of this Deed of
Trust; and shall be accompanied by proof of premiums paid for the current policy
year. All such insurance shall be written in amounts sufficient to prevent
Trustor from becoming a co-insurer under the applicable policies.
(c) Blanket Policy. If a blanket policy is issued, a certified
copy of said policy shall be furnished, together with a certificate indicating
that Beneficiary is the insured under said policy in the proper designated
amount.
(d) Notice of Loss. In the event of loss, Trustor shall
immediately notify Beneficiary. Beneficiary may make proof of loss if it is not
made promptly by Trustor.
6. DEFENSE. Trustor shall appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers of Beneficiary,
or Trustee; and pay all costs and expenses, including cost of evidence of title
and attorneys' fees in a reasonable sum, in any such action or proceeding, or
appeal therefrom, in which Beneficiary or Trustee may appear.
7. TAXES, ASSESSMENTS, AND LIENS. Trustor shall pay before they become
delinquent all taxes and the current installment of assessments levied against
or on account of the Trust Property and shall pay as due all claims for work
done on or for services rendered or material furnished to the Trust Property.
Trustor shall maintain the Trust Property free of any liens having priority over
or equal to the interest of Beneficiary under this Deed of Trust, except for the
lien of taxes and the current installment of assessments not delinquent, and
except as hereinafter otherwise provided. Trustor may withhold payment of any
tax, assessment, or claim in connection with a good faith dispute over the
obligation to pay, so long as Beneficiary's interest in the Trust Property is
not jeopardized. If a lien arises or is filed as a result of nonpayment, Trustor
shall within 15 days after the lien arises or, if a lien is filed, within 30
days after Trustor has notice of the filing, secure the discharge of the lien or
deposit with Beneficiary cash or a sufficient corporate surety bond or other
security satisfactory to Beneficiary in an amount sufficient to discharge the
lien plus any costs, attorneys' fees, or other charges that could accrue as a
result of a foreclosure or sale under the lien. The assessor or tax collector of
the county in which the Trust Property is located is authorized to deliver to
Beneficiary a written statement of the property taxes assessed or owing at any
time.
<PAGE>
B. IT IS MUTUALLY AGREED THAT:
1. PROCEEDS OF CONDEMNATION, INJURY TO TRUST PROPERTY. The proceeds of
any award or claim for damages, direct or consequential, in connection with any
condemnation or other taking of or damage or injury to all or any portion of the
Trust Property, or for the conveyance in lieu of condemnation thereof, are
hereby assigned to and shall be paid to Beneficiary. In addition, all causes of
action, whether accrued before or after the date of this Deed of Trust, and all
claims for damages or injury to the Trust Property or any part thereof,
including causes of action arising in tort or contract and for fraud or
concealment of a material fact, are hereby assigned to Beneficiary and the
proceeds thereof shall be paid to Beneficiary. Beneficiary may elect, in its
sole discretion, to apply such sums to the indebtedness secured by this Deed of
Trust, or to release such sums or any part thereof.
2. NON-WAIVER. No waiver of any default on the part of Trustor or
breach of any of the provisions of this Deed of Trust shall be considered a
waiver of any other or subsequent default or breach, and no delay or omission in
exercising or enforcing the rights and powers herein granted shall be construed
as a waiver of such rights and powers. No exercise or enforcement of any rights
or powers hereunder shall be held to exhaust such rights and powers, and every
such right and power may be exercised from time to time.
3. RECONVEYANCE. Upon (a) written request of Beneficiary stating that
all sums secured hereby have been paid, (b) surrender of this Deed of Trust and
the Note to Trustee for cancellation and retention and (c) payment of its fees,
Trustee shall reconvey, without warranty, the property then held hereunder. The
recitals in such reconveyance of any matter or facts shall be conclusive proof
of the truthfulness thereof. The grantee in such reconveyance may be described
as "the person or persons legally entitled thereto."
