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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, 1999
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 Identification No.)
incorporation or organization)
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 8,839,551
(Class) (Outstanding at August 5, 1999)
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<PAGE>
GARDENBURGER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------- ----
Item 1. Financial Statements
Balance Sheets - June 30, 1999 and December 31, 1998 2
Statements of Operations - Three Month and Six Month
Periods Ended June 30, 1999 and 1998 3
Statements of Cash Flows - Six Months Ended June 30,
1999 and 1998 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 11
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
GARDENBURGER, INC.
BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
1999 1998
---------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,866 $ 2,320
Accounts receivable, net of allowances of
$258 and $148 11,315 14,969
Inventories, net 13,157 12,457
Prepaid expenses 2,789 4,515
Deferred income taxes 10,986 1,989
---------- ----------
Total Current Assets 43,113 36,250
Property, Plant and Equipment, net of accumulated
depreciation of $3,508 and $3,174 10,604 12,238
Deferred Income Taxes 4,242 4,242
Other Assets, net of accumulated amortization of
$705 and $534 2,344 2,318
---------- ----------
Total Assets $ 60,303 $ 55,048
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term note payable $ 7,105 $ 15,000
Accounts payable 7,889 9,708
Payroll and related liabilities payable 1,139 1,822
Other current liabilities 2,964 2,366
---------- ----------
Total Current Liabilities 19,097 28,896
Other Long-Term Liabilities 207 226
Convertible Notes Payable 15,000 15,000
Convertible Redeemable Preferred Stock 31,058 -
Shareholders' Equity (Deficit):
Preferred Stock, no par value, 5,000,000 shares
authorized; none issued - -
Common Stock, no par value, 25,000,000 shares
authorized; shares issued and outstanding:
8,839,551 and 8,733,811 10,619 9,717
Additional paid-in capital 4,277 4,275
Accumulated deficit (19,955) (3,066)
--------- ----------
Total Shareholders' Equity (Deficit) (5,059) 10,926
---------- ----------
Total Liabilities and Shareholders'
Equity (Deficit) $ 60,303 $ 55,048
========== ==========
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,
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 22,228 $ 25,739 $ 35,791 $ 38,779
Cost of goods sold 13,051 13,437 20,404 20,324
-------------- --------------- --------------- --------------
Gross margin 9,177 12,302 15,387 18,455
Operating expenses:
Sales and marketing 22,032 20,260 33,104 31,681
General and administrative 1,670 1,495 3,586 2,921
Restructuring charge 1,584 - 2,684 -
-------------- --------------- --------------- --------------
25,286 21,755 39,374 34,602
-------------- --------------- --------------- --------------
Operating loss (16,109) (9,453) (23,987) (16,147)
Other income (expense):
Interest income 127 44 142 44
Interest expense (495) (373) (1,149) (403)
Other, net 2 (124) 12 (124)
-------------- --------------- --------------- --------------
(366) (453) (995) (483)
-------------- --------------- --------------- --------------
Loss before provision for income taxes (16,475) (9,906) (24,982) (16,630)
Benefit from income taxes 5,936 3,666 8,987 6,086
-------------- --------------- --------------- --------------
Net loss before preferred dividends (10,539) (6,240) (15,995) (10,544)
Preferred dividends 889 - 889 -
-------------- --------------- --------------- --------------
Net loss available for common shareholders (11,428) (6,240) (16,884) (10,544)
============== =============== =============== ==============
Basic and diluted net loss per share
applicable to common shareholders $ (1.29) $ (0.72) $ (1.92) $ (1.22)
============== =============== =============== ==============
Shares used for net loss per share 8,834,143 8,642,579 8,798,012 8,627,851
============== =============== =============== ==============
</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,
-------------------------
1999 1998
----------- ----------
Cash flows from operating activities:
Net loss before preferred dividends $ (15,995) $ (10,544)
Effect of exchange rate on operating accounts (5) (1)
Adjustments to reconcile net loss to net cash
flows used in operating activities:
Depreciation and amortization 1,053 727
Other non-cash (income) expense, net 1,839 (57)
Deferred income taxes (8,997) (6,131)
Loss on sale of fixed assets 11 73
(Increase) decrease in:
Accounts receivable, net 3,654 (2,444)
Inventories, net (700) (5,075)
Prepaid expenses 1,726 (786)
Income taxes receivable - 21
Increase (decrease) in:
Accounts payable (1,819) 1,136
Payroll and related liabilities payable (683) 162
Accrued liabilities and other 598 1,191
---------- ---------
Net cash used in operating activities (19,318) (21,728)
Cash flows from investing activities:
Payments for purchase of property and equipment (843) (4,346)
Proceeds from sale of property and equipment - 4
Other assets, net 54 (57)
---------- ---------
Net cash used in investing activities (789) (4,399)
Cash flows from financing activities:
Net proceeds from (payments on) line of credit (7,895) 9,000
Proceeds from issuance of long-term debt - 15,000
Financing fees from issuance of long-term debt - (1,026)
Issuance of preferred stock, net of issuance costs 30,169 -
Proceeds from exercise of common stock options 377 300
Income tax benefit of non-qualified stock option
exercises and disqualifying dispositions 2 41
---------- ---------
Net cash provided by financing
activities 22,653 23,315
Increase (decrease) in cash and cash equivalents 2,546 (2,812)
Cash and cash equivalents (bank overdraft):
Beginning of period 2,320 2,602
---------- ---------
End of period $ 4,866 $ (210)
========== =========
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, 1999 and 1998 and the financial information as of June 30, 1999
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, 1998 is derived from Gardenburger, Inc.'s (the Company's) 1998
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 1998 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, 1999 DECEMBER 31, 1998
---------------- -------------------
Raw materials $3,271 $2,843
Packaging and supplies 681 275
Finished goods 9,205 9,339
================ ===================
$13,157 $12,457
================ ===================
NOTE 3. LINE OF CREDIT
- -----------------------
In April 1999, the Company entered into an Amended and Restated Business Loan
Agreement (the "Agreement") with Bank of America NT & SA. The Agreement provides
for a credit line of up to $20 million with interest at the Bank's Reference
Rate or, at the option of the Company, at LIBOR plus 1.25 percentage points or
at the Offshore Rate plus 1.25 percentage points. The line of credit is
available until June 1, 2000. The Agreement also provides for a standby letter
of credit of up to $400,000 (included in the $20 million limit) with a maximum
maturity of March 31, 2001. The Agreement provides that the line of credit is to
be secured by all machinery, equipment, inventory, receivables and intangible
assets of the Company.
The Company is required to meet certain financial covenants under the Agreement
as follows:
- To maintain a current ratio of at least 1.5:1.0 measured monthly;
- Not to incur an operating loss of more than $5 million for the year
ending December 31, 1999; and
- To maintain a minimum fixed charge coverage ratio of at least
1.25:1.00 measured on a rolling four-quarter basis, beginning
December 31, 2000.
5
<PAGE>
NOTE 4. ISSUANCE OF CONVERTIBLE PREFERRED STOCK
- ------------------------------------------------
In April 1999, the Company closed a stock purchase agreement selling $32.5
million of convertible preferred stock to several investors. Under the terms of
the agreement, the Company sold an aggregate of 2,762,500 shares of Series A
convertible preferred stock and 487,500 shares of Series B convertible preferred
stock to members of the investor group, at a price of $10 per share for each
series, or an aggregate consideration of $32.5 million. The preferred shares are
convertible at a price of $10 per share (subject to antidilution adjustments) at
any time following issuance at the discretion of the holder. The Series B
conversion price will be adjusted to $3.75 if the Company fails to meet
specified performance targets for fiscal years 1999 and 2000. Both series of
preferred stock are entitled to a 12 percent cumulative annual dividend payable
upon redemption of the stock or in the event of a sale or liquidation of the
Company. Shares may not be redeemed until five years after the original date of
issuance, at which time they may be redeemed at the election of the holders or,
under certain conditions, at the discretion of the Company.
