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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-Q
-------------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-20330
GARDENBURGER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0886359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1411 SW MORRISON STREET, SUITE 400, PORTLAND, OREGON 97205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-205-1500
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock without par value 8,662,520
(Class) (Outstanding at August 6, 1998)
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<PAGE>
GARDENBURGER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - June 30, 1998 and December 31, 1997 2
Statements of Operations - Three Month and Six Month Periods
Ended June 30, 1998 and 1997 3
Statements of Cash Flows - Six Months Ended June 30, 1998
and 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
GARDENBURGER, INC.
BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
1998 1997
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 2,602
Accounts receivable, net of allowances of
$294 and $275 10,517 8,073
Inventories, net 8,278 3,203
Other prepaid expenses 3,107 2,321
Income taxes receivable 454 475
Deferred income tax benefit 6,937 713
------- -------
Total Current Assets 29,293 17,387
Property, Plant and Equipment, net of accumulated
depreciation of $2,467 and $2,005 11,481 7,822
Other Assets, net of accumulated amortization of
$367 and $250 2,227 1,261
------- -------
Total Assets $43,001 $26,470
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 210 $ -
Short-term note payable 9,000 -
Accounts payable 4,301 3,165
Payroll and related liabilities payable 1,110 948
Accrued employee bonuses 510 668
Accrued brokers' commissions 744 469
Other current liabilities 1,707 633
------- -------
Total Current Liabilities 17,582 5,883
Convertible Notes Payable 15,000 -
Deferred Income Tax Liability 531 438
Other Long-Term Liabilities 253 310
Shareholders' Equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; none issued - -
Series A Junior Participating Preferred Stock,
no par value, 250,000 shares authorized;
none issued - -
Common Stock, no par value, 25,000,000 shares
authorized; shares issued and outstanding:
8,650,100 and 8,608,254 8,951 8,651
Additional paid-in capital 4,244 4,203
Retained earnings (3,560) 6,985
------- -------
Total Shareholders' Equity 9,635 19,839
------- -------
Total Liabilities and Shareholders' Equity $43,001 $26,470
======= =======
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 25,739 $ 13,465 $ 38,779 $ 23,769
Cost of goods sold 13,437 6,623 20,324 11,811
--------------- ---------------- ---------------- ---------------
Gross margin 12,302 6,842 18,455 11,958
Operating expenses:
Sales and marketing 20,260 7,549 31,681 12,212
General and administrative 1,495 1,532 2,921 2,646
--------------- ---------------- ---------------- ---------------
21,755 9,081 34,602 14,858
--------------- ---------------- ---------------- ---------------
Operating loss (9,453) (2,239) (16,147) (2,900)
Other income (expense):
Interest income 44 39 44 106
Interest expense (373) (5) (403) (5)
Other, net (124) (3) (124) (7)
--------------- ---------------- ---------------- ---------------
(453) 31 (483) 94
--------------- ---------------- ---------------- ---------------
Loss before provision for income taxes (9,906) (2,208) (16,630) (2,806)
Benefit from income taxes 3,666 837 6,086 1,080
--------------- ---------------- ---------------- ---------------
Net loss $ (6,240) $ (1,371) $ (10,544) $ (1,726)
=============== ================ ================ ===============
Basic and diluted net loss per share $ (0.72) $ (0.16) $ (1.22) $ (0.20)
=============== ================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended June 30,
1998 1997
------------ -----------
Cash flows from operating activities:
Net loss $(10,544) $ (1,726)
Effect of exchange rate on operating accounts (1) (1)
Adjustments to reconcile net loss to net cash
flows used in operating activities:
Depreciation and amortization 727 548
Other non-cash income (57) -
Deferred income taxes (6,131) (90)
Loss on sale of fixed assets 73 9
(Increase) decrease in:
Accounts receivable, net (2,444) (1,950)
Inventories, net (5,075) (364)
Prepaid expenses (786) (1,312)
Income taxes receivable 21 (925)
Increase (decrease) in:
Accounts payable 1,136 (697)
Payroll and related liabilities payable 162 94
Accrued liabilities and other 1,191 1,296
--------- ---------
Net cash used in operating activities (21,728) (5,118)
Cash flows from investing activities:
Payments for purchase of property and equipment (4,346) (2,551)
Proceeds from sale of property and equipment 4 -
Other assets, net (57) (90)
--------- ---------
Net cash used in investing activities (4,399) (2,641)
Cash flows from financing activities:
Proceeds from line of credit 9,000 1,500
Proceeds from issuance of long-term debt 15,000 -
Financing fees from issuance of long-term debt (1,026) -
Proceeds from exercise of common stock options 300 92
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 41 6
--------- ---------
Net cash provided by financing activities 23,315 1,598
Decrease in cash and cash equivalents (2,812) (6,161)
Cash and cash equivalents (bank overdraft):
Beginning of period 2,602 7,755
--------- ---------
End of period (210) $ 1,594
========= =========
The accompanying notes are an integral part of these statements.
4
<PAGE>
GARDENBURGER, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
- -----------------------------
The financial information included herein for the three and six month periods
ended June 30, 1998 and 1997 and the financial information as of June 30, 1998
is unaudited. However, such information reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The financial information as
of December 31, 1997 is derived from Gardenburger, Inc.'s (the Company's) 1997
Annual Report on Form 10-K. The interim financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1997 Annual Report on Form 10-K. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: INVENTORIES
- -------------------
Inventories are valued at standard cost, which approximates the lower of cost
(using the first-in, first-out (FIFO) method) or market, and include materials,
labor and manufacturing overhead.