4. BENEFICIARY'S RIGHT TO CURE AND DEFEND. Should Trustor fail to make
any payment or do any act as provided in this Deed of Trust or in the Note,
Beneficiary or Trustee may, but shall not obligated to, make or do the same in
such manner and to such extent as either may deem necessary to protect the
security hereof, Beneficiary or Trustee being authorized to enter upon the Trust
Property for such purpose. Beneficiary and/or Trustee may at any time, prior to
full payment of all sums secured by this Deed of Trust: (a) appear in and defend
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee; (b) pay, purchase, contest or compromise
any encumbrance, charge or lien which in the judgment of either appears to be
prior or superior hereto; and (c) in exercising any power conferred by this Deed
of Trust, pay necessary expenses, employ counsel and pay reasonable fees
therefor (including fees on appeal). Trustor agrees to repay immediately and
without demand all sums so expended by Beneficiary or Trustee with interest from
date of expenditure at the Default Rate as herein provided.
5. EVENTS OF DEFAULT. Any of the following events shall, after Trustor
receives written notice of such event and is provided 10 days from the date of
such notice to cure such default, be deemed an event of default under this Deed
of Trust:
(a) Default shall be made in the payment of any installment of
principal or interest on the Note or any other sum secured hereby when due,
including but not limited to the failure to pay the unpaid principal and accrued
interest due under the Note on or before its October 31, 1998, maturity date.
<PAGE>
(b) Trustor shall file a voluntary petition in bankruptcy or
such a petition shall be filed against Trustor and is not dismissed within 30
days after the date of filing; or if Trustor shall file any petition or answer
seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for itself under any
present or future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors; or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or liquidator of
Trustor, or of all or any part of the Trust Property, or of any or all of the
royalties, revenues, rents, issues or profits thereof, or shall make any general
assignment for the benefit of creditors, or shall admit in writing its inability
to pay its debts generally as they become due; or
(c) A court of competent jurisdiction shall enter an order,
judgment or decree approving a petition filed against Trustor seeking any
reorganization, dissolution or similar relief under any present or future
federal, state or other statute, law or regulation relating to bankruptcy,
insolvency or other relief for debtors, and such order, judgment or decree shall
remain unvacated and unstayed for an aggregate of thirty (30) days (whether or
not consecutive) from the first date of entry thereof; or any trustee, receiver
or liquidator of Trustor or of all or any part of the Trust Property, or of any
or all of the royalties, revenues, rents, issues or profits thereof, shall be
appointed without the consent or acquiescence of Trustor and such appointment
shall remain unvacated and unstayed for an aggregate of thirty (30) days
(whether or not consecutive); or
(d) A writ of execution or attachment or any similar process
shall be issued or levied against all or any part of or interest in the Trust
Property, or any judgment involving monetary damages shall be entered against
Trustor which shall become a lien on the Trust Property or any portion thereof
or interest therein and such execution, attachment or similar process or
judgment is not released, bonded, satisfied, vacated or stayed within thirty
(30) days after its entry or levy.
6. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any event of
default and at any time thereafter, Beneficiary may exercise any one or more of
the following rights and remedies:
(a) The right at its option by notice to Trustor to declare
the entire indebtedness secured hereby immediately due and payable.
(b) With respect to all or any part of the Trust Property, the
right to foreclose by judicial foreclosure in accordance with applicable law.
(c) The right to have the Trustee sell the Trust Property by
advertisement and sale in accordance with the Deed of Trust Act of the State of
Oregon (ORS 86.705 - 86.795, and hereinafter referred to as the "Act"), the
Uniform Commercial Code of the State of Oregon where applicable, and other
applicable law at public auction to the highest bidder. Any person except
Trustee may bid at the Trustee's sale. The power of sale conferred by this Deed
of Trust and the law is not an exclusive remedy and when not exercised,
Beneficiary may foreclose this Deed of Trust as a mortgage. The Trustee is not
obligated to notify any party hereto of a pending sale under any other deed of
trust or of any action or proceeding in which Trustor, Trustee, or Beneficiary
shall be a party, unless such action or proceeding is brought by the Trustee.