NOTE 5. SUPPLEMENTAL CASH FLOW INFORMATION
- ------------------------------------------
Supplemental disclosure of cash flow information is as follows:
SIX MONTHS ENDED JUNE 30,
---------------------------
1999 1998
---------- ----------
Cash paid during the period for income taxes $ 8 $ 10
Cash paid during the period for interest 515 264
Stock issued in exchange for interest expense 525 -
Dividends accrued but not paid 889 -
NOTE 6. EARNINGS PER SHARE
- --------------------------
Basic earnings per share ("EPS") and diluted EPS are the same for all periods
presented since the Company was in a loss position in all periods.
Potentially dilutive securities that are not included in the diluted EPS
calculation because they would be antidilutive are as follows:
JUNE 30,
------------------------------
1999 1998
------------ ------------
Stock options 3,223 2,784
Convertible notes 1,238 1,163
Convertible preferred stock 3,250 -
============ ============
Total 7,711 3,947
============ ============
NOTE 7. CHANGE IN REPORTING PERIOD
- ----------------------------------
The Company has announced that it will change its fiscal year end to September
30. Fiscal 1999 will end on September 30, 1999 and fiscal 2000 will begin
October 1, 1999.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
Net sales decreased to $22.2 million in the second quarter of 1999 from $25.7
million in the second quarter of 1998 and to $35.8 million for the six months
ended June 30, 1999 compared to $38.8 million for the first six months of 1998.
The decreases are primarily related to lower than anticipated sales in the
grocery channel, which the Company attributes to fewer trials by new consumers
than expected. The Company believes that it did not generate sufficient new
trials by consumers either because most interested target consumers were
persuaded by the Company's television advertising to try Gardenburger(R)
products in 1998 or because the current television advertising has not been
persuasive enough to continue to win trial by new target consumers. In addition,
to a lesser extent, the lower sales figures reflect the impact of the Company's
strong December 1998 sales, wherein customers, especially in the grocery
channel, stocked up on product in anticipation of extensive January 1999
consumer promotions.
The Company's U.S. All Commodity Volume ("ACV") was approximately 90 percent at
the end of the second quarter of 1999 compared to approximately 85 percent at
the end of the second quarter of 1998. ACV compares the total sales volume of
the stores carrying the Company's products to the total sales volume throughout
the retail grocery channel.
For the second quarter of 1999, the Company attained an average market share of
44 percent in the grocery channel compared to 43 percent for the second quarter
of 1998. In addition, studies performed by Information Resources Incorporated
indicate that Gardenburger's repeat rate was 41 percent and repeat consumer
purchases accounted for 65 percent of total sales in the first quarter of 1999
(latest data available) in the grocery channel. Repeat sales made up only 45
percent of grocery channel sales in the second quarter of 1998.
Gross margin decreased to $9.2 million and $15.4 million, respectively (41.3
percent and 43.0 percent of net sales, respectively), for the three and six
month periods ended June 30, 1999 from $12.3 million and $18.5 million,
respectively (47.8 percent and 47.6 percent of net sales, respectively), for the
comparable periods of 1998. The decreases in gross margin and gross margin
percentages are primarily a result of start-up costs related to bringing up the
second production line at the Clearfield facility and of operating at less than
100 percent of capacity in order to reduce product inventories due to lowered
sales expectations for 1999.
Sales and marketing expense increased to $22.0 million and $33.1 million,
respectively (99.1 percent and 92.5 percent of net sales, respectively), for the
three month and six month periods ended June 30, 1999, compared 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. Of
the $22.0 million spent in the second quarter of 1999, $17.0 million was for
discretionary spending such as television advertising, couponing and trade
programs. The Company expects to reduce sales and marketing expenses going
forward as it changes its business model to a more profit driven business model.
7
<PAGE>
General and administrative ("g&a") expense totaled $1.7 million and $3.6
million, respectively (7.5 percent and 10.0 percent of net sales, respectively),
for the three month and six month periods ended June 30, 1999 compared to $1.5
million and $2.9 million, respectively (5.8 percent and 7.5 percent of net
sales, respectively), for the three and six month periods ended June 30, 1998.
The increases are primarily a result of incremental costs related to bringing a
new Year 2000 compliant management information system on-line and the associated
increased depreciation expense.
The Company incurred a restructuring charge of $2.7 million in the first six
months of 1999 related to the closure of its Portland, Oregon production
facility, a fair market value adjustment for one of the Company's Portland,
Oregon area properties and the write-off of an older information system. The
Company is currently marketing the Portland properties and expects that the
eventual sale will yield $2.0 to $3.0 million in cash to the Company. At June
30, 1999, $54,000 remained in accrued liabilities related to these charges,
primarily for employee severance and other employee related costs.
Loss from operations was $16.1 million and $24.0 million, respectively, for the
three month and six month periods ended June 30, 1999 compared to loss from
operations of $9.5 million and $16.1 million, respectively, for the comparable
periods of 1998.
Interest expense was $495,000 and $1.1 million, respectively, for the three
month and six month periods ended June 30, 1999 compared to $373,000 and
$403,000 for the comparable periods of 1998 as a result of increased levels of
debt associated with the Company's aggressive marketing campaigns.
Income taxes are based on an estimated rate of 36.0 percent for the six months
ended June 30, 1999 compared to the 36.6 percent rate used for all of 1998.
Dividends of $889,000 in the second quarter of 1999 are related to the issuance
of $32.5 million of convertible, redeemable preferred stock in the second
quarter of 1999. There is no cash outlay related to the cumulative dividends.
Net loss available for common shareholders was $11.4 million and $16.9 million,
respectively, for the three month and six month periods ended June 30, 1999
compared to $6.2 million and $10.5 million, respectively, for the comparable
periods of 1998. Net loss per share, both basic and diluted, was $1.29 and
$1.92, respectively (on 8,834,143 and 8,798,012 shares, respectively), for the
three month and six month periods ended June 30, 1999 compared to net loss per
share of $0.72 and $1.22, respectively (on 8,642,579 and 8,627,851 shares,
respectively), for the comparable periods of 1998.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At June 30, 1999, working capital was $24.0 million. In the first half of 1999,
working capital increased by $16.7 million compared to December 31, 1998, and
the current ratio increased to 2.3:1 from 1.3:1.
Cash and cash equivalents increased $2.5 million from December 31, 1998
primarily due to $30.2 million of net proceeds from the issuance of preferred
stock, offset by $19.3 million used in operations and $7.9 million in net
payments on the Company's line of credit.
Accounts receivable decreased $3.7 million to $11.3 million at June 30, 1999
from $15.0 million at December 31, 1998 due primarily to significant sales at
the end of 1998 that were collected during the first quarter of 1999. Days sales
outstanding decreased to 46 days at June 30, 1999 from 47 days at December 31,
1998.
Inventories increased $0.7 million to $13.2 million at June 30, 1999 from $12.5
million at December 31, 1998. The Company is currently focusing on aggressively
reducing its inventory levels to bring them in line with current sales
projections. Inventory turned 3.4 times on an annualized basis for the second
quarter of 1999 compared to 5.3 times on an annualized basis for the fourth
quarter of 1998.