June 30, December 31,
1997 1998
------------ ------------
Raw materials $ 2,386 $ 1,148
Supplies 320 193
Finished goods 5,572 1,862
------- -------
$ 8,278 $ 3,203
======= =======
NOTE 3. LINE OF CREDIT
- -----------------------
In April 1998, the Company entered into a Business Loan Agreement (the
"Agreement") with Bank of America NT & SA for a $10.0 million revolving line of
credit, which expires July 1, 1999. Interest is at the bank's reference rate, or
at the option of the Company, at LIBOR plus 1.0 percentage point or the Offshore
Rate plus 1.0 percentage point. This facility also contains a provision for a
$0.4 million letter of credit with a maximum maturity of March 31, 2000. The
Agreement also provides for a separate $5.0 million revolving line of credit,
which expires December 1, 1998. Interest is at the bank's reference rate plus
3.0 percentage points. The Agreement is secured by all equipment, inventory,
receivables and other personal property owned by the Company. The Agreement
contains certain covenants relating to the availability of financial information
from the Company, as well as the maintenance of certain financial ratios and
tests. At June 30, 1998, the Company was out of compliance with its current
ratio covenant. The Company received a waiver of compliance from the bank and
the Agreement was amended to change the current ratio from 2.0:1 to 1.5:1 for
the duration of the Agreement. At June 30, 1998, the Company had $9.0 million
outstanding under this Agreement and the interest rate was 6.6563 percent.
5
<PAGE>
NOTE 4. ISSUANCE OF CONVERTIBLE NOTES
- --------------------------------------
During March 1998, the Company completed a private placement of $15 million of 7
percent Convertible Senior Subordinated Notes (the "Notes") with Dresdner
Kleinwort Benson Private Equity Partners LP ("Dresdner"). The Notes are
convertible into shares of the Company's Common Stock at the option of Dresdner
until maturity in 2003, at which time they will be due in full if not previously
converted. The Company may also elect to redeem the Notes, if not previously
converted, at any time after two years from the date of issuance. The conversion
price is $12.90 based on a conversion premium of 120 percent of the market price
of the Company's Common Stock at the time the transaction was negotiated. During
the second quarter, the Company filed a Registration Statement on Form S-3 for
the purpose of registering for resale the Common Stock issuable upon conversion
of the Notes. Under the terms of the Notes, the Company must maintain certain
financial ratios and compliance with other covenants. At June 30, 1998, the
Company was in compliance with all such ratios and covenants.
NOTE 5: SUPPLEMENTAL CASH FLOW INFORMATION
- ------------------------------------------
Supplemental disclosure of cash flow information is as follows:
Six months ended June 30,
----------------------------
1998 1997
---------- ----------
Cash paid during the period for income taxes $ 10 $ 6
Cash paid during the period for interest 264 -
NOTE 6: EARNINGS PER SHARE
- --------------------------
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Since the prior period amount was
a loss, there is no restatement required in order to conform with the
presentation requirements of SFAS 128. In addition, basic EPS and diluted EPS
are the same for both periods presented since the Company was in a loss position
in both periods.
At June 30, 1998, potentially dilutive securities that are not included in the
diluted EPS calculation because they would be antidilutive include 2,784 shares
issuable pursuant to stock options, 1,163 shares issuable pursuant to the
Company's convertible notes and 200 shares contingently issuable related to the
acquisition of Gorilla Foods, Inc. At June 30, 1997, potentially dilutive
securities that are not included in the diluted EPS calculation because they
would be antidilutive include 2,512 shares issuable pursuant to stock options
and 200 shares contingently issuable related to the acquisition of Gorilla
Foods, Inc.
NOTE 7. RECLASSIFICATIONS
- -------------------------
Certain amounts in the prior period financial statements have been reclassified
to conform to the current period presentation.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Forward-Looking Statements; Risk Factors
- ----------------------------------------
Statements in this Form 10-Q that are not historical in nature 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 in Items 1 and 7 and those described elsewhere in the Company's
Form 10-K Annual Report for the year ended December 31, 1997. Given these risks
and uncertainties, investors are cautioned not to place undue reliance on the
forward-looking statements.
Results of Operations
- ---------------------
Net sales increased to $25.7 million in the second quarter of 1998 from $13.5
million in the second quarter of 1997 and to $38.8 million for the six months
ended June 30, 1998 compared to $23.8 million for the first six months of 1997.
The increases are primarily related to increased unit sales in the Company's
club store and grocery channels as a result of the Company's marketing emphasis.
In addition, sales prices increased an average of 7 percent in the fourth
quarter of 1997.
Gross margin increased to $12.3 million and $18.5 million, respectively (47.8
percent and 47.6 percent of net sales, respectively), for the three and six
month periods ended June 30, 1998 from $6.8 million and $12.0 million,
respectively (50.8 percent and 50.3 percent of net sales, respectively), for the
comparable periods of 1997. The decreases in the gross margin percentage are
primarily a result of start-up costs associated with the Company's new
manufacturing facility in Clearfield, Utah. The Company expects the gross margin
percentage to increase slightly in the third and fourth quarters as the
Clearfield facility becomes fully operational.
Sales and marketing expense increased to $20.3 million and $31.7 million,
respectively (78.7 percent and 81.7 percent of net sales, respectively), for the
three month and six month periods ended June 30, 1998, compared to $7.5 million
and $12.2 million, respectively (56.1 percent and 51.4 percent of net sales,
respectively), for the three month and six month periods ended June 30, 1997.
The increases are primarily as a result of costs associated with the Company's
aggressive 1998 advertising plan, including a national television advertising
campaign during the second quarter, and the introduction of new products into
the retail grocery channel. The Company spent approximately $17.0 million on
advertising during the first half of 1998, and it expects advertising expense to
decrease significantly during the second half of 1998.
7
<PAGE>
General and administrative ("g&a") expense totaled $1.5 million and $2.9
million, respectively (5.8 percent and 7.5 percent of net sales, respectively),
for the three month and six month periods ended June 30, 1998 compared to $1.5
million and $2.6 million, respectively (11.4 percent and 11.1 percent of net
sales, respectively), for the three and six month periods ended June 30, 1997.
The Company has been able to leverage its g&a costs while increasing sales,
thereby decreasing g&a as a percentage of net sales. The Company also received a
$240,000 insurance settlement in the first quarter of 1997 that effectively
lowered that period's expenses.
Loss from operations was $9.5 million and $16.1 million, respectively, for the
three month and six month periods ended June 30, 1998 compared to loss from
operations of $2.2 million and $2.9 million, respectively, for the comparable
periods of 1997.