<PAGE>
(d) With respect to all or any part of the Trust Property that
constitutes personalty, the rights and remedies of a secured party under the
Oregon Uniform Commercial Code.
(e) Subject to any limitations imposed by law, the right to
obtain a deficiency judgment in the event the net sale proceeds of any
foreclosure sale are insufficient to pay the entire unpaid indebtedness secured
hereby.
(f) Beneficiary may have a receiver appointed for the Trust
Property. Beneficiary shall be entitled to the appointment of a receiver as a
matter of right whether or not the apparent value of the Trust Property exceeds
the amount of the indebtedness secured by this Deed of Trust. Employment by
Trustee or Beneficiary shall not disqualify a person from serving as receiver.
Trustor consents to the appointment of a receiver at Beneficiary's option and
waives any and all defenses to such an appointment.
(g) Beneficiary may, either through a receiver or as
lender-in-possession, enter and take possession of all or any part of the Trust
Property and use, operate, manage, and control it as Beneficiary shall deem
appropriate in its sole discretion. Upon request after an event of default,
Trustor shall peacefully relinquish possession and control of the Trust Property
to Beneficiary or any receiver appointed under this Deed of Trust.
(h) Any other right or remedy provided in this Deed of Trust,
the Note, any other agreement between Trustor and Beneficiary, or under law. All
remedies under this Deed of Trust are cumulative and not exclusive. Any
intention to pursue one remedy shall not preclude the exercise of any other
remedy.
7. FORECLOSURE BY POWER OF SALE. Should Beneficiary elect to foreclose
by exercise of the power of sale herein contained, Beneficiary shall notify
Trustee of such election. Upon receipt of such notice from Beneficiary, Trustee
shall cause to be given such Notice of Default as then required by law. Trustee
shall, without demand on Trustor, after lapse of such time as may then be
required by law and after Notice of Sale having been given as required by law,
sell the Trust Property at the time and place of sale fixed by it in such Notice
of Sale, either as a whole, or in separate lots or parcels or items as Trustee
shall deem expedient, and in such order as it may determine, at public auction
to the highest bidder. Trustee shall deliver to such purchaser or purchasers
thereof its good and sufficient deed or deeds conveying the property so sold,
but without any covenant or warranty, express or implied. The recitals in such
deed of any matters or facts shall be conclusive proof of the truthfulness
thereof. Any person, including, without limitation, Trustor or Beneficiary, may
purchase at such sale.
8. PROCEEDS OF SALE. If foreclosure is by advertisement and sale under
the Act, the proceeds of the sale shall be applied as set forth in ORS 86.765.
<PAGE>
9. EXPENSES AND ATTORNEYS' FEES. If Beneficiary refers the Note to an
attorney for collection or seeks legal advice following a default; if
Beneficiary is the prevailing party in any litigation instituted in connection
with the Note or this Deed of Trust; or if Beneficiary or any other person
initiates any judicial or nonjudicial action, suit or proceeding in connection
with the Note, the indebtedness evidenced thereby or the security therefor
(including, but not limited to, an action to recover possession of the Property
after foreclosure), and an attorney is employed by Beneficiary to (a) prosecute
or appear in any such action, suit or proceeding, or (b) reclaim, seek relief
from a judicial or statutory stay, sequester, protect, preserve or enforce
Beneficiary's interest in the Note or the Deed of Trust (including but not
limited to proceedings under federal bankruptcy law, in eminent domain, or in
connection with any state or federal tax lien), then in any such event, to the
extent allowed by law, Trustor shall pay the attorneys' fees and costs and
expenses incurred by Beneficiary in connection with the above-mentioned events,
including but not limited to costs incurred searching records, the cost of title
or foreclosure reports, and the costs of appraisals, and any appeals related to
such events. Such amounts shall be secured by this Deed of Trust and, if not
paid on demand, shall bear interest at the Default Rate from the date they are
incurred.