The Company recorded a benefit from income taxes of $9.0 million for the six
months ended June 30, 1999 as a result of the $25.0 million net operating loss
for the period. No valuation allowance has been recorded against the deferred
tax asset for the Company's net operating losses because the Company believes it
is more likely than not that the net operating losses will be recognized as a
result of future operating profits. The Company's basis for such assertion is
due to its expectation that the high level of discretionary expenses incurred in
recent years will decline substantially as the Company moves to a more profit
driven business model. However, the Company may be required to record a
valuation allowance against the deferred tax asset for net operating losses in
future periods if its revised business goals are not achieved.
Capital expenditures of $0.8 million during the first six months of 1999
primarily resulted from expenditures for the Company's new management
information system and for production equipment in Clearfield not covered under
the Company's operating leases. Capital expenditures, net of amounts covered
under operating leases, are estimated to total approximately $2.8 million for
1999, primarily for information systems infrastructure and the second production
line in Clearfield.
The Company has outstanding $15 million of 7 percent Convertible Senior
Subordinated Notes (the "Notes") held by Dresdner Kleinwort Benson Private
Equity Partners L.P. ("Dresdner"). The Notes are convertible into shares of the
Company's Common Stock at the option of the holder 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 of the Notes at June
30, 1999 was $12.12 per share, as adjusted to reflect the issuance of
convertible preferred stock as discussed below and the grant of certain stock
options to employees and consultants. Under the terms of the Note Purchase
Agreement relating to 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,
exclusive of the Notes, to tangible net worth, inclusive of the Notes, not to
9
<PAGE>
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, 1999, the Company was out of
compliance with its financial ratio covenants under the Notes. The Company has
received a waiver of compliance with the covenants from Dresdner through
December 31, 1999.
In April 1999, the Company consummated the sale of $32.5 million of convertible
preferred stock to several investors pursuant to a stock purchase agreement
entered into in March 1999. Under the terms of the agreement, the Company sold
an aggregate of 2,762,500 shares of Series A convertible preferred stock and
487,500 shares of Series B convertible preferred stock to the investors, each at
a price of $10 per share, or an aggregate consideration of $32.5 million. The
preferred shares are convertible into shares of common stock at a conversion
price of $10 per share (subject to antidilution adjustments) at any time
following issuance at the discretion of the holder. The Series B conversion
price will be adjusted to $3.75 if the Company fails to meet specified
performance targets for fiscal years 1999 and 2000. Both series of preferred
stock are entitled to a 12 percent cumulative annual dividend payable upon
redemption of the stock or in the event of a sale or liquidation of the Company.
Shares may not be redeemed until five years after the original date of issuance,
at which time they may be redeemed at the election of the holders or, under
certain conditions, at the discretion of the Company.
In April 1999, the Company entered into an Amended and Restated Business Loan
Agreement (the "Agreement") with Bank of America NT & SA. The Agreement provides
for a credit line of up to $20 million with interest at the Bank's Reference
Rate or, at the option of the Company, at LIBOR plus 1.25 percentage points or
at the Offshore Rate plus 1.25 percentage points. The line of credit is
available until June 1, 2000. The Agreement also provides for a standby letter
of credit of up to $400,000 (included in the $20 million limit) with a maximum
maturity of March 31, 2001. The Agreement provides that the line of credit is to
be secured by all machinery, equipment, inventory, receivables and intangible
assets of the Company. At June 30, 1999, the Company had $7.1 million
outstanding under this credit line. The interest rate on the credit line was
6.21 percent per annum as to $6.0 million and 8.75 percent per annum as to $1.1
million at June 30, 1999.
The Company is required to meet certain financial covenants under the Agreement
as follows:
- To maintain a current ratio of at least 1.5:1.0 measured monthly;
- Not to incur an operating loss of more than $5 million for the year
ending December 31, 1999; and
- To maintain a minimum fixed charge coverage ratio of at least
1.25:1.00 measured on a rolling four-quarter basis, beginning
December 31, 2000.
The Company anticipates being out of compliance with the operating loss covenant
at December 31, 1999 but also anticipates receiving a waiver of non-compliance
from the Bank.
10
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
137"). SFAS 137 is an amendment to Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
137 establishes accounting and reporting standards for all derivative
instruments. SFAS 137 is effective for fiscal years beginning after June 15,
2000. The Company does not currently have any derivative instruments and,
accordingly, does not expect the adoption of SFAS 137 to have an impact on its
financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
The Company's only financial instrument with market risk exposure is its
variable rate line of credit. At June 30, 1999 the Company had $7.1 million
outstanding under this credit line at interest rates ranging from 6.21 percent
per annum to 8.75 percent per annum. An increase or decrease in the interest
rates would affect interest expense for the period accordingly.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ------- -----------------------------------------
The Company issued a total of 50,971 shares of its common stock to Dresdner
Kleinwort Benson Private Equity Partners L.P. ("Dresdner") during the fourth
quarter of 1998 and 51,980 shares of its common stock to Dresdner during April
1999 in satisfaction of interest payments due in the amount of $525,000 on each
of September 30, 1998 and March 31, 1999. The Company relied on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 with
respect to the issuance of the shares.
In March 1999, the Company issued an option to purchase 10,000 shares of common
stock at an option price of $10.0625 per share to an independent marketing
consultant in consideration of services. The Company relied on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 with
respect to the issuance of the option.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
The annual meeting of the shareholders of the Company was convened on May 12,
1999 and adjourned to May 26, 1999, at which time the following action was
taken:
1. The eight nominees for election by the holders of common stock as
directors of the Company were elected. The eight directors were
elected and the voting results follow:
Director Name Shares Voted For Shares Withheld
------------- ---------------- ---------------
Lyle G. Hubbard 4,607,036 53,758
Alexander P. Coleman 4,607,217 53,577
Ronald C. Kesselman 4,608,666 52,128
Richard L. Mazer 4,608,006 52,788
Mary O. McWilliams 4,608,106 52,688
Michael L. Ray 4,608,406 52,388
E. Kay Stepp 4,605,445 55,349
Paul F. Wenner 4,606,494 54,300
11
<PAGE>
In addition, Kyle A. Anderson and Jason M. Fish, who were elected as directors
of the Company by the Board of Directors on April 14, 1999 in accordance with an
agreement with the holders of the Company's preferred stock, continue as
directors until the 2000 annual meeting of shareholders.
ITEM 5. OTHER INFORMATION
- ------- -----------------
In August 1999, the Company adopted several compensation policies with respect
to its senior management team and other employees. First, the Company authorized
a one-time payment of $500,000 to Lyle G. Hubbard at the time of the closing of
the sale of the Company on terms approved by a majority of the current directors
and pursuant to which all of the Company's shareholders are treated equally,
provided that Mr. Hubbard continues to be employed as Chief Executive Officer
through the date of sale.
The Company also authorized the payment of a one-time retention bonus to each
current member of the Company's senior management team other than Mr. Hubbard if
such person continues to be an employee of the Company through December 31,
2000, or the date of an earlier change in control of the Company. The amount of
each bonus will be equal to the employee's 1999 base salary.