Income taxes are based on an estimated rate of 36.6 percent for the six month
period ended June 30, 1998 compared to the 32.1 percent rate used for the full
year of 1997. The increase in the rate is primarily attributable to a decrease
in meals and entertainment and non-deductible goodwill amortization in relation
to the reported net loss of the Company.
Net loss was $6.2 million and $10.5 million, respectively, for the three month
and six month periods ended June 30, 1998 compared to net loss of $1.4 million
and $1.7 million, respectively, for the comparable periods of 1997. Net loss per
share, both basic and diluted, was $0.72 and $1.22, respectively (on 8,642,579
and 8,627,851 shares, respectively), for the three month and six month periods
ended June 30, 1998 compared to net loss per share of $0.16 and $0.20,
respectively (on 8,574,093 and 8,570,296 shares, respectively), for the
comparable periods of 1997.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1998, working capital was $11.7 million. In the first half of 1998,
working capital increased by $0.2 million compared to December 31, 1997, and the
current ratio decreased to 1.7:1 from 3.0:1.
Cash and cash equivalents decreased $2.8 million from December 31, 1997
primarily due to $21.7 million used in operations and $4.3 million used for the
purchase of property and equipment, offset by the issuance of $15.0 million of
convertible senior subordinated debt and receipt of $9.0 million in proceeds
from the Company's line of credit facility.
Accounts receivable increased $2.4 million to $10.5 million at June 30, 1998
from $8.1 million at December 31, 1997 due primarily to significant sales at the
end of the second quarter of 1998. Days sales outstanding decreased to 33 at
June 30, 1998 from 34 at December 31, 1997.
Inventories increased $5.1 million to $8.3 million at June 30, 1998 from $3.2
million at December 31, 1997 in order to support the increased level of sales
expected in the third quarter of 1998. Inventory turned 7.2 times on an
annualized basis during the second quarter of 1998 compared to 9.6 times on an
annualized basis for the fourth quarter of 1997.
8
<PAGE>
Capital expenditures of $2.8 million (net of amounts subsequently financed by
sales/leaseback transactions) during the first half of 1998 primarily resulted
from expenditures for equipment for the Company's new Clearfield, Utah
production facility and information systems infrastructure. Capital expenditures
are estimated to total approximately $4.6 million for 1998, with the remainder
to be spent primarily for information systems infrastructure.
During March 1998, the Company completed a private placement of $15 million of 7
percent Convertible Senior Subordinated Notes (the "Notes") with Dresdner
Kleinwort Benson Private Equity Partners LP ("Dresdner"). The Notes are
convertible into shares of the Company's Common Stock at the option of Dresdner
until maturity in 2003, at which time they will be due in full if not previously
converted. The Company may also elect to redeem the Notes, if not previously
converted, at any time after two years from the date of issuance. The conversion
price is $12.90 based on a conversion premium of 120 percent of the market price
of the Company's Common Stock at the time the transaction was negotiated. During
the second quarter of 1998, the Company filed a Registration Statement on Form
S-3 for the purpose of registering for resale the Common Stock issuable upon
conversion of the Notes. Under the terms of the Notes, the Company must comply
with certain covenants and maintain certain financial ratios as follows: current
assets to current liabilities of at least 1.575 to 1.0, measured monthly; total
liabilities to tangible net worth not to exceed 1.1 to 1.0, measured monthly;
and a minimum fixed charge coverage ratio of 1.08 to 1.0, measured annually. At
June 30, 1998, the Company was in compliance with all such ratios and covenants.
In April 1998, the Company entered into a Business Loan Agreement (as amended,
the "Agreement") with Bank of America NT & SA for a $10.0 million revolving line
of credit, which expires July 1, 1999. Interest is at the bank's reference rate,
or at the option of the Company, at LIBOR plus 1.0 percentage point or the
Offshore Rate plus 1.0 percentage point. This facility also contains a provision
for a $0.4 million letter of credit with a maximum maturity of March 31, 2000.
The Agreement also provides for a separate $5.0 million revolving line of
credit, which expires December 1, 1998. Interest is at the bank's reference rate
plus 3.0 percentage points. The Agreement is secured by all equipment,
inventory, receivables and other personal property owned by the Company. The
Agreement contains certain covenants relating to the availability of financial
information from the Company, as well as the maintenance of certain financial
ratios as follows: current assets to current liabilities of at least 1.5 to 1.0;
total liabilities to tangible net worth not exceeding 1.0 to 1.0; and a minimum
fixed charge coverage ratio of 1.2 to 1.0. At June 30, 1998, the Company was out
of compliance with its current ratio covenant. The Company received a waiver of
compliance from the bank and the Agreement was amended to change the current
ratio from 2.0:1 to 1.5:1 for the duration of the Agreement. At June 30, 1998,
the Company had $9.0 million outstanding under this Agreement and the interest
rate was 6.6563 percent.
New Accounting Pronouncements
- -----------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS 130
is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of 1998. Comprehensive loss did not differ from currently reported net loss in
the periods presented.
9
<PAGE>
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for all derivative
instruments. SFAS 133 is effective for fiscal years beginning after June 15,
1999. The Company does not have any derivative instruments and, accordingly, the
adoption of SFAS 133 will have no impact on the Company's financial position or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Not applicable.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
The annual meeting of the shareholders of the Company was held on April 21,
1998, at which the following action was taken:
1. A majority of the shareholders elected the six nominees for director to
the Board of Directors of the Company. The six directors elected and the voting
results follow:
Director Name Shares Voted For Shares Withheld
------------- ---------------- ---------------
Lyle G. Hubbard 7,031,028 20,939
Richard L. Mazer 7,030,443 21,524
Mary O. McWilliams 7,023,987 27,980
Michael L. Ray 7,031,436 20,531
E. Kay Stepp 7,018,437 33,530
Paul F. Wenner 7,029,500 22,467
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) The exhibits filed as a part of this report are listed below and this list
is intended to comprise the exhibit index:
Exhibit No.
