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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 DECEMBER 31, 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 8,850,451
(Class) (Outstanding at February 4, 2000)
================================================================================
<PAGE>
GARDENBURGER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - December 31, 1999 and
September 30, 1999 2
Statements of Operations - Quarters Ended
December 31, 1999 and 1998 3
Statements of Cash Flows - Quarters Ended
December 31, 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 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)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
----------------- ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,505 $ 7,033
Accounts receivable, net of allowances of
$321 and $301 7,826 6,133
Inventories, net 9,932 7,268
Prepaid expenses 2,046 2,207
Deferred income taxes 4,522 4,775
----------------- ------------------
Total Current Assets 26,831 27,416
Property, Plant and Equipment, net of accumulated
depreciation of $4,428 and $3,960 8,459 10,275
Deferred Income Taxes 12,692 12,691
Other Assets, net of accumulated amortization of
$904 and $804 2,238 2,320
----------------- ------------------
Total Assets $ 50,220 $ 52,702
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Short-term note payable $ 3,500 $ 5,000
Accounts payable 5,191 6,669
Payroll and related liabilities payable 1,481 941
Other current liabilities 2,512 3,065
----------------- ------------------
Total Current Liabilities 12,684 15,675
Other Long-Term Liabilities 190 199
Convertible Notes Payable 15,000 15,000
Convertible Redeemable Preferred Stock 33,239 32,147
Shareholders' Equity (Deficit):
Preferred Stock, no par value, 5,000,000 shares
authorized - -
Common Stock, no par value, 25,000,000 shares
authorized; shares issued and outstanding:
8,850,451 and 8,841,451 10,691 10,619
Additional paid-in capital 12,405 4,277
Retained deficit (33,989) (25,215)
----------------- ------------------
Total Shareholders' Equity (Deficit) (10,893) (10,319)
----------------- ------------------
Total Liabilities and Shareholders' Equity (Deficit) $ 50,220 $ 52,702
================= ==================
</TABLE>
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>
For the three months ended December 31,
-----------------------------------------
1999 1998
-------------------- ------------------
<S> <C> <C>
Net sales $ 18,750 $ 28,711
Cost of goods sold 8,781 13,807
-------------------- ------------------
Gross margin 9,969 14,904
Operating expenses:
Sales and marketing 6,885 12,291
General and administrative 2,013 1,579
-------------------- ------------------
8,898 13,870
-------------------- ------------------
Operating income 1,071 1,034
Other income (expense):
Interest income 55 20
Interest expense (404) (539)
Other, net (18) (13)
-------------------- ------------------
(367) (532)
-------------------- ------------------
Income before provision for income taxes 704 502
Provision for income taxes 260 182
-------------------- ------------------
Income before preferred dividends 444 320
Preferred dividends 9,216 -
-------------------- ------------------
Net income (loss) available for common shareholders $ (8,772) $ 320
==================== ==================
Net income (loss) per share - basic $ (0.99) $ 0.04
==================== ==================
Shares used in per share calculations - basic 8,849 8,717
==================== ==================
Net income (loss) per share - diluted $ (0.99) $ 0.03
==================== ==================
Shares used in per share calculations - diluted 8,849 9,608
==================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31,
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Income before preferred dividends $ 444 $ 320
Effect of exchange rate on operating accounts (1) (9)
Adjustments to reconcile income before preferred dividends to
net cash flows provided by (used in) operating activities:
Deferred income taxes 252 122
Depreciation and amortization 593 562
Other non-cash (income) expense (9) 415
(Gain) loss on sale of property and equipment 29 (10)
(Increase) decrease in:
Accounts receivable, net (1,693) (2,307)
Inventories, net (2,664) (4,084)
Prepaid expenses 161 (643)
Income taxes receivable - 400
Increase (decrease) in:
Accounts payable (1,478) 4,655
Payroll and related liabilities payable 540 999
Other current liabilities (553) (402)
------------------- -------------------
Net cash provided by (used in) operating activities (4,379) 18
Cash flows from investing activities:
Payments for purchase of property and equipment (197) (5,744)
Proceeds from sale of property and equipment 1,491 5,351
Other assets, net (18) (20)
------------------- -------------------
Net cash provided by (used in) investing activities 1,276 (413)
Cash flows from financing activities:
Proceeds from (payments on) line of credit (1,500) (400)
Financing fees related to issuance of convertible notes payable - (88)
Proceeds from exercise of common stock options 72 143
Income tax benefit of non-qualified stock option exercises
and disqualifying dispositions 3 31
------------------- -------------------
Net cash used in financing activities (1,425) (314)
------------------- -------------------
Decrease in cash and cash equivalents (4,528) (709)
Cash and cash equivalents:
Beginning of period 7,033 3,029
------------------- -------------------
End of period $ 2,505 $ 2,320
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GARDENBURGER, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS OR AS OTHERWISE INDICATED)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
- ------------------------------
The financial information included herein for the quarterly periods ended
December 31, 1999 and 1998 and the financial information as of December 31, 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 September 30, 1999 is derived from Gardenburger, Inc.'s (the Company's) 1999
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 1999 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.