Finally, the Company adopted severance benefits policies covering its employees
in the event of a change in control of the Company. Each member of the Company's
senior management team other than Mr. Hubbard is entitled, if such person's
employment is terminated within two years after a change in control occurring
prior to December 31, 2001, subject to extension, either by the employee for
good reason or by the Company (or its successor) without cause, to receive a
payment equal to 1.5 times the sum of the person's annual base salary and target
incentive bonus. The employee will also be entitled to receive group health and
life insurance benefits for 18 months following termination. Termination for
"good reason" includes such actions as a substantial adverse change in the
nature or status of the employee's responsibilities or a reduction in salary,
and "cause" includes conviction for commission of a felony, failure to
substantially perform assigned duties, intentional or grossly negligent conduct
that harms the Company, violation of a key Company policy, or diversion of
corporate opportunities to the Company's detriment. All other salaried employees
are entitled, upon termination without cause within two years following a change
in control, to receive severance benefits equal to two weeks of the employee's
base salary at the time of the change in control plus two additional weeks of
base salary for each full or partial year of employment with the Company, up to
a maximum total of 26 weeks.
12
<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.
----------
3.1 Restated Articles of Incorporation as amended April 14, 1999. (1)
3.2 1995 Restated Bylaws of Gardenburger, Inc., as amended March 29,
1999. (1)
10.1 Amended and Restated Business Loan Agreement dated April 14, 1999,
between Bank of America NT & SA and Gardenburger, Inc. (1)
10.2 Stock Purchase Agreement dated March 29, 1999, by and among
Gardenburger, Inc., and Rosewood Capital III, L.P., Farallon
Capital Management LLC, Gruber & McBaine Capital Management, LLC,
BT Capital Investors LP, and other purchasers identified
therein. (2)
10.3 Amendment and Waiver of Stock Purchase Agreement dated April 14,
1999, by and among Gardenburger, Inc., and the Purchasers
identified on Exhibit A thereto. (1)
10.4 Investor Rights Agreement dated April 14, 1999, by and among
Gardenburger, Inc., and the investors identified on Exhibit A
thereto.(1)
10.5 Amendment No. 2 dated April 14, 1999, to Rights Agreement dated as
of April 25, 1996, between Gardenburger, Inc., and First Chicago
Trust Company of New York. (1)
10.6 Purchase Agreement Assignment, dated June 23, 1999 between
Gardenburger, Inc. and BA Leasing & Capital Corporation.
10.7 1992 First Amended and Restated Stock Option Plan, as amended.
10.8 Summary of incentive compensation payable to the Chief Executive
Officer of the Company.
10.9 Amendment No. 1, dated May 21, 1999, to Business Loan Agreement
dated April 14, 1999, between the Company and Bank of America
NT & SA.
10.10 Amendment No. 2, dated July 9, 1999, to Business Loan Agreement
dated April 14, 1999, between the Company and Bank of America
NT & SA.
27 Financial Data Schedule.
99 Description of Common Stock. (1)
(1) Previously filed with the Company's Form 10-Q for the quarter ended
March 31, 1999, as filed with the Securities and Exchange Commission on
May 17, 1999 and is incorporated herein by reference.
(2) Previously filed with the Company's Form 8-K dated March 31, 1999 and
filed April 1, 1999 and is incorporated herein by reference.
(B) REPORTS ON FORM 8-K:
A report on Form 8-K dated March 31, 1999, was filed on April 1, 1999,
containing information regarding the terms of a definitive stock
purchase agreement dated March 29, 1999, filed as an exhibit thereto
and relating to the sale of $32.5 million of the Company's convertible
preferred stock to certain investors, under Item 5. Other Events.
13
<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 13, 1999 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)
14
EXHIBIT 10.6
PURCHASE AGREEMENT ASSIGNMENT dated June 23, 1999 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.
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/ Gail D. Smedal By: /s/ Richard C. Dietz
--------------------------- -------------------------------
Title: Vice President Title: Chief Financial Officer
By: /s/ Angela P. Catalli
---------------------------
Title: Assistant Vice President
<PAGE>
ANNEX A TO PURCHASE AGREEMENT ASSIGNMENT
PURCHASE ORDER (sorted by assignment date and PO#)
[List of items purchased too extensive to display]
<PAGE>
ACCEPTANCE CERTIFICATE NO. 001
------------------------------
Reference is made to the Lease Agreement dated as of May 28, 1999 between
BA LEASING & CAPITAL CORPORATION, as Lessor, and GARDENBURGER, INC., as Lessee
(together with Appendix No. 1) thereto dated May 28, 1999, 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 24, 1999.
3. PURCHASE PRICE. The Purchase Price of the Units is $3,970,817.92, 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.
By: /s/ Gail D. Smedal By: /s/ Richard C. Dietz
---------------------------- -----------------------------------
Title: Vice President Title: Chief Financial Officer
By: /s/ Angela P. Catalli
----------------------------
Title: Assistant Vice President
EXHIBIT 10.7
GARDENBURGER, INC.
1992 FIRST AMENDED AND RESTATED
COMBINATION STOCK OPTION PLAN
GARDENBURGER, INC. fka Wholesome & Hearty Foods, Inc., an Oregon
corporation (the "Company"), hereby adopts, establishes and sets forth the terms
of the Gardenburger, Inc., 1992 First Amended and Restated Combination Stock
Option Plan (the "Plan"), which Plan hereby amends and restates in its entirety
the Gardenburger, Inc. 1992 Employee Incentive Stock Option Plan (the "Prior
Plan").
1. PURPOSE OF PLAN
1.1 The purpose of the Plan is to provide participating officers,
employees, directors, agents, consultants and independent contractors an added
incentive for high levels of performance and for maximum efforts to increase the
success of the Company. The Plan will seek to accomplish these purposes by
granting such officers, employees, directors, agents, consultants and
independent contractors one or more options to acquire shares of the no par
value Common Stock of the Company ("Common Stock").
1.2 The Plan is expected to benefit shareholders by enabling the
Company to attract and retain persons to serve on the Company's Board of
Directors and other personnel of the highest caliber by offering to them an
opportunity to share in any increase in the value of the Common Stock to which
such personnel have contributed.
1.3 Each incentive stock option ("ISO") granted hereunder is intended
to constitute an "incentive stock option," as such term is defined in Section
422 of the Internal Revenue Code of 1986, as the same may be amended from time
to time (the "Code"), and this Plan and each such ISO is intended to comply with
all of the requirements of said Section 422 and of all other provisions of the
Code applicable to incentive stock options and to plans issuing the same. Each
nonstatutory stock option ("NSO") granted hereunder is intended to constitute a
nonstatutory stock option that does not comply with the requirements of Section
422 of the Code. ISOs and NSOs (including Directors' Options) shall sometimes be
referred to collectively as "Options."
2. ADMINISTRATION OF THE PLAN
2.1 The Plan shall be administered by the Board of Directors of the
Company (the "Board") or by a committee of the Board appointed in accordance
with Section 2.2 or 2.4.2 below (the Board, or the committee, if appointed, will
be referred to in this Plan as the "Administrative Committee").
<PAGE>
2.2 At any time, the Board may appoint an Administrative Committee,
consisting of not less than two of its members to administer the Plan on behalf
of the Board in accordance with such terms and conditions not inconsistent with
this Plan as the Board may prescribe. Once appointed, members of the
Administrative Committee shall continue to serve until otherwise directed by the
Board. From time to time the Board may increase the size of the Administrative
Committee and appoint additional members, remove members (with or without cause)
and appoint new members in their place, fill vacancies however caused, and/or
remove all members of the Administrative Committee and thereafter directly
administer the Plan.