-----------
3 1995 Restated Bylaws of Gardenburger, Inc., as amended April 21,
1998(1)
10.1 Second amendment dated January 1, 1998 to lease agreement dated
January 1, 1993, between Paul F. Wenner and Frank S. Card (lessors)
and Gardenburger, Inc. (lessee)(1)
10.2 Business Loan Agreement, dated April 28, 1998, between Bank of America
NT & SA and Gardenburger, Inc.(1)
10.3 Amendment No. 1 dated as of March 26, 1998, to Rights Agreement dated
as of April 25, 1996, between Gardenburger, Inc. and First Chicago
Trust Company of New York(1)
10.4 Note Purchase Agreement dated as of March 27, 1998, between
Gardenburger, Inc. and Dresdner Kleinwert Benson Private Equity
Partners L.P.(1)
10.5 Gardenburger, Inc. Convertible Senior Subordinated Note dated March
27, 1998(1)
10.6 Registration Rights Agreement dated as of March 27, 1998, between
Gardenburger, Inc. and Dresdner Kleinwert Benson Private Equity
Partners L.P.(1)
10.7 First Amendment, dated June 4, 1998, to Lease Agreement, dated
December 17, 1997 between BA Leasing & Capital Corporation and
Gardenburger, Inc.
10.8 First Amendment, dated July 24, 1998, to Business Loan Agreement dated
April 28, 1998, between Bank of America NT & SA and Gardenburger, Inc.
10.9 Lease Agreement between BA Leasing & Capital Corporation and
Gardenburger, Inc., dated as of May 28, 1998
27 Financial Data Schedule
99 Description of Common Stock of Gardenburger, Inc.(1)
(1) Previously filed with the Company's Form 10-Q for the quarter ended March
31, 1998, as filed with the Securities and Exchange Commission on May 15,
1998 and is incorporated herein by reference.
(b) Reports on Form 8-K: There were no reports on Form 8-K during the quarter
ended June 30, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1998 GARDENBURGER, INC.
By: /s/ LYLE G. HUBBARD
----------------------------------
Lyle G. Hubbard
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ RICHARD C. DIETZ
----------------------------------
Richard C. Dietz
Executive Vice President,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
12
EXHIBIT 10.7
FIRST AMENDMENT TO LEASE entered into as of June 4, 1998 by
and between BA LEASING & CAPITAL CORPORATION, a California corporation,
with its principal office at 555 California Street, Fourth 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, OR 97205 ("Lessee") with reference to the
following:
A. Lessor and Lessee have entered into a Lease Agreement dated as
of December 17, 1997, and an Appendix No. 1 to the Lease
Agreement dated as of December 17, 1997 (together the "Lease";
all defined terms therein not otherwise defined herein being
used with their meanings as defined therein); and
B. Lessor and Lessee now desire to amend the Lease as hereinafter
set forth:
NOW, THEREFORE, the parties hereto agree as follows:
1. In paragraph D entitled UTILIZATION PERIOD of the Appendix to
the Lease, replace the date "April 15, 1998 " with "June 15,
1998."
2. In paragraph E entitled RENT, subparagraph E 1. entitled
ADVANCE RENT of the Appendix to the Lease, delete the first
sentence and replace with:
"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, it "Base Date."
Except as is herein specifically amended, all of the terms, covenants,
and provisions of the Lease remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Lease as of the day and year written above.
GARDENBURGER, INC. BA LEASING & CAPITAL CORPORATION
By /s/ Richard C. Dietz By /s/ Albert Norona
----------------------------- ---------------------------------
Title: Chief Financial Officer Title: Vice President
By /s/ Angela Catalli
Title: Assistant Vice President
<PAGE>
ACCEPTANCE CERTIFICATE NO. 002
------------------------------
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. 1 thereto dated December 17, 1997, 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 June 5, 1998.
3. PURCHASE PRICE.
--------------
The Purchase Price of the Units is $3,300,779.50, as set forth in Annex
A.
Total Amount: $3,300,779.50
Amount Lessor paid 12/31/97: $2,449,425.24
Balance Due to Lessee: $ 851,354.26
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.
By: /s/ Albert Norona By: /s/ Richard C. Dietz
----------------------- -----------------------
Title: Vice President Title: Chief Financial Officer
<PAGE>
SCHEDULE NO. 2
--------------
SCHEDULE (this "Schedule") dated June 12, 1998 to Acceptance
Certificate No. 2 dated June 12, 1998 (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 June 12, 1998 . The Base Date for the Units
is dated July 1, 1998.
2. INDEX RATE.
----------
The Index Rate on the Scheduling Date is 5.72% per annum.
3. RENT.
----
The Base Rent for the Units is comprised of 28 QUARTERLY installments,
each in the amount of $134,065.97, with the first such installment due on
OCTOBER 1, 1998. Lessor will invoice Lessee for any Advance Rent due as
described in the terms of the Appendix. 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, it Base Date.
4. CASUALTY VALUES.
---------------
As set forth in Annex 1 to this Schedule.
5. 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.
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.
By: /s/ Albert Norona By: /s/ Richard C. Dietz
----------------------- -----------------------
Title: Vice President Title: Chief Financial Officer
<PAGE>
ANNEX 1
CASUALTY VALUES
SCHEDULE NO. 002
----------------
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 0 105.00000
Oct-01-98 1 102.73600
Jan-01-99 2 100.38800
Apr-01-99 3 97.96400
Jul-01-99 4 95.45700
Oct-01-99 5 92.87300
Jan-01-00 6 90.20900
Apr-01-00 7 87.47000
Jul-01-00 8 84.66500
Oct-01-00 9 81.79200
Jan-01-01 10 78.85000
Apr-01-01 11 75.84100
Jul-01-01 12 72.77400
Oct-01-01 13 69.64700
Jan-01-02 14 66.45900
Apr-01-02 15 63.20700
Jul-01-02 16 59.90500
Oct-01-02 17 56.54700
Jan-01-03 18 53.13200
Apr-01-03 19 49.65500
Jul-01-03 20 46.12600
Oct-01-03 21 42.53800
Jan-01-04 22 38.89100
Apr-01-04 23 35.17900
Jul-01-04 24 31.41200
Oct-01-04 25 27.58300
Jan-01-05 26 23.69300
Apr-01-05 27 19.73600
Jul-01-05 28 FMV
<PAGE>
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 June 15, 1998.