10. BINDING EFFECT; INTERPRETATION. This Deed of Trust applies to,
inures to the benefit of, and binds all parties hereto and their heirs,
successors and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees, of the Note secured hereby, whether or not named as
Beneficiary herein. In this Deed of Trust, whenever the context so requires, the
masculine gender includes the feminine and/or neuter, and the singular number
includes the plural. Section headings are for convenience only and shall not be
deemed a part of this Deed of Trust for any purpose. The word "person" shall
mean an individual, firm, association, corporation, limited liability company,
trust, or any other form of business or legal entity. Whenever the adverbs
"herein," "hereunder," "hereto," "hereinafter," etc., appear herein, they shall
be deemed to mean and refer to this Deed of Trust in its entirety and not to any
specific paragraph or section hereof. The word "including" shall be deemed to
mean "including but not limited to."
11. DUE ON SALE OR ENCUMBRANCE.
(a) Except as set forth in Section B11(d) below, the Note
secured by this Deed of Trust is personal to Trustor and not assignable. In
accepting the Note, Beneficiary has relied upon Trustor's credit, Trustor's
interest in the Trust Property, and financial market conditions at the time the
loan is made. In the event of a sale, conveyance, transfer or encumbrance of the
title to or possession of all or part of the Trust Property, directly or
indirectly, either voluntarily, involuntarily or by operation of law, without
the prior written consent of Beneficiary (which consent may be withheld at
Beneficiary's sole discretion), Trustor shall be in default under the Note and
this Deed of Trust and Beneficiary may declare the entire balance of the
indebtedness owing under the Note to be immediately due and payable.
(b) Without limiting the generality or effect of the
foregoing, waiver by Beneficiary of its right to accelerate the loan upon any
transfer or contract to transfer, or to require satisfaction of the conditions
set forth in this Section B11, shall not be deemed a waiver by Beneficiary of
its right to accelerate the indebtedness occurring under the Note upon any other
transfer or contract to transfer or of its right upon such transfer or contract
to transfer to require satisfaction of the conditions set forth above in this
Section B11.
<PAGE>
(c) For the purpose of, and without limiting the generality of
the foregoing, except as permitted in Section B11(d), the occurrence at any time
of any of the following events, without Beneficiary's prior written consent,
shall be deemed to be a transfer of title to the Trust Property:
i. Any sale, conveyance, assignment or other transfer of, or
the grant of a security interest in, all or any part of the legal
and/or equitable title to the Trust Property; and
ii. Any sale, conveyance, assignment or other transfer of, or
the grant of a security interest in any of the ownership interests in
Trustor.
(d) Notwithstanding anything in this Section B11 to the
contrary, Trustor may, without Beneficiary's consent, transfer its interest in
the Trust Property to any affiliate of Trustor including a limited liability
company or other legal entity controlled by Trustor or an affiliate. No such
assignment shall release Trustor from personal liability for payment and
performance of the terms and conditions of this Deed of Trust. "Affiliate" means
a person or entity directly or indirectly controlling, controlled by or under
common control with Trustor. No such assignment shall release Trustor from
personal liability for payment and performance of the terms and conditions of
this Deed of Trust.
12. WAIVER OF RIGHT TO MARSHAL. Trustor, for Trustor and for all
persons hereafter claiming through or under Trustor or who may at any time
hereafter become holders of liens junior to the lien of this Deed of Trust,
hereby expressly waives and releases all rights to direct the order in which any
of the Trust Property shall be sold in the event of any sale or sales pursuant
hereto and to have any of the Trust Property and/or any other property now or
hereafter constituting security for any of the indebtedness secured hereby
marshaled upon any foreclosure of this Deed of Trust or of any other security
for any of said indebtedness.