2.3 A majority of the members of the Administrative Committee shall
constitute a quorum, and, subject to the limitations in this Section 2, all
actions of the Administrative Committee shall require the affirmative vote of
members who constitute a majority of such quorum. Members of the Administrative
Committee who are not Disinterested Persons (as defined in Section 2.4.3) may
vote on any matters affecting the administration of the Plan or the grant of
Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option (other than a Directors' Option) to himself or herself
(but any such member may be counted in determining the existence of a quorum at
any meeting of the Administrative Committee during which action is taken with
respect to the granting of Options to him or her).
2.4 Notwithstanding the foregoing provisions of this Section 2,
commencing on the date the Company registers any class of any equity security
under Section 12 of the Securities Exchange Act of 1934, as amended (the "1934
Act"), until six months after the termination of such registration, the Plan
shall be administered as follows:
2.4.1 The Plan shall be administered by the Board, but only if
all members of the Board are Disinterested Persons (as this term is defined
in Section 2.4.3 below), or by the Administrative Committee appointed in
accordance with Section 2.4.2 below.
2.4.2 At any time, if all members of the Board are not
Disinterested Persons, or if all members of the Board are Disinterested and
the Board, in its discretion nonetheless desires, the Board shall appoint
two or more of its members, all of whom are Disinterested Persons, to the
Administrative Committee to administer the Plan on behalf of the Board in
accordance with such terms and conditions consistent with this Plan as the
Board may prescribe. Once appointed, the Administrative Committee shall
continue to serve until otherwise directed by the Board. From time to time,
the Board may increase the size of the Administrative Committee and appoint
additional members (all of whom shall be Disinterested Persons), remove
members (with or without cause) and appoint new members in their place,
fill vacancies however caused, or remove all members of the Administrative
Committee and thereafter directly administer the Plan so long as all
members of the Board are Disinterested Persons. At no time shall a person
who is not a Disinterested Person serve on the Administrative Committee
appointed under this Section 2.4.2, nor shall such Administrative Committee
at any time have less than two members.
2
<PAGE>
2.4.3 The term "Disinterested Person" shall mean a director who
qualifies as a disinterested person as defined in 17 C.F.R.
240.16b-3(c)(2)(i), as the same may be amended from time to time.
2.5 The Administrative Committee shall have the authority to:
2.5.1 Administer the Plan in accordance with its express terms;
2.5.2 Determine all questions arising in connection with the
administration, interpretation, and application of the Plan, including all
questions relating to the value of the Common Stock;
2.5.3 Correct any defect, supply any information, or reconcile
any inconsistency in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan;
2.5.4 Prescribe, amend, and rescind rules and regulations
relating to the administration of the Plan;
2.5.5 Determine the duration and purposes of leaves of absence
which may be granted to participants without constituting a termination of
employment for purposes of the Plan;
2.5.6 Select, based on the eligibility criteria set forth in
Section 3 below, those officers, employees, directors, agents, consultants
and independent contractors to whom Options (other than Directors' Options)
shall be granted;
2.5.7 Determine whether the Company shall grant ISOs or NSOS, the
terms and provisions of the respective Option agreements to be entered into
with such persons (which need not be identical with the terms of any other
such agreement and which may include, without limitation, provisions
granting to one or more officers of the Company, a proxy covering the
shares acquired by the Optionee upon exercise of one or more Options), when
such Options shall be granted and the number of shares of Common Stock
subject to each Option;
2.5.8 Convert an ISO into a NSO in accordance with Section 13
below; and
2.5.9 Make all other determinations necessary or advisable for
administration of the Plan.
2.6 Exercise of the foregoing authority by the Administrative
Committee shall be consistent with the intent that the ISOs issued under the
Plan be qualified under the terms of Section 422 of the Code, and that the
Non-ISOs shall not be so qualified. All determinations made by the
Administrative Committee in good faith on matters referred to in this Section 2
shall be final, conclusive, and binding upon all persons. The Administrative
Committee shall have all powers necessary or appropriate to accomplish its
duties under this Plan.
3
<PAGE>
2.7 With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 and its successors under the 1934 Act. To the extent
any provision of the Plan or the actions of the Administrative Committee, or the
members thereof, fail to so comply, such provision or action shall be deemed
null and void to the extent permitted by law and deemed advisable by the
Administrative Committee.
3. ELIGIBILITY
3.1 ISOs may be granted to any officer or employee of the Company or
of any Affiliate of the Company as defined in Section 3.2 below. NSOs may be
granted to an employee, officer, director (whether or not the director is also
an officer or employee), agent, consultant or independent contractor of the
Company or of any Affiliate of the Company. Each officer, employee, director,
agent, consultant or independent contractor so selected by the Administrative
Committee, and each director entitled to an automatic grant of Directors'
Options pursuant to Section 4 below, shall sometimes be referred to as an
"Optionee."
3.2 As used in this Plan, an "Affiliate" of the Company shall refer to
a "parent corporation" of the Company as described in Section 424(e) of the Code
or to a "subsidiary corporation" of the Company as described in Section 424(f)
of the Code.
3.3 Notwithstanding anything in this Section 3 to the contrary, an
Optionee who is not an employee of the Company or of an Affiliate of the Company
shall not be eligible to receive an ISO under the Plan and no ISOs shall be
granted to such persons.
3.4 Notwithstanding anything in this Plan to the contrary, no officer
or employee shall receive Options covering more than 250,000 shares of Common
Stock in any calendar year.
3.5 No Option shall be granted hereunder to any Optionee unless the
Administrative Committee shall first have determined that the grant of such
Option (and the exercise thereof by the Optionee) will not violate the
securities law of the state where the Optionee resides.
4. ELIGIBILITY FOR DIRECTORS' OPTIONS
Each individual who is a member of the Company's Board of Directors on
a "Director Option Grant Date" (as defined below) in any year during the term of
this Plan, and who has not at any time during the preceding calendar year been
an employee of the Company or its Affiliates, shall receive an automatic grant
of an NSO to acquire three thousand (3,000) shares of Common Stock of the
Company (hereinafter a "Directors' Option"). Directors' Options shall be granted
on the date on which the Company holds its Annual Meeting of Shareholders, and
on the date of each subsequent Annual Meeting of Shareholders during the term of
4
<PAGE>
this Plan to all eligible Directors (each such date shall be referred to as a
"Director Option Grant Date"), and shall include the following terms:
4.1 The exercise price shall be the fair market value on the Director
Option Grant Date;
4.2 Each Directors' Option shall vest and be exercisable one year
after the Date of Grant;
4.3 Each Directors' Option shall be evidenced by an Option agreement
executed by the Company and the Director; and
4.4 Notwithstanding anything to the contrary in this Plan, if a
Directors' Option is granted to a person who, on the Date of Grant or at any
time thereafter, is subject to Section 16 of the 1934 Act, the Option Agreement
shall provide that at least six (6) months must elapse from the Date of Grant of
the Directors' Option to the date of disposition, as defined in Section 424(c)
of the Code, of the Common Stock issued upon exercise of such Director's Option.
Options pursuant to and in accordance with this Section 4 (referred to herein as
"Directors' Options").
5. SHARES AVAILABLE FOR OPTIONS
5.1 The Administrative Committee, from time to time, may provide for
the issuance, offer and sale in the aggregate of up to Two Million Five Hundred
Thousand (2,500,000) shares of Common Stock to be made available from authorized
but unissued shares of the Company's Common Stock. The number of such shares
shall be subject to any adjustment required or permitted pursuant to the
provisions of Section 11 below.
5.2 If any Option granted under the terms of the Plan shall expire or
terminate for any reason without having been exercised in full, the shares of
Common Stock not purchased which were formerly subject to such Option shall
again be available for issuance under the Plan.