GARDENBURGER, INC.
By: /s/ Richard C. Dietz
-----------------------
Title: Chief Financial Officer
-----------------------
By: ________________________
Title: ________________________
EXHIBIT 10.8
- --------------------------------------------------------------------------------
BANK OF AMERICA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of July 24, 1998 is between Bank
of America NT & SA (the "Bank") and Gardenburger, Inc. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of April 28, 1998, (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this Agreement shall
have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 Article 1 of the Agreement is amended in its entirety to read as
follows:
1. DEFINITIONS
In addition to the terms which are defined elsewhere in this
Agreement, the following terms have the meanings indicated for the
purposes of this Agreement:
1.1 "Borrowing Base" means the lesser of:
(a) Fourteen Million Five Hundred Thousand Dollars ($14,500,000); or
(b) the sum of:
(i) 80% of the balance due on Acceptable Receivables; and
(ii) The lessor of Three Million Dollars ($3,000,000) or 50% of
the value of Acceptable Inventory consisting of finished
goods.
In determining the value of Acceptable Inventory to be included in the
Borrowing Base, the Bank will use the lowest of (i) the Borrower's
cost, (ii) the Borrower's estimated market value, or (iii) the Bank's
independent determination of the resale value of such inventory in
such quantities and on such terms as the Bank deems appropriate.
1.2 "Acceptable Receivable" means an account receivable which
satisfies the following requirements:
(a) The account has resulted from the sale of goods or the
performance of services by the Borrower in the ordinary course of
the Borrower's business.
-1-
<PAGE>
(b) There are no conditions which must be satisfied before the
Borrower is entitled to receive payment of the account. Accounts
arising from COD sales, consignments or guaranteed sales are not
acceptable.
(c) The debtor upon the account does not claim any defense to payment
and has not asserted any counterclaims against the Borrower.
(d) The account represents a genuine obligation of the debtor for
goods sold and accepted by the debtor, or for services performed
for and accepted by the debtor.
(e) The Borrower has sent an invoice to the debtor in the amount of
the account.
(f) The account is owned by the Borrower free of any title defects or
any liens or interests of others except the security interest in
favor of the Bank.
(g) The debtor upon the account is not any of the following:
(i) an employee, affiliate, parent or subsidiary of the
Borrower, or an entity which has common officers or
directors with the Borrower;
(ii) the U.S. government or any agency or department of the U.S.
government unless the Bank agrees in writing to accept the
obligation and the Borrower complies with the procedures in
the Federal Assignment of Claims Act of 1940 with respect to
the obligation.
(iii) any state, county, city, town or municipality.
(iv) any person or entity located in a foreign country, other
than Canada, unless the account is supported by a letter of
credit issued by a bank acceptable to the Bank.
(v) any person or entity to whom the Borrower is obligated for
goods purchased by the Borrower or for services performed
for the Borrower.
(h) The account is not in default. An account will be considered in
default if any of the following occur:
(i) The account is not paid within the 90 day period starting on
its invoice date;
(ii) The debtor obligated upon the account suspends business,
makes a general assignment for the benefit of creditors, or
fails to pay its debts generally as they come due; or
(iii) Any petition is filed by or against the debtor obligated
upon the account under any bankruptcy law or any other law
or laws for the relief of debtors;
(i) The account, when added to all other accounts that are
obligations of the same debtor, does not cause the debtor's total
obligations to the Borrower to exceed 10% of the balance due on
all of the Borrower's accounts.
It is provided, however, that if the debtor obligated upon an
account is one of the debtors listed below, the above limitation
will be increased to the percentage set forth below:
-2-
<PAGE>
Debtor Limitation
------ ----------
Sysco 20%
DOT Foods 20%
Norpac Sales 20%
(j) The account is not the obligation of a debtor who is in default
(as defined above) on 25% or more of the accounts upon which such
debtor is obligated.
(k) The account does not arise from the sale of goods which remain in
the Borrower's possession or under the Borrower's control.
(l) The account does not arise from the sale of minerals (including
oil and gas) at the wellhead or minehead.
(m) The account is not evidenced by a promissory note or chattel
paper.
(n) The account is otherwise acceptable to the Bank.
1.3 "Acceptable Inventory" means inventory which satisfies the
following requirements:
(a) The inventory is owned by the Borrower free of any title defects
or any liens or interests of others except the security interest
in favor of the Bank.
(b) The inventory is permanently located at locations which the
Borrower has disclosed to the Bank and which are acceptable to
the Bank. If the inventory is covered by a negotiable document of
title (such as a warehouse receipt) that document must be
delivered to the Bank. Inventory which is in transit is not
acceptable unless it is covered by a commercial letter of credit
issued by the Bank and the seller of the inventory is required to
present shipping or title documents to the Bank as a condition to
obtaining payment.
(c) The inventory is held for sale in the ordinary course of the
Borrower's business and is of good and merchantable quality.
Inventory which is obsolete, unsalable, damaged, defective,
discontinued or slow-moving, or which has been returned by the
buyer, is not acceptable. Display items and packing and shipping
materials are not acceptable.
(d) The inventory is not placed on consignment.
(e) The inventory is otherwise acceptable to the Bank.
2.2 A new Article 1.A is hereby added to the Agreement to read in its
entirety as follows:
1.A FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1A LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will
provide a line of credit to the Borrower. The amount of the line
of credit (the "Facility No. 1 Commitment") is equal to the
amount of the Borrowing Base.