13. SEVERABILITY. In the event any provision contained in this Deed of
Trust shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Deed of Trust, but this Deed of Trust shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
14. FIXTURE FILING. This Deed of Trust is being filed as a fixture
filing. In addition, Trustor shall execute and deliver to Beneficiary for filing
any and all such forms UCC-1, UCC-2 and UCC-3 as Beneficiary may from time to
time request to perfect and maintain the lien of its security interests in
personal property and fixtures granted hereunder.
15. GOVERNING LAW. The law of the State of Oregon shall govern the
validity, interpretation, construction and performance of this Deed of Trust.
<PAGE>
16. SUCCESSOR TRUSTEE; NOTICE. Beneficiary at any time and from time to
time, by instrument in writing, may substitute and appoint a successor or
successors (either corporate or individual) to any trustee named herein or
previously substituted hereunder, which instrument when executed, acknowledged,
and recorded in the office of the Recorder of the county or counties where the
Trust Property is situated shall be conclusive proof of the proper substitution
and appointment of each successor trustee or trustees, who shall then have all
the title, powers, duties and rights of the predecessor trustee, without the
necessity of any conveyance from such predecessor. Trustee accepts this trust
when this Deed of Trust, duly executed and acknowledged, is made a public record
as provided by law. The undersigned Trustor requests that a copy of any notice
of default and of any notice of sale hereunder be mailed to Trustor. Trustee is
not obligated to notify any party hereto of pending sale under any other deed of
trust or of any action or proceeding in which Trustor, Beneficiary or Trustee
shall be a party unless brought by Trustee. Except as otherwise provided in this
Deed of Trust or required by law, all notices and consents required or permitted
under this Deed of Trust shall be in writing and personally delivered, delivered
by private courier service (such as Federal Express) or mailed by first class
registered or certified mail, return receipt requested, postage prepaid, and
addressed as follows:
IF TO TRUSTOR/DEBTOR: Opus Northwest, L.L.C.
Attn: John Solberg, Vice President
200 112th Avenue N.E., Suite 205
Bellevue, WA 98004
WITH A COPY TO: Tousley Brain PLLC
Attn: Russell F. Tousley, P.S.
700 Fifth Avenue, Suite 5600
Seattle, WA 98104-5056
AND TO: Opus U.S. Corporation
Attn: Brad Osmundson, Associate General Counsel
800 Opus Center, 9900 Bren Road East
Minnetonka, MN 55343-0110
IF TO BENEFICIARY: Gardenburger, Inc.
Attn: Mr. Richard C. Dietz
1411 SW Morrison, Suite 400
Portland, OR 97205
WITH A COPY TO: James F. Dulcich
Miller, Nash, Wiener, Hager & Carlsen LLP
3500 U.S. Bancorp Tower
111 S.W. Fifth Avenue
Portland, Oregon 97204-3699
<PAGE>
IF TO TRUSTEE: First American Title Insurance Company
200 SW Market Street, Suite 1776
Portland, OR 97201-5705
Changes in the respective addresses to which such notices may be directed may be
made from time to time by any party by notice to the other parties. Notices and
consents given by mail in accordance with this Section B16 shall be deemed to
have been given three (3) days after being deposited in the mail; notices and
consents given by any other means shall be deemed to have been given when
received.
17. ENTIRE AGREEMENT. This Deed of Trust and the Note constitute the
entire and complete agreement of the parties with respect to the subject matter
hereof, and supersede all prior or contemporaneous understandings, arrangements
and commitments, all of which, whether oral or written, are merged herein. This
Deed of Trust shall bind and inure to the benefit of the parties to this Deed of
Trust and any successor or assignee acquiring an interest hereunder consistent
with Section B.11 above.
18. AUTHORIZATION. Trustor warrants that Trustor has full authority to
enter into this Deed of Trust and in so doing is not violating any law or
regulation or agreement with third parties, and Trustor has taken all such
action as may be necessary or appropriate to make this Deed of Trust binding on
Trustor, and, upon request, shall deliver certified copies of such action to
Beneficiary. If Trustor is not an individual, then the person or persons signing
on behalf of Trustor represent and warrant to Beneficiary that he or she was
authorized to execute this Deed of Trust on behalf of Trustor, that all actions
required for Trustor to enter into this Deed of Trust have been taken, and that
he or she is executing this Deed of Trust on behalf of Trustor.