5.3 At all times during the term of the Plan, the Company shall
reserve and keep available such number of shares of Common Stock as shall be
sufficient to satisfy the requirements of the Plan.
6. OPTION TERMS
6.1 With respect to each Option granted to an Optionee designated by
the Administrative Committee in accordance with Section 3 above, the
Administrative Committee shall specify the following terms:
6.1.1 Whether the Option is an ISO or a NSO;
6.1.2 The number of shares of Common Stock subject to purchase
pursuant to the Option;
5
<PAGE>
6.1.3 The date on which the grant of the Option shall be
effective (the "Date of Grant");
6.1.4 The period of time during which the Option shall be
exercisable, which shall in no event be more than ten (10) years following
its Date of Grant; PROVIDED, HOWEVER, if an ISO is granted to an Optionee
who, on the Date of Grant, owns, either directly or indirectly within the
meaning of Section 424(d) of the Code, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of an
Affiliate of the Company, the period of time during which the Option shall
be exercisable shall in no event be more than five (5) years following its
Date of Grant;
6.1.5 The price at which the Option shall be exercisable by the
Optionee (the "Option Price"); PROVIDED, HOWEVER, that the Option Price
specified in ISOs shall in no event be less than the fair market value on
the Date of Grant of the shares of Common Stock subject thereto, and the
Option Price of an NSO shall in no event be less than 85 percent of the
fair market value on the Date of Grant of the shares of Common Stock
subject thereto; and PROVIDED FURTHER, that, if an ISO is granted to an
Optionee who, on the Date of Grant, owns, either directly or indirectly
within the meaning of Section 424(d) of the Code, more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or of an Affiliate of the Company, then the Option Price specified
in the ISO shall be at least one hundred ten percent (110%) of the fair
market value, on the Date of Grant, of the shares of Common Stock subject
thereto. For the purposes hereof, the fair market value of the shares on
the Date of Grant shall mean (i) the average of the bid and ask prices of
shares of Common Stock sold on the NASDAQ National Market System (or any
national stock exchange) on the last trading date immediately preceding the
Date of Grant (or if there was no sale on such date, the highest asked
price for the Common Stock on such date), or (ii) if the Common Stock is
not listed on the NASDAQ National Market System (or any national stock
exchange) on the Date of Grant, the mean between the "bid" and "asked"
prices of the Common Stock in the Over-The-Counter market as quoted on
NASDAQ on the last trading date immediately preceding the Date of Grant, or
(iii) if the Common Stock is not traded in any market, that price
determined by the Administrative Committee to be fair market value, based
upon such evidence as it may deem appropriate under the circumstances;
6.1.6 Any vesting schedule restricting the right of the Optionee
to exercise the Option, it being intended that the Administrative Committee
shall have complete discretion with respect to the terms of such vesting
schedule, including, without limitation, discretion (a) to allow full and
immediate vesting upon grant of the Option, (b) to permit partial vesting
in stated percentage amounts based on the length of the holding period of
the Option, (c) to permit full vesting after a stated holding period has
passed, (d) to permit vesting only upon the satisfaction of financial
performance criteria established and specified by the Administrative
Committee in the Option Agreement, or (e) with the consent of the Optionee
and subject to the limitations set forth in Section 6.1.4 above, to modify
the vesting schedule of any outstanding Option; provided that,
notwithstanding the foregoing, an Option shall immediately vest and become
exercisable in full upon the termination of the employment of the Optionee
holding such Option as a result of the Optionee's death or disability
6
<PAGE>
(within the meaning of Section 22(e)(3) of the Internal Revenue Code of
1986, as amended); and
6.1.7 Such other terms and conditions as the Administrative
Committee deems advisable and as are consistent with the purpose of this
Plan.
6.2 Notwithstanding any provision of this Section 6 to the contrary,
no Option shall be granted hereunder later than ten (10) years from the
Effective Date of the Plan, as this term is defined in Section 16 below, and no
Option granted hereunder shall be exercisable more than ten (10) years following
the date of grant.
6.3 Except as expressly provided herein, nothing contained in this
Plan shall require that the terms and conditions of options granted hereunder be
uniform.
6.4 Notwithstanding anything to the contrary in this Plan, if an
Option is granted to a person who, on the Date of Grant or at any time
thereafter, is subject to Section 16 of the 1934 Act, the Option Agreement shall
provide that at least six (6) months must elapse from the Date of Grant of the
Option to the date of disposition, as defined in Section 424(c) of the Code, of
the Common Stock issued upon exercise of such Option.
7. LIMITATION ON GRANTS OF ISOS
In the event that the aggregate fair market value of Common Stock and
other stock with respect to which ISOs granted to an Optionee under this Plan or
incentive stock options granted under any other plan of the Company or of any
Affiliate of the Company are exercisable for the first time during any calendar
year exceeds the maximum permitted under Section 422(d) of the Code, the portion
of the Option representing such excess shall be treated as a NSO notwithstanding
anything to the contrary contained in the Option Agreements.
8. EXERCISE OF OPTION
8.1 Subject to any limitations or conditions imposed upon an Option
pursuant to Section 6 above, an Optionee (or the Qualified Successor of an
Optionee pursuant to Sections 9.2 and 9.3 below, or the Guardian of an Optionee
pursuant to Section 9.4 below) may exercise an Option, or any part thereof
(unless partial exercise is specifically prohibited by the terms of the Option),
by giving written notice thereof to the Company at its principal place of
business. If requested by the Company, such notice shall include a written
representation from the Optionee that the shares to be purchased are being
acquired for investment and not for resale or distribution.
8.2 The notice described in Section 8.1 shall be accompanied by (a)
full payment of the Option Price to the extent the Option is so exercised, and
7
<PAGE>
(b) full payment of any amounts the Company determines must be withheld for tax
purposes from the Optionee pursuant to the Optionee's option agreement. Such
payment shall be:
8.2.1 In lawful money of the United States and shall be payable
in cash or by certified or cashier's check;
8.2.2 In the discretion of the Administrative Committee and with
the consent of the Optionee, through delivery by the Optionee and/or
withholding by the Company, of shares of Common Stock having a fair market
value as of the date of exercise equal to the cash exercise price of the
Option plus any amounts the Company determines must be withheld from the
Optionee for tax purposes. The fair market value of each such share of
Common Stock on the date of payment shall be determined in good faith by
the Administrative Committee, which determination shall be conclusive;
8.2.3 In the discretion of the Administrative Committee, by
delivery of the Optionee's personal recourse note, bearing interest payable
not less frequently than annually, at a rate of not less than the
applicable federal rate, as defined in Section 1274(d) of the Code; or
8.2.4 At the discretion of the Administrative Committee, by any
combination of Sections 8.2.1, 8.2.2, or 8.2.3 above.
9. TRANSFERABILITY OF OPTIONS
9.1 Except as provided otherwise in this Section 9, no Option shall be
transferred or be exercised by any person other than the Optionee to whom such
Option was originally granted.
9.2 If an Optionee ceases to be employed by the Company or by any
Affiliate of the Company by reason of such Optionee's death, any Options held by
such Optionee shall pass to the person or persons entitled thereto pursuant to
the will of the Optionee or the applicable laws of descent and distribution
(such person or persons are sometimes herein referred to collectively as the
"Qualified Successor" of the Optionee), and shall be exercisable by the
Qualified Successor in accordance with the terms of the applicable Option
Agreement.