-3-
<PAGE>
(b) This is a revolving line of credit with a within line facility
for a standby letter of credit. During the availability period,
the Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal
balance of the line of credit plus the outstanding amounts of any
standby letter of credit to exceed the Facility No. 1 Commitment,
including amounts drawn on standby letter of credit and not yet
reimbursed, to exceed the Commitment. If such outstandings exceed
the Facility No. 1 Commitment, the Borrower will immediately pay
the excess to the Bank upon the Bank's demand. The Bank may apply
payments received from the Borrower under this Paragraph to the
obligations of the Borrower to the Bank in the order and manner
as the Bank, in its discretion, may determine.
1.2A AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and
July 1, 1999 (the "Expiration Date") unless the Borrower is in
default.
1.3A INTEREST RATE.
(a) Unless the Borrower elects an Optional interest rate as described
below, the interest rate is the Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced
from time to time by Bank as its Reference Rate. The Reference
Rate is set based on various factors, including Bank's costs and
desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the
Reference Rate. Any change in the Reference Rate shall take
effect at the opening of business on the day specified in the
public announcement of a change in the Reference Rate.
1.4A CONDITIONS TO EACH EXTENSION OF CREDIT. Before each extension of
credit under the line of credit, including the first, the
Borrower will deliver the following to the Bank if requested by
the Bank:
(a) a borrowing certificate, in form and detail satisfactory to the
Bank, setting forth the Acceptable Receivables and the Acceptable
Inventory on which the requested extension of credit is to be
based.
(b) copies of the invoices or the record of invoices from the
Borrower's sales journal for such Acceptable Receivables and a
listing of the names and addresses of the debtors obligated
thereunder.
(c) copies of the delivery receipts, purchase orders, shipping
instructions, bills of lading and other documentation pertaining
to such Acceptable Receivables.
1.5A REPAYMENT TERMS.
(a) The Borrower will pay interest on August 1, 1998, and then
monthly thereafter until payment in full of any principal
outstanding under this line of credit.
-4-
<PAGE>
(b) The Borrower will repay in full all principal and any unpaid
interest or other charges outstanding under this line of credit
no later than the Facility No. 1 Expiration Date. Any amount
bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest
period, which shall be no later than the Facility No. 1
Expiration Date.
1.6A OPTIONAL INTEREST RATES. Instead of the interest rate based on
the Reference Rate, the Borrower may elect to have all or portions of
the line of credit (during the availability period) bear interest at
the rate(s) described below during an interest period agreed to by the
Bank and the Borrower. Each interest rate is a rate per year. Interest
will be paid on the first day of every month and on the last day of
each interest period. At the end of any interest period, the interest
rate will revert to the rate based on the Reference Rate, unless the
Borrower has designated another optional interest rate for the
portion.
1.7A LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the LIBOR
Rate plus 1.0 percentage point.
Designation of a LIBOR Rate portion is subject to the following
requirements:
(a) The interest period during which the LIBOR Rate will be in effect
will be 7 - 180 days. The last day of the interest period will be
determined by the Bank using the practices of the London inter-
bank market.
(b) Each LIBOR Rate portion will be an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The Borrower shall irrevocably request a LIBOR Rate portion no
later than 9:00 a.m. San Francisco time three (3) banking days
before the commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
LIBOR Rate= London Rule
----------------------------
(1.00) - Reserve Percentage)
Where
(i) "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank's London
Branch, London, Great Britain, would offer U.S. dollar
deposits for the applicable interest period to other major
banks in the London inter-bank market at approximately 11:00
a.m. London time two (2) banking days before the
commencement of the interest period.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
the member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in the Federal Reserve
Board Regulation D, rounded upward to the nearest 1/100 of
one percent. The percentage will be expressed as a decimal,
and will include, but not limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
-5-
<PAGE>
(e) The Borrower may not elect a LIBOR Rate with respect to any
portion of the appreciable balance of the line of credit which is
scheduled to be repaid before the last day of the applicable
interest period.
(f) Any portion of the principal balance of the line of credit
already bearing interest at the LIBOR Rate will not be converted
to a different rate during its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of
the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the London
inter-bank market for a period starting on the date on which
it was prepaid and ending on the last day of the interest
period for such portion.
(h) The Bank will have no obligation to accept an election for LIBOR
Rate portion if any of the following described events has
occurred and is continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of a LIBOR Rate portion are
not available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a
LIBOR Rate portion.
1.8A OFFSHORE RATE. The Borrower may elect to have all or portions of
the principal balance of the line of credit bear interest at the
Offshore Rate plus 1.0 percentage point.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in
effect will be 7 - 180 days. The last day of the interest period
will be determined by the Bank using the practices of the
offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than
Five Hundred Thousand Dollars ($500,000).
(c) The "Offshore Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
Offshore Rate= Grand Cayman Rate
--------------------------
(1.0 - Reserve Percentage)
(i) "Grand Cayman Rate" means the interest rate (rounded upward
to the nearest 1/16th of one percent) at which the Bank's
Grand Cayman Branch, Grand Cayman, British West Indies,
would offer U.S. dollar deposits for the applicable interest
period to other major banks in the offshore dollar
inter-bank market.
-6-
<PAGE>
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and
will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any
portion of the principal balance of the line of credit which is
scheduled to be repaid before the last day of the applicable
interest period.
(e) Any portion of the principal balance of the line of credit
already bearing interest at the Offshore Rate will be converted
to a different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which
(i) the additional interest which would have been payable on the
amount period had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the offshore
dollar market for a period starting on the date on which it
was prepaid and ending on the last day of the interest
period for such portion.
(g) The Bank will have no obligation to accept an election for an
Offshore Rate portion if any of the following described events
has occurred and is continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of an Offshore Rate portion
are not available in the offshore Dollar inter-bank market;
or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
1.9A LETTERS OF CREDIT. This line of credit may be used for financing:
(i) a standby letter of credit with a maximum maturity of March
31, 2000 provided however that the maturity date may be
automatically extended each year for an additional year
unless the Bank gives written notice to the contrary.
(ii) the amount of outstanding letters of credit, including
amounts drawn on the letter of credit and not yet
reimbursed, may not exceed at any one time Four Hundred
Thousand Dollars ($400,000).