DECEMBER 31, SEPTEMBER 30,
1999 1999
-------------- -------------
Raw materials $3,242 $2,672
Packaging and supplies 556 538
Finished goods 6,134 4,058
-------------- -------------
$9,932 $7,268
============== =============
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH ACTIVITY
- ----------------------------------------------------------------
Supplemental disclosure of cash flow information and non-cash activity is as
follows:
QUARTERLY PERIODS ENDED
DECEMBER 31,
-----------------------
1999 1998
-------- --------
Cash paid during the period for income taxes $ 5 $ 1
Cash paid during the period for interest 83 222
Issuance of Common Stock in lieu of cash payment
of interest expense on Convertible Notes - 525
Non-cash preferred dividends 9,216 -
5
<PAGE>
NOTE 4. EARNINGS PER SHARE
- ---------------------------
Basic earnings per share ("EPS") and diluted EPS are the same for the period
ended December 31, 1999 since the Company was in a loss position. The difference
between the number of shares used for the basic and diluted EPS calculations for
the period ended December 31, 1998 relates to outstanding stock options.
Potentially dilutive securities that are not included in the diluted EPS
calculation because they would be antidilutive are as follows:
DECEMBER 31,
-----------------------------------------
1999 1998
---------------- ---------------
Stock options 3,206 2,768
Convertible notes 1,305 1,163
Convertible preferred stock 4,063 -
---------------- ---------------
Total 8,574 3,931
================ ===============
NOTE 5. LINE OF CREDIT
- -----------------------
In December 1999, the Company entered into a Loan and Security Agreement with
Banc Of America Commercial Finance Corporation (the "Agreement"). The Agreement
provides for a line of credit of up to $25.0 million (assuming 30 percent
participation by another lender) and expires on December 23, 2002. The interest
rate on the line is prime plus 0.125%, 8.625 at December 31, 1999. The Company
had $3.5 million outstanding under this line at December 31, 1999. There is one
financial covenant under the Agreement as follows: the Company must not have a
cumulative cash loss in excess of $5.0 million from the origination date of the
Agreement through the expiration date of the Agreement. At December 31, 1999,
the Company was in compliance with this covenant.
NOTE 6. CONVERTIBLE REDEEMABLE PREFERRED STOCK
- -----------------------------------------------
The Company did not meet its performance targets for the twelve months ended
December 31, 1999 as specified in the terms of the Series B Convertible
Preferred Stock and therefore was required to reset the conversion price of the
Series B shares to $3.75 per share from $10.00 per share, effectively increasing
the number of shares of common stock into which the Series B shares are
convertible from 487 to 1,300. As a result, the Company recorded a non-cash
preferred dividend charge of $8.1 million. This charge was credited to
additional paid-in capital.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
Net sales decreased 34.7 percent to $18.8 million for the first quarter of
fiscal 2000 from $28.7 million for the quarter ended December 31, 1998, herein
referred to as the first quarter of fiscal 1999. The decrease is primarily
related to strong December 1998 sales as customers, especially in the grocery
channel, stocked up on product in anticipation of extensive January 1999
consumer promotions. In addition, the entire category declined slightly
beginning in the summer of 1999 and continuing through the calendar fourth
quarter of 1999. The Company continues to have the number one share position
within all channels within which it does business. According to AC Nielsen data,
for the week ending January 8, 2000, the Company's market share was 54.5
percent.