ORS 93.040(1). THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY
DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND
REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING
FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY
PLANNING DEPARTMENT TO VERIFY APPROVED USES AND TO DETERMINE ANY LIMITS ON
LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930.
ZONING. THE PROPERTY DESCRIBED IN THIS INSTRUMENT MAY NOT BE WITHIN A
FIRE PROTECTION DISTRICT PROTECTING STRUCTURES. THE PROPERTY IS SUBJECT TO LAND
USE LAWS AND REGULATIONS, WHICH IN FARM OR FOREST ZONES, MAY NOT AUTHORIZE
CONSTRUCTION OR SITING OF A RESIDENCE. BEFORE SIGNING OR ACCEPTING THIS
INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE
<PAGE>
APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY APPROVED USES AND
EXISTENCE OF FIRE PROTECTION FOR STRUCTURES.
TRUSTOR:
OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company
By:
-----------------------------------------
John Solberg, Vice President
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that JOHN
SOLBERG is the person who appeared before me, and said person acknowledged that
he signed this instrument, on oath stated that he was authorized to execute the
instrument and acknowledged it as the Vice President of Opus Northwest, L.L.C.
to be the free and voluntary act of such party for the uses and purposes
mentioned in this instrument.
Dated: ______________________.
-------------------------------------------
(Signature of Notary Public)
-------------------------------------------
(Printed Name of Notary Public)
My Appointment expires_____________________
<PAGE>
REQUEST FOR FULL RECONVEYANCE
DO NOT RECORD. TO BE USED ONLY WHEN NOTE HAS BEEN PAID.
To ________________________________________, Trustee:
The undersigned is the legal owner and holder of the note or notes, and
of all other indebtedness secured by the foregoing Deed of Trust. Said note or
notes, together with all other indebtedness secured by said Deed of Trust, have
been fully paid and satisfied; and you are hereby requested and directed, on
payment to you of any sums owing to you under the terms of said Deed of Trust,
to cancel said note or notes above mentioned, and all other evidences of
indebtedness secured by said Deed of Trust delivered to you herewith, together
with the said Deed of Trust, and to reconvey, without warranty, to the parties
designated by the terms of said Deed of Trust, all the estate now held by you
under the same.
DATED _________________________.
BENEFICIARY:
By:
------------------------------------
Its:
--------------------------------
MAIL RECONVEYANCE TO:
<PAGE>
SCHEDULE A
TO
DEED OF TRUST
DESCRIPTION OF REAL PROPERTY
[Legal description]
<PAGE>
EXHIBIT E
TO
PURCHASE AND SALE AGREEMENT
EARNEST MONEY NOTE
- - --------------------------------------------------------------------------------
EARNEST MONEY NOTE
$50,000 Bellevue, WA
_____________, 1997
Subject to the terms and conditions of that certain Purchase and Sale
Agreement (the "Agreement") of even date herewith by and between the undersigned
and GARDENBURGER, INC., an Oregon corporation ("Seller"), the undersigned
promises to pay to First American Title Insurance Company of Oregon ("Escrow
Company") the sum of Fifty Thousand Dollars ($50,000) without interest, within
two (2) Business Days of the date Buyer gives notice to Seller and Escrow
Company that all Feasibility Contingencies have been satisfied or waived by
Buyer pursuant to Section 4 of the Agreement. Principal shall be payable at the
Portland, Oregon office of Title Company. Capitalized terms in this Note have
the same meaning as set forth in the Agreement.
OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company
By:
---------------------------------
John Solberg
Vice President
<PAGE>
EXHIBIT F
TO
PURCHASE AND SALE AGREEMENT
FORM OF STATUTORY WARRANTY DEED
- - --------------------------------------------------------------------------------
Recorded at the Request of
and after Recording Return to:
Russell F. Tousley, P.S.