The Borrower agrees:
(a) so long as credit remains available from the Bank under the line
of credit, any sum drawn under the letter of credit may, at the
option of the Bank, be added to the principal amount outstanding
under this Agreement. The amount will bear interest and be due as
described elsewhere in this Agreement.
-7-
<PAGE>
(b) if there is a default under this Agreement, to immediately prepay
and make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a
letter of credit is subject to the Bank's written approval and
must be in form and content satisfactory to the Bank and in favor
of a beneficiary acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby
Letter of Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of
credit for the Borrower.
(f) to allow the Bank to automatically charge its checking account
for applicable fees, discounts, and other charges.
2.3 A new Subparagraph 8.2(d) is added to the Agreement to read in its
entirety as follows:
(d) Statements showing an aging or the Borrower's receivables within
20 days after the end of each month.
2.4 A new Subparagraph 8.2(e) is added to the Agreement to read in its
entirety as follows:
(e) A statement showing an aging of accounts payable within 20 days
after the end of each month.
2.5 A new Subparagraph 8.2(f) is added to the Agreement to read in its
entirety as follows:
(f) If the Bank requires the Borrower to deliver the proceeds of
accounts receivable to the Bank upon collection by the Borrower,
a schedule of the amounts so collected and delivered to the Bank.
2.6 A new Subparagraph 8.2(g) is added to the Agreement to read in its
entirety as follows:
(g) An inventory listing within 20 days after the end of each month;
the listing must include a description of the inventory, its
location and cost, and such other information as the Bank may
require.
2.7 In Paragraph 8.3 of the Agreement, the ratio "1.5:1.0" is substituted
for the ratio "2.0:1.0".
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the terms
and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date started at the beginning of this
Amendment.
BANK OF AMERICA NT & SA Gardenburger, Inc.
/s/ Ed Kluss /s/ Richard C. Dietz
- ------------------------ -------------------------
By: Ed Kluss By: Richard C. Dietz
Title: Vice President Title: Executive Vice President & CFO
-8-
EXHIBIT 10.9
Lease No. 980138
LEASE AGREEMENT ("Lease") dated as of May 28, 1998 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.
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.
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<PAGE>
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.
(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.
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<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.
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.
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<PAGE>
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.
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;
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<PAGE>
(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;
(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.
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Section 9. RETURN OF UNITS.
- --------- ---------------
Upon expiration of the Lease Term (as defined in the Appendix) 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 manufacturer's 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.
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, and (ii) 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.
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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)
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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: Chief Financial Officer
By: /s/ Angela Catalli
------------------------
Title: Assistant Vice President
Address: 555 California Street Address: 1411 S. W. Morrison Street
4th 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
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<PAGE>
APPENDIX NO. 1 (this "Appendix") dated May 28, 1998 to LEASE AGREEMENT
NUMBER 980138 (the "Lease Agreement" and, together with this Appendix, the
"Lease") dated as of May 28, 1998 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 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 $8,000,000.00 (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 25% 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 Lessee pays any portion of the Purchase Price to the relevant
Vendor (cancelled checks to be provided to Lessor) Lessor hereby appoints Lessee
as its agent solely to purchase, on behalf of Lessor, any Unit subject to a
Purchase Agreement Assignment as described in Section 1.1 of the Lease
Agreement. Any payment by Lessee under this Paragraph B.1. shall be deemed made
by Lessee in its capacity as purchasing agent for Lessor. Lessor's obligation to
reimburse Lessee in respect of any such payment shall be subject to the
conditions set forth in Paragraph B.2, below, and the provision by Lessee of
evidence satisfactory to Lessor of Lessee's payment to Vendor, shall be limited
to the principal amount of such payment made by Lessee and shall not include any
obligation to compensate Lessee for interest or the time value of money or
otherwise compensate Lessee for any undertakings in such capacity. Lessee
acknowledges that such purchase agency arrangement is provided at the request
and for the convenience of Lessee, that Lessee assumes any and all sales tax and
other risks resulting therefrom, and that such arrangement may be terminated at
any time by Lessor.
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 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;
-1-
<PAGE>
(ii) an opinion of counsel of Lessee and any guarantor;
(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;
(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 set forth below,
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. INTERIM TERM AND BASE TERM.
--------------------------
Rent for each Unit will accrue under the Lease during its Interim Term and
its Base Term and, during the period before the Delivery Date, on any Advances.
The "Interim Term" for each Unit will begin on, and include, its Delivery Date
and continue until, and include, the day before its "Base Date". The "Base Term"
for each Unit will begin on, and include, its Base Date and continue for 60
months. The "Base Date" for each Unit will be the first or fifteenth day of the
month during or immediately following the month in which the Delivery Date
occurs, as specified by Lessor in the relevant Schedule.
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 December 31, 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 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.
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<PAGE>
2. Interim Rent.
------------
Lessee shall pay rent for each Unit ("Interim Rent") for each day of
its Interim Term. Interim Rent shall be computed on the full amount of the
Purchase Price of the Unit at a rate per annum equal to the Reference Rate.
Interim 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. Interim Rent is due and payable when billed by Lessor.
3. Base Rent.
---------
The Base Rent for each Unit shall be determined on the date Lessor
prepares the Acceptance Certificate and Schedule following Lessor's receipt of
the invoices for Units to be funded (its "Scheduling Date"), pursuant to the
criteria set forth below.
Lessee shall pay Lessor rent ("Base Rent") for each Unit during the
Base Term in arrears in 60 consecutive monthly installments, with the first such
installment due one month following the Base Date. Each Base Rent installment
for each Unit will be the percentage of the Purchase Price of the Units is as
specified below ("Indicative Base Rent Rate"):
Indicative Base Rent Rate
Type of Equipment Delivery Date (% of Purchase Price)
----------------- ------------- --------------------------
42 @ June 1998 1.1794%
42 @ June 1998 1.4415%
The Base Rent installments for each Unit will be established as of its
Scheduling Date, based on the Index Rate in effect on that date, in amounts that
preserve Lessor's economics with respect to the relationship in the Indicative
Base Rent Rate between the implicit lease rate and the Indicative Index Rate.