Gross margin decreased to $10.0 million, or 53.2 percent of net sales, for the
first quarter of fiscal 2000 compared to $14.9 million, or 51.9 percent of net
sales, for the first quarter of fiscal 1999. The increase in the gross margin
percentage is primarily a result of the second production line at the Company's
Clearfield plant being fully on-line as well as the Company's successful efforts
to reduce finished goods inventories during the second and third calendar
quarters of 1999, resulting in production efficiencies in the first quarter of
fiscal 2000. The Company also gained margin percentage during the quarter due to
favorable cheese prices. The Company does not expect cheese prices to remain as
favorable in the future.
Sales and marketing expenses decreased to $6.9 million (36.7 percent of net
sales) for the first quarter of fiscal 2000 from $12.3 million (42.8 percent of
net sales) for the first quarter of fiscal 1999. The Company has reduced its
sales and marketing expenditures as it moves to a more profit driven business
model in fiscal 2000 from its more aggressive media advertising model in fiscal
1999. The Company has significantly reduced its discretionary marketing expenses
and is focusing its marketing spending on areas that can more efficiently
maintain its strong market position, especially within the grocery channel.
General and administrative expenses increased to $2.0 million (10.7 percent of
net sales) for the first quarter of fiscal 2000 compared to $1.6 million (5.5
percent of net sales) for the first quarter of fiscal 1999, primarily as a
result of increased depreciation expense related to the Company's new
information system, profit sharing accruals in the first quarter of fiscal 2000
that did not occur in the first quarter of fiscal 1999, and certain one-time
costs related to new strategic initiatives.
Operating income was $1.1 million for the first quarter of fiscal 2000 compared
to $1.0 million for the first quarter of fiscal 1999, primarily as a result of a
higher gross margin percentage and lower sales and marketing expenses, offset by
lower sales, as discussed above.
Interest expense was $404,000 in the first quarter of fiscal 2000 compared to
$539,000 in the first quarter of fiscal 1999 as a result of lower average
balances outstanding on the Company's line of credit.
7
<PAGE>
Income taxes are based on an estimated rate of 36.9 percent for the quarter
ended December 31, 1999 compared to the 35.8 percent rate used for fiscal 1999.
Preferred dividends were $9.2 million in the first quarter of fiscal 2000
compared to zero in the first quarter of fiscal 1999. In April 1999, the Company
issued $32.5 million of Series A and Series B convertible preferred stock that
is entitled to a 12% cumulative annual dividend, resulting in a non-cash
quarterly dividend charge of $975,000. In addition, the $2.3 million of related
issuance costs are being accreted over five years, the life of the preferred
stock, and total approximately $117,000 per quarter. Also, in the first quarter
of fiscal 2000, due to an adjustment in the Series B conversion price to $3.75
per share from $10.00 per share, the Company recorded a non-cash charge of $8.1
million related to the implied value of the beneficial conversion feature.
Net loss available for common shareholders was $8.8 million for the first
quarter of fiscal 2000 compared to net income available for common shareholders
of $320,000 for the first quarter of fiscal 1999, as a result of the non-cash
preferred dividends charge in the first quarter of fiscal 2000 as discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 working capital was $14.1 million, including $2.5 million
of cash and cash equivalents. In the first quarter of fiscal 2000, working
capital increased by $2.4 million compared to September 30, 1999 and the current
ratio increased to 2.1:1 from 1.7:1.
Cash and cash equivalents decreased $4.5 million from September 30, 1999,
primarily due to $4.4 million used in operations and $1.5 million used for
payment on the Company's line of credit, offset by $1.5 million in proceeds from
the sale of property.