Tousley Brain PLLC
56th Floor, Key Tower
700 Fifth Avenue
Seattle, WA 98104-5056
STATUTORY WARRANTY DEED
THE GRANTOR, GARDENBURGER, INC., an Oregon corporation, for good and
valuable consideration in hand paid, conveys and warrants to OPUS NORTHWEST,
L.L.C., a Delaware limited liability company the real estate described on
SCHEDULE A attached hereto, situated in the City of Portland, County of
Multnomah, State of Oregon, subject only to the matters described on SCHEDULE B
attached hereto. The true consideration for this conveyance is $_____________.
ORS 93.040 WARNING. THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY
--------------------------------------------------
DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND
- - -------------------------------------------------------------------------
REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING
- - ------------------------------------------------------------------------------
FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY
- - --------------------------------------------------------------------------
PLANNING DEPARTMENT TO VERIFY APPROVED USES AND TO DETERMINE ANY LIMITS ON
- - --------------------------------------------------------------------------
LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930.
- - ----------------------------------------------------------------------
DATED: ___________________.
GRANTOR:
GARDENBURGER, INC.,
an Oregon corporation
By:
--------------------------------
Its:
--------------------------
<PAGE>
SCHEDULE A
TO
STATUTORY WARRANTY DEED
LAND
<PAGE>
EXHIBIT G
TO
PURCHASE AND SALE AGREEMENT
FORM OF MEMORANDUM OF PURCHASE AND SALE AGREEMENT
- - --------------------------------------------------------------------------------
MEMORANDUM OF
PURCHASE AND SALE AGREEMENT
THIS MEMORANDUM OF PURCHASE AND SALE AGREEMENT (this "Memorandum) is
executed this ____ day of _______________________, 1997, by GARDENBURGER, INC.,
an Oregon corporation ("Seller"), whose address is ____________________________,
as a memorandum of an unrecorded Real Estate Purchase and Sale Agreement (the
"Agreement") of even date herewith, between Seller and OPUS NORTHWEST, L.L.C., a
Delaware limited liability company qualified to do business in the State of
Oregon, and/or assigns ("Buyer"), whose address is 200 112th Avenue N.E., Suite
205, Bellevue, Washington 98004, concerning the real property described in
SCHEDULE A attached hereto and made a part hereof, and all improvements located
thereon (collectively, the "Premises").
1. SALE. For good and valuable consideration, Seller has agreed to sell
and Buyer has the right to purchase the Premises upon all the terms, conditions
and provisions set forth in the Agreement, which provisions are incorporated in
this Memorandum by reference.
2. MISCELLANEOUS. This Memorandum is not a complete summary of the
Agreement. Provisions in this Memorandum shall not be used in interpreting the
Agreement provisions. In the event of a conflict between this Memorandum and the
unrecorded Agreement, the unrecorded Agreement shall control.
IN WITNESS WHEREOF, this instrument was executed by the parties as of
the date first above written.
SELLER:
GARDENBURGER, INC.,
an Oregon corporation
By:
---------------------------------
Its:
---------------------------
<PAGE>
BUYER:
OPUS NORTHWEST, L.L.C.,
a Delaware limited liability company
By:
---------------------------------
John Solberg, Vice President
STATE OF CALIFORNIA )
)ss.
COUNTY OF _____________ )
This instrument was acknowledged before me by _____________________ as
____________________________ of Gardenburger, Inc., an Oregon corporation.
Dated: _____________________.
---------------------------------------
(Signature of Notary Public)
---------------------------------------
(Printed Name of Notary Public)
My Appointment expires_________________
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
This instrument was acknowledged before me by John Solberg as Vice
President of Opus Northwest, L.L.C., a Delaware limited liability company.
Dated: ___________________, 1997.