"Index Rate" with respect to each Unit means the bond-equivalent yield
per annum for U.S. Treasury obligations with an average life of 3.8923 years.
The Indicative Index Rate is the Index Rate in effect on March 26,
1998. The Index Rate on that date was 5.5918% per annum.
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 state of 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).
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<PAGE>
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.
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.
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
-4-
<PAGE>
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.
(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.
-5-
<PAGE>
(b) Lessor shall have full control over any contest.
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 $10,000.00. No part of the
fee will be refunded to Lessee.
J. COVENANTS.
---------
If that certain Business Loan Agreement dated as of April 28, 1998 (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 8 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.
K. YEAR 2000 COMPLIANCE.
--------------------
The Lessee has conducted a comprehensive review and assessment of the
Lessee's computer applications and made inquiry of the Lessee's key suppliers,
vendors and customers with respect to the "year 2000 problem" (that is, the risk
that computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and, based on that review and inquiry, the
Lessee does not believe the year 2000 problem will result in a material adverse
change in the Lessee's business condition, (financial or otherwise), operations,
properties or prospects, or ability to repay the credit.
-6-
<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: Chief Financial Officer
By: /s/ Angela Catalli
------------------------
Title: Assistant Vice President
Address: 555 California Street Address: 1411 S. W. Morrison Street
4th 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
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EXHIBIT A TO LEASE AGREEMENT
----------------------------
PURCHASE AGREEMENT ASSIGNMENT dated ___________________ between
GARDENBURGER, INC., an Oregon corporation ("Assignor"), and BA LEASING
& CAPITAL CORPORTION, a California corporation ("Assignee").
INTRODUCTION
Assignor has entered into or will enter into a purchase agreement (each a
"Purchase Agreement") with various equipment vendors (each a "Vendor"), as
described in Annex A, providing for the sale to Assignor of food processing
equipment (the "Units"), which Assignor desires that Assignee acquire the Units,
as delivered, and lease the Units to Assignor pursuant to the terms of a Lease
Agreement dated as of May 28, 1998 between Assignor and Assignee (the "Lease").
Capitalized terms used but not defined herein will have the meanings given in
the Lease.
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 each Purchase Agreement and the Units. Assignee hereby
accepts such assignment. Assignor will promptly provide copies thereof to
Assignee. Assignee shall be deemed to have accepted each such assignment unless
Assignee delivers notice to Assignor of its rejection thereof. 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
any 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 each 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 any 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 applicable Purchase Agreement 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 each Purchase Agreement without the Vendor's consent or, if not
assignable, consent has been obtained and Assignor will promptly provide copies
thereof to Assignee, (b) the right, title and interest of Assignor in each
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) each Purchase Agreement is in
full force and effect and enforceable in accordance with its terms and Assignor
is not 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.
-8-
<PAGE>
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: ___________________________
-9-
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EXHIBIT B TO LEASE AGREEMENT
----------------------------
ACCEPTANCE CERTIFICATE NO. 001
------------------------------
Reference is made to the Lease Agreement dated as of May 28, 1998 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: _______________________________
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<PAGE>
EXHIBIT C TO LEASE AGREEMENT
----------------------------
SCHEDULE NO. 001
----------------
SCHEDULE (this "Schedule") dated to Acceptance Certificate No. 101 dated
(the "Acceptance Certificate") to the Lease Agreement dated as of May 28, 1998
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 _______________. The Base Date for the Units
is ____________.
2. INDEX RATE.
----------
The Index Rate on the Scheduling Date is ___% per annum.
3. RENT.
----
The Base Rent for the Units is comprised of 84 monthly installments, each
in the amount of $_____for the first 42 months and each in the amount of $______
for last 42 months. Lessor will invoice Lessee for any Interim 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. 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.
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: _____________________________
-2-
<PAGE>
EXHIBIT D TO LEASE AGREEMENT
----------------------------
REQUEST FOR ADVANCE
-------------------
Reference is made to the Lease Agreement dated as of May 28, 1998
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: ______________________
-3-
<PAGE>
PURCHASE AGREEMENT ASSIGNMENT dated July 13, 1988 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. SEE ATTACHED ANNEX A,
dated SEE ATTACHED ANNEX A, (the "Purchase Agreement") with SEE ATTACHED ANNEX A
("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 May 28, 1998
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.
<PAGE>
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)
By: /s/ Albert Norona By: /s/ Richard C. Dietz
------------------------ -----------------------
Title: Vice President Title: Chief Financial Officer
By: /s/ Angela Catalli
------------------------
Title: Assistant Vice President
<PAGE>
REQUEST FOR ADVANCE
-------------------
Reference is made to the Lease Agreement dated as of May 28, 1998
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
- ----------------- ----------------- --------------------- -------------
$1,335,241.53 7/17/98 SEE ATTACHED ANNEX A SEE ATTACHED
ANNEX A
<PAGE>
IN WITNESS WHEREOF, Lessee has executed this REQUEST FOR ADVANCE on July
13, 1998.
GARDENBURGER, INC.
By: /s/ Richard C. Dietz
-----------------------
Title: Chief Financial Officer
<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 June 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> (210)
<SECURITIES> 0
<RECEIVABLES> 10,517
<ALLOWANCES> 294
<INVENTORY> 8,278
<CURRENT-ASSETS> 29,293
<PP&E> 13,948
<DEPRECIATION> 2,467
<TOTAL-ASSETS> 43,001
<CURRENT-LIABILITIES> 17,582
<BONDS> 24,000
0
0
<COMMON> 8,951
<OTHER-SE> 684
<TOTAL-LIABILITY-AND-EQUITY> 43,001
<SALES> 38,779
<TOTAL-REVENUES> 38,779
<CGS> 20,324
<TOTAL-COSTS> 20,324
<OTHER-EXPENSES> 34,602
<LOSS-PROVISION> 104
<INTEREST-EXPENSE> 403
<INCOME-PRETAX> (16,630)
<INCOME-TAX> (6,086)
<INCOME-CONTINUING> (10,544)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,544)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