Accounts receivable increased $1.7 million to $7.8 million at December 31, 1999
from $6.1 million at September 30, 1999. Days sales outstanding increased to 34
days at December 31, 1999 from 32 days at September 30, 1999.
Inventories increased $2.7 million to $9.9 million at December 31, 1999 from
$7.3 million at September 30, 1999 in order to take advantage of favorable
cheese prices in the first quarter of fiscal 2000 and to ensure adequate
quantities going into calendar 2000. Inventory turned 4.1 times on an annualized
basis for the first quarter of fiscal 2000 compared to 5.3 times on an
annualized basis for the first quarter of fiscal 1999.
Accounts payable decreased $1.5 million to $5.2 million at December 31, 1999
from $6.7 million at September 30, 1999, primarily as a result of production
being curtailed at the end of December 1999 and the timing of payments made.
Payroll and related liabilities increased $540,000 to $1.5 million from $0.9
million primarily as a result of accrued profit sharing in the first quarter of
fiscal 2000 that did not occur in the first quarter of fiscal 1999.
Capital expenditures of $197,000 during the first quarter of fiscal 2000
primarily resulted from expenditures for the Company's information systems.
Capital expenditures are estimated to total approximately $2.4 million for
fiscal 2000, primarily for information systems infrastructure and production
equipment.
8
<PAGE>
Additional paid-in capital increased $8.1 million to $12.4 million from $4.2
million as a result of the $8.1 million related to the implied value of the
beneficial conversion feature of the Series B convertible preferred stock.
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
March 27, 2000. The conversion price of the Notes at December 31, 1999 was
$11.49 per share, as adjusted to reflect the issuance of convertible preferred
stock and the adjustment of the conversion price of the Company's Series B
convertible preferred stock, as well as stock option grants. Under the terms of
the Note Purchase Agreement, as amended, relating to the Notes, the Company must
comply with the following financial covenant:
The Company must not have a cumulative cash loss in excess of $5.0
million from December 23, 1999 through December 23, 2002.
At December 31, 1999, the Company was in compliance with this covenant.
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, and received net
proceeds of $30.2 million. At December 31, 1999, the Series A preferred shares
were convertible at a price of $10 per share and the Series B preferred shares
were convertible at $3.75 per share (subject to antidilution adjustments) at any
time following issuance at the discretion of the holder. The Company did not
meet certain performance targets for the twelve months ended December 31, 1999
specified in the terms of the Series B convertible preferred stock, triggering
an adjustment in the Series B conversion price to $3.75 per share from $10.00
per share. As a result of the adjustment, the Company recorded an approximately
$8.1 million non-cash charge for additional preferred dividends to account for
the implied value of the beneficial conversion feature. 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. The redemption value of
the Series A and Series B convertible preferred stock is $27.6 million and $4.9
million, respectively. The difference between the carrying amount and the
redemption value of the convertible preferred stock is being accreted as
additional preferred dividends over the period until redemption.
9
<PAGE>
In December 1999, the Company entered into a Loan and Security Agreement with
Banc Of America Commercial Finance Corporation (the "Agreement"). The Agreement
provides for a line of credit of up to $25.0 million (assuming 30 percent
participation by another lender) and expires on December 23, 2002. The interest
rate on the line is prime plus 0.125%, 8.625 at December 31, 1999. The Company
had $3.5 million outstanding under this line at December 31, 1999. There is one
financial covenant under the Agreement as follows: the Company must not have a
cumulative cash loss in excess of $5.0 million from the origination date of the
Agreement through the expiration date of the Agreement. At December 31, 1999,
the Company was in compliance with this covenant.
The Company leases various food processing, production and other equipment in
use at its Clearfield, Utah production facility pursuant to two lease agreements
between the Company and BA Leasing & Capital Corporation ("BA Capital"), an
affiliate of Bank of America. Each lease agreement contains a cross-default
provision stating that any default under any other borrowing or credit agreement
that includes a failure to make payment when due or gives the holder a right of
acceleration constitutes an event of default under each lease agreement. If any
event of default by the Company occurred under the lease agreements with BA
Capital, the Company's manufacturing capacity would be significantly curtailed
or even eliminated if BA Capital were to exercise its right to sell the
equipment. In addition, neither lease agreement contains express provisions
giving the Company a right to purchase the equipment at the end of the lease
term, which terms range from five to seven years, depending upon the equipment.