9.3 In the event a guardian (the "Guardian") is appointed for an
Optionee whose employment is terminated by the Company or by any Affiliate of
the Company by reason of such Optionee's disability, as defined in Section
22(e)(3) of the Code, any Option held by such Optionee that could have been
exercised immediately prior to such termination of employment shall be
exercisable by the Guardian of such Optionee for a period of one (1) year
following the termination of employment of such Optionee.
9.4 If an Optionee who has ceased to be employed by the Company or by
any Affiliate of the Company by reason of such Optionee's disability, as defined
in Section 22(e)(3) of the Code, dies within six (6) months after the
termination of such employment, any Option held by such Optionee that could have
been exercised immediately prior to his or her death shall pass to the Qualified
Successor of such Optionee, and shall be exercisable by the Qualified Successor
for a period of one (1) year following the termination of employment of such
Optionee.
9.5 In the event that a qualified domestic relations order, as
defined by Section 414(p) of the Code or Title I of the Employee Retirement
8
<PAGE>
Income Security Act or the rules thereunder, mandates the transfer of any Option
that could have been exercised immediately prior to the issuance of such order,
such Option shall pass to the person or persons entitled thereto pursuant to the
order ("Domestic Relations Successor"), and shall be exercisable by such person
or persons in accordance with the terms of the applicable Option Agreement.
Hereinafter, all references to a Qualified Successor shall include a Domestic
Relations Successor.
9.6 Notwithstanding anything to the contrary in this Plan, except as
otherwise provided in an applicable Option Agreement, the vesting of Options
held by a Qualified Successor or exercisable by a Guardian shall cease on the
date the Optionee's employment is terminated for any reason, including, without
limitation, death or disability.
9.7 In the event that two or more persons constitute the Qualified
Successor or the Guardian of an Optionee, all rights of such Qualified Successor
or such Guardian shall be exercisable, if at all, by the unanimous agreement of
such persons.
9.8 Employment shall be considered as continuing intact during any
military or sick leave or other bona fide leave of absence if the period of such
leave does not exceed ninety (90) days or, if longer, for so long as the
Optionee's right to reemployment with the Company or an Affiliate thereof is
guaranteed either by statute or by contract. If the period of such leave exceeds
ninety (90) days and his or her reemployment is not so guaranteed, then his or
her employment shall be deemed to have terminated on the ninety-first (91st) day
of such leave.
10. TERMINATION OF OPTIONS
To the extent not earlier exercised, and except as otherwise provided
in an applicable Option Agreement, an Option shall terminate at the earliest of
the following dates:
10.1 The date of termination specified for such Option in the
respective Option Agreement, regardless of whether the Optionee's employment is
terminated by reason of the Optionee's death;
10.2 One (1) year following the termination of the Optionee's
employment with the Company or with any Affiliate of the Company by reason of
the Optionee's disability (within the meaning of Section 22(e)(3) of the Code);
10.3 Ninety (90) days after the date of termination of the Optionee's
employment with the Company or any Affiliate of the Company for any reason other
than the Optionee's death or disability (as defined in Section 10.2 above);
10.4 The date of any sale, transfer or hypothecation, or any attempted
sale, transfer or hypothecation of an option in violation of Section 10.1 above;
or
10.5 The date specified in Section 11.3 below for such termination in
the event of a Terminating Event.
11. ADJUSTMENTS TO OPTIONS
9
<PAGE>
11.1 If there is a material alteration in the capital structure of the
Company on account of a reorganization, merger, recapitalization, exchange of
shares, stock split, reverse stock split, stock dividend, or otherwise, the
Administrative Committee shall make such adjustments to this Plan and to the
Options then outstanding under this Plan as the Administrative Committee
determines to be appropriate and equitable under the circumstances so that the
proportionate interest of that holder of any such outstanding Option shall, to
the extent practicable, be maintained as before the occurrence of such event.
Such adjustments may include, without limitation, (a) a change in the number or
kind of shares of stock of the Company covered by the Options, and/or (b) a
change in the Option Price payable per share; PROVIDED, HOWEVER, that the
aggregate Option Price applicable to the unexercised portion of existing Options
shall not be altered, it being intended that any adjustments made with respect
to such Options shall apply only to the price per share and the number of shares
subject thereto. For purposes of this Section 11.1, neither (i) the issuance of
additional shares of stock of the Company in exchange for adequate consideration
(including services), nor (ii) the conversion of preferred shares of the Company
or any other instrument convertible into Common Stock, shall be deemed material
alterations of the capital structure of the Company.
11.2 Subject to the giving of notice pursuant to Section 11.3, all
Options granted under the Plan shall terminate upon the earlier of the
occurrence of (a) the dissolution or liquidation of the Company; (b) a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which, immediately following such reorganization,
merger or consolidation, the shareholders of the Company as a group will hold
less than a majority of the outstanding capital stock of the surviving
corporation, including such reorganizations, mergers or consolidations where the
Company will not be the surviving corporation; (c) the sale of all or
substantially all of the assets of the Company; or (d) upon the occurrence of an
event whereby any person or entity, including any "beneficial owner" as defined
or used in Section 13(d)(3) of the 1934 Act, acquires Common Stock representing
fifty percent (50%) or more of the combined voting power of the voting
securities of the Company (collectively the "Terminating Events" and
individually a "Terminating Event").
11.3 The Company shall give notice to Optionees not less than thirty
(30) days prior to the consummation of a Terminating Event as defined in Section
11.2 above, whereupon each Optionee shall have the right for a period of thirty
(30) days following the notice to exercise in full or in part any unexercised or
unexpired Options then held by the Optionee, without regard to any contingent
vesting provision to which the Options may have otherwise been subject pursuant
to Section 6.1.6 above. Any Options not exercised as of the expiration of this
thirty (30) day period shall immediately terminate without any further action by
the Company or the Administrative Committee.
11.4 Adjustments and determinations under this Section 11 shall be
made by the Administrative Committee (upon the advice of counsel), whose
decisions as to what adjustments or determinations shall be made, and the extent
thereof, shall be final, binding, and conclusive.
12. TERMINATION AND AMENDMENT
10
<PAGE>
12.1 Unless earlier terminated as provided below, the Plan shall
terminate on and no Option shall be granted under the Plan ten (10) years after
the Effective Date of the Plan, as defined in Section 16 below.
12.2 The Board may at any time terminate, suspend or amend the terms
of the Plan. Except as provided in Section 11 above, however, the Board may not
take any of the following actions without obtaining, within 12 months before or
after the Board adopts a resolution authorizing any such actions, the approval
of the affirmative votes of the majority of the shares of Common Stock of the
Company present, or represented by proxy, and entitled to vote at a meeting duly
held in accordance with applicable laws of the State of Oregon:
12.2.1 Materially increase the number of shares in the aggregate
which may be made the subject of Options granted under the Plan;
12.2.2 Materially modify the eligibility requirements under the
Plan or change the designation or the class of employees eligible to
receive ISOs under the Plan;
12.2.3 Materially increase the benefits accruing to participants
under the Plan; or
12.2.4 Make any change in the terms of the Plan which would cause
the ISOs granted hereunder to lose their qualification as incentive stock
options under Section 422 of the Code.
12.2.5 Extend the termination date of the Plan past the date
specified in Section 12.1 above.
12.3 Notwithstanding the above, the Administrative Committee may grant
to an Optionee, if such Optionee is otherwise eligible, additional Options or,
with the consent of the Optionee, may grant a new option in lieu of an
outstanding Option, for a number of shares, at an Option Price and for a term
which is greater or less than that of the earlier Option, subject to the
limitations hereof.