---------------------------------------
(Signature of Notary Public)
---------------------------------------
(Printed Name of Notary Public)
My Appointment expires_________________
<PAGE>
SCHEDULE A
TO
MEMORANDUM OF PURCHASE AND SALE AGREEMENT
LAND
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As Independent public accountants, we hereby consent to the incorporation of our
reports dated February 5, 1998, included in this Form 10-K into the Company's
previously filed Registration Statements Nos. 33-64622, 33-64624 and 33-76764 on
Form S-8.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
March 27, 1998
EXHIBIT 24
POWER OF ATTORNEY
Each person whose signature appears below appoints Lyle G. Hubbard,
Richard C. Dietz, and each of them as attorneys-in-fact and agents, with full
power of substitution and resubstitution, to sign on behalf of the undersigned
the Annual Report on Form 10-K of Gardenburger, Inc., for its fiscal year ended
December 31, 1997, and any and all amendments to the report and to file the
report and amendments with the Securities and Exchange Commission.
This power of attorney has been signed by the following persons in the
capacities indicated effective as of March 16, 1998.
Name Title
---- -----
/s/Lyle G. Hubbard President, Chief Executive Officer and
- - ------------------------------ Director
Lyle G. Hubbard (Principal executive officer)
/s/Richard C. Dietz Executive Vice President and Chief
- - ------------------------------ Financial Officer
Richard C. Dietz (Principal financial officer and principal
accounting officer)
/s/Paul F. Wenner Founder, Chief Creative Officer
- - ------------------------------ and Director
Paul F. Wenner
/s/E. Kay Stepp Chairman of the Board and Director
- - ------------------------------
E. Kay Stepp
/s/Richard L. Mazer Director
- - ------------------------------
Richard L. Mazer
/s/Mary O. McWilliams Director
- - ------------------------------
Mary O. McWilliams
/s/ Michael L. Ray Director
- - ------------------------------
Michael L. Ray
<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 December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,602
<SECURITIES> 0
<RECEIVABLES> 9,123
<ALLOWANCES> 275
<INVENTORY> 3,203
<CURRENT-ASSETS> 18,162
<PP&E> 9,827
<DEPRECIATION> 2,005
<TOTAL-ASSETS> 27,245
<CURRENT-LIABILITIES> 6,658
<BONDS> 3,165
0
0
<COMMON> 8,651
<OTHER-SE> 11,188
<TOTAL-LIABILITY-AND-EQUITY> 27,245
<SALES> 56,837
<TOTAL-REVENUES> 56,837
<CGS> 27,236
<TOTAL-COSTS> 27,236
<OTHER-EXPENSES> 31,662
<LOSS-PROVISION> 128
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 659
<INCOME-CONTINUING> 1,393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,393)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
<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
periods ended September 30, 1996 and December 31, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 DEC-31-1996
<CASH> 8,670 7,755
<SECURITIES> 0 0
<RECEIVABLES> 4,334 2,977
<ALLOWANCES> 140 177
<INVENTORY> 2,978 4,790
<CURRENT-ASSETS> 17,093 16,846
<PP&E> 7,165 8,034
<DEPRECIATION> 1,123 1,220
<TOTAL-ASSETS> 24,417 24,934
<CURRENT-LIABILITIES> 2,745 3,453
<BONDS> 0 0
0 0
0 0
<COMMON> 8,468 8,468
<OTHER-SE> 12,869 12,511
<TOTAL-LIABILITY-AND-EQUITY> 24,417 24,934
<SALES> 31,211 39,254
<TOTAL-REVENUES> 31,211 39,254
<CGS> 15,722 19,906
<TOTAL-COSTS> 15,722 19,906
<OTHER-EXPENSES> 13,618 17,885
<LOSS-PROVISION> 29 35
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 2,158 1,790
<INCOME-TAX> 801 727
<INCOME-CONTINUING> 1,357 1,063
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,357 1,063
<EPS-PRIMARY> 0.16 0.13
<EPS-DILUTED> 0.15 0.12
</TABLE>