YEAR 2000
The Company has not experienced any significant year 2000 problems related to
its systems, production equipment, suppliers or customer base. The Company
incurred a total of approximately $20,000 to prepare for year 2000 issues. The
Company also scheduled work and projects so that an interruption of either the
information system or production would not cause a work stoppage. No
interruptions or work stoppages occurred.
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.
10
<PAGE>
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 December 31, 1999, the Company had $3.5 million
outstanding under this credit line at an annual interest rate of 8.625 percent.
A hypothetical 10 percent change in interest rates would not have a material
impact on the Company's cash flows.
PART II - OTHER INFORMATION
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.
----------
10.1 Loan and Security Agreement dated December 23, 1999 between
Banc of America Commercial Finance Corporation through its
Commercial Funding Division and the Company.
10.2 First Amendment dated December 30, 1999 to Note Purchase
Agreement dated March 27, 1998 between Dresdner Kleinwort
Benson Private Equity Partners LP and the Company.
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
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: February 9, 2000 GARDENBURGER, INC.
By: /s/LYLE G. HUBBARD
-------------------------------------------
Lyle G. Hubbard
Director, President and Chief Executive Officer
(Principal Executive Officer)
By: /s/LORRAINE CRAWFORD
-------------------------------------------
Lorraine Crawford
Corporate Controller and Acting Chief
Financial Officer
(Principal Accounting Officer)
12
BANC OF AMERICA COMMERCIAL FUNDING
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (as it may be amended, this
"AGREEMENT") is entered into as of December 23, 1999 between BANC OF AMERICA
COMMERCIAL FINANCE CORPORATION THROUGH ITS COMMERCIAL FUNDING DIVISION,
("LENDER"), having an address at 1177 Avenue of the Americas, 36th Floor, New
York, New York 10036 and GARDENBURGER, INC. ("BORROWER"), whose chief executive
office is located at 1411 SW Morrison Street, Suite 400, Portland, Oregon 97205
("BORROWER'S ADDRESS"). The Schedules to this Agreement are an integral part of
this Agreement and are incorporated herein by reference. Terms used, but not
defined elsewhere, in this Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 AMOUNT. Subject to the terms and conditions contained in this Agreement,
Lender will:
(a) REVOLVING LOANS AND CREDIT ACCOMMODATIONS. From time to time during the Term
at Borrower's request, make revolving loans to Borrower ("REVOLVING LOANS"),
(PROVIDED HOWEVER, Lender shall not make such revolving loans nor the Trademark
Term Loan Advance, as set forth in Section 1 (h) of Schedule A, in excess of
$5,000,000 in the aggregate until Borrower has first used all of its cash on
hand) and make letters of credit, bankers acceptances and other credit
accommodations ("CREDIT ACCOMMODATIONS") available to Borrower, in each case to
the extent that there is sufficient Availability at the time of such request to
cover, dollar for dollar, the requested Revolving Loan or Credit Accommodation;
PROVIDED FURTHER, that after giving effect to such Revolving Loan or Credit
Accommodation, (x) the outstanding balance of all monetary Obligations
(INCLUDING the principal balance of any Term Loan and, solely for the purpose of
determining compliance with this provision, the Credit Accommodation Balance)
will not exceed the Maximum Facility Amount set forth in Section 1(a) of
Schedule A and (y) none of the other Loan Limits set forth in Section 1 of
Schedule A will be exceeded. For this purpose, "AVAILABILITY" means:
(i) the aggregate amount of Eligible Accounts (less maximum existing or asserted
taxes, discounts, credits and allowances) multiplied by the Accounts Advance
Rate set forth in Section 1(b)(i) of Schedule A but not to exceed the Accounts
Sublimit set forth in Section 1(c) of Schedule A;
PLUS
(ii) the lower of cost or market value of Eligible Inventory multiplied by the
Inventory Advance Rate(s) set forth in Section 1(b)(ii) of Schedule A, but not
to exceed the Inventory Sublimit(s) set forth in Section 1(d) of Schedule A;
MINUS
(iii) all Reserves which Lender has established pursuant to Section 1.2
(including those to be established in connection with the requested Revolving
Loan or Credit Accommodation);
<PAGE>
BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
MINUS
(iv) the outstanding balance of all of the monetary Obligations (EXCLUDING the
Credit Accommodation Balance and the principal balance of the Term Loan); and
PLUS
(v) the Overadvance Amount, if any, set forth in Section 1(g) of Schedule A.