12.4 No Option may be granted during any suspension or after
termination of the Plan. Amendment, suspension or termination of the Plan shall
not, without the consent of the Optionee, alter or impair any rights or
obligations under any outstanding Option.
13. CONVERSION OF ISOS INTO NSOS
At the written request of any ISO Optionee, the Administrative
Committee, in its discretion, may, at any time prior to the expiration of such
Optionee's ISOS, take any actions as may be necessary to convert all or any
portion of the unexercised shares covered by such Optionee's ISO into NSOs
regardless of whether the Optionee is an officer, employee, director, agent,
consultant or independent contractor of the Company or of any Affiliate of the
11
<PAGE>
Company at the time of such conversion. Subject to the limitations set forth in
this Plan, such actions may include, without limitation, extending the exercise
period or reducing the exercise price of the shares then subject to such ISOs.
At the time of such conversion, the Administrative Committee, with the consent
of the Optionee, may impose such conditions on the exercise of the resulting
NSOs as it deems appropriate, and no such conversion shall occur until and
unless the Administrative Committee takes appropriate action. The Administrative
Committee, with the consent of the Optionee, may also terminate any portion of
any ISO that has not been exercised at the time of such conversion.
14. CONDITIONS UPON ISSUANCE OF SHARES
14.1 Shares shall not be issued pursuant to the exercise of any Option
unless the exercise of such Option and the issuance and delivery of the shares
pursuant thereto shall comply with all relevant provisions of law, including
without limitation, the Securities Act of 1933, as amended (the "1933 Act"), the
1934 Act, all applicable state securities law, and the rules and regulations
promulgated thereunder, and the requirements of any stock exchange or automatic
quotation system upon which the shares may then be listed or otherwise traded,
and such compliance has been confirmed by counsel for the Company.
14.2 The Company's inability to obtain authority from any regulatory
body having jurisdiction over the issuance and delivery of the shares pursuant
to the exercise of Options, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any shares of Common Stock
hereunder, shall relieve the Company of any liability with respect to the
failure to issue or sell such shares.
15. MISCELLANEOUS PROVISIONS
15.1 Nothing contained in this Plan shall obligate the Company to
employ an Optionee or retain an Optionee as an officer, employee, director,
agent, consultant or independent contractor for any period, nor shall this Plan
interfere in any way with the right of the Company to reduce the Optionee's
compensation.
15.2 The provisions of this Plan, each Option issued to an Optionee
hereunder, and the agreement evidencing the Option shall be binding upon such
Optionee, the Qualified Successor of such Optionee, and the heirs, successors,
and assigns of such Optionee.
15.3 Where the context so requires, references to the singular shall
include the plural, and vice versa, and references to a particular gender shall
include either or both additional genders.
15.4 This Plan shall be construed, administered and enforced in
accordance with the laws of the United States, to the extent applicable hereto,
as well as the laws of the State of Oregon.
12
<PAGE>
15.5 Proceeds from the sale of stock pursuant to the Options granted
and exercised under the Plan shall constitute general funds of the Company and
shall be used for general corporate purposes.
15.6 All notices, requests, demands and other communications required
or permitted to be given under this Plan and the Options granted pursuant to
this Plan shall be in writing and shall be either served personally on the party
to whom notice is to be given (in which case notice shall be deemed to have been
duly given on the date of such service), or mailed to the party to whom notice
is to be given, by first class mail, registered or certified, return receipt
requested, postage prepaid, and addressed to the party at his or her or its most
recent known address, in which case such notice shall be deemed to have been
duly given on the third (3rd) postal delivery day following the date of such
mailing.
15.7 The participants shall be under no obligation to exercise Options
granted under this Plan.
16. EFFECTIVE DATE OF PLAN
16.1 The effective Date of the Plan is January 2, 1992 (the "Effective
Date"), the date on which the shareholders approved the Prior Plan. Any
amendment to the Plan shall be effective upon adoption of a resolution of the
Board approving such amendment; provided, however, that if such approval is
necessary, no such amendment shall be effective unless approved by holders of a
majority of the Company's outstanding voting shares within twelve (12) months
before or after the date the Plan is adopted or amended by the Board, whichever
is the latest to occur.
16.2 This Plan shall replace and supersede the Prior Plan and all
options granted under the Prior Plan shall be deemed to have been granted under
this Plan and shall be subject to the terms and conditions set forth herein.
13
EXHIBIT 10.8
SUMMARY OF INCENTIVE COMPENSATION
PAYABLE TO THE CHIEF EXECUTIVE OFFICER
OF
GARDENBURGER, INC.
The Board of Directors of Gardenburger, Inc., has authorized a one-time
payment of $500,000 to Lyle G. Hubbard, to be paid upon the closing of the sale
of the Company on terms approved by a majority of the persons who were serving
as directors in August 1999, and pursuant to which all shareholders are treated
equally, provided that Mr. Hubbard continues to be employed as Chief Executive
Officer through the date of sale.
EXHIBIT 10.9
- --------------------------------------------------------------------------------
BANK OF AMERICA NT & SA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 1 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 1 (the "Amendment") dated as of May 21, 1999, 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 14, 1999.
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 8.8 of the Agreement, the amount "Five Million
Dollars ($5,000,000)" is substituted for the amount "Four
Million Dollars ($4,000,000)".
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 stated at the beginning of
this Amendment.
BANK OF AMERICA NT & SA GARDENBURGER, INC.
X /s/Edward R. Kluss X /s/Richard C. Dietz
------------------------------- ----------------------------------
BY: EDWARD R. KLUSS BY: RICHARD C. DIETZ
TITLE: VICE PRESIDENT TITLE: EXECUTIVE VP & CFO
-1-
EXHIBIT 10.10
- --------------------------------------------------------------------------------
BANK OF AMERICA NT & SA AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO. 2 TO BUSINESS LOAN
AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of July 9, 1999, 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 14, 1999, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this Amendment shall
have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 In Paragraph 8.8 of the Agreement, the amount "Four Million
Dollars ($4,000,000)" is substituted for the amount "Five
Million Dollars ($5,000,000)".
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 stated at the beginning of
this Amendment.
BANK OF AMERICA NT & SA GARDENBURGER, INC.
X /s/Edward R. Kluss X /s/Richard C. Dietz
------------------------------- --------------------------------
BY: EDWARD R. KLUSS BY: RICHARD C. DIETZ
TITLE: VICE PRESIDENT TITLE: EXECUTIVE VP & CFO
-1-
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,866
<SECURITIES> 0
<RECEIVABLES> 11,573
<ALLOWANCES> 258
<INVENTORY> 13,157
<CURRENT-ASSETS> 43,113
<PP&E> 14,112
<DEPRECIATION> 3,508
<TOTAL-ASSETS> 60,303
<CURRENT-LIABILITIES> 19,097
<BONDS> 22,105
31,058
0
<COMMON> 10,619
<OTHER-SE> (15,678)
<TOTAL-LIABILITY-AND-EQUITY> 60,303
<SALES> 35,791
<TOTAL-REVENUES> 35,791
<CGS> 20,404
<TOTAL-COSTS> 20,404
<OTHER-EXPENSES> 39,374
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 1,149
<INCOME-PRETAX> (24,982)
<INCOME-TAX> (8,987)
<INCOME-CONTINUING> (16,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,884)
<EPS-BASIC> (1.92)
<EPS-DILUTED> (1.92)
</TABLE>