(b) TERM LOAN. On the date of this Agreement, make (i) an advance to Borrower
computed with respect to the value of Borrower's Eligible Equipment (the
"EQUIPMENT ADVANCE") in the principal amount, if any, set forth in Section
2(a)(i) of Schedule A, (ii) an advance to Borrower computed with respect to the
value of Borrower's Eligible Real Property (the "REAL PROPERTY ADVANCE") in the
principal amount, if any, set forth in Section 2(a)(ii) of Schedule A, and the
Trademark Term Loan Advance set forth in Section 2(a)(iii) of Schedule A. The
Equipment Advance , the Real Property Advance and the Trademark Term Loan
Advance are collectively referred to as the "TERM LOAN."
1.2 RESERVES. Lender may from time to time establish and revise such reserves as
Lender deems appropriate in its reasonable credit judgment ("RESERVES") to
reflect (i) events, conditions, contingencies or risks which affect or may
affect (A) the Collateral or its value, or the security interests and other
rights of Lender in the Collateral or (B) the assets, business or prospects of
Borrower or any Obligor, (ii) Lender's good faith concern that any Collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect, (iii) any fact or circumstance which Lender determines in
good faith constitutes, or could constitute, a Default or Event of Default or
(iv) any other events or circumstances which Lender determines in good faith
make the establishment or revision of a Reserve prudent. Without limiting the
foregoing, Lender shall (x) in the case of each Credit Accommodation issued for
the purchase of Inventory (a) which meets the criteria for Eligible Inventory
set forth in clauses (i), (ii), (iii), (v) and (vi) of the definition of
Eligible Inventory, (b) which is or will be in transit to one of the locations
set forth in Section 9(d) of Schedule A, (c) which is fully insured in a manner
satisfactory to Lender and (d) with respect to which Lender is in possession of
all bills of lading and all other documentation which Lender has requested, all
in form and substance satisfactory to Lender in its sole discretion, establish a
Reserve equal to the cost of such Inventory (plus all duties, freight, taxes,
insurance, costs and other charges and expenses relating to such Credit
Accommodation or such Eligible Inventory) multiplied by a percentage equal to
100% minus the Inventory Advance Rate applicable to Eligible Inventory and (y)
in the case of any other Credit Accommodation issued for any purpose, establish
a Reserve equal to the full amount of such Credit Accommodation plus all costs
and other charges and expenses relating to such Credit Accommodation. In
addition, (x) Lender shall establish a permanent Reserve in the amount set forth
in Section 1(f) of Schedule A, and (y) if the outstanding principal balance of
the Term Loan advance with respect to Eligible Equipment exceeds the percentage
set forth in Section 2(a)(i) of Schedule A of the appraised value of such
Eligible Equipment, Lender may establish an additional Reserve in the amount of
such excess (and, for this purpose, if payments of principal on the Term Loan
advances against Eligible Equipment and Real Property are not calculated
separately, payments of principal of the Term Loan made by Borrower shall be
deemed to apply to the Term Loan advance with respect to Eligible Equipment and
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Real Property, respectively, in proportion to the original principal amounts of
such advances). Lender may, in its reasonable credit judgment, establish and
revise Reserves by deducting them in determining Availability or by
reclassifying Eligible Accounts or Eligible Inventory as ineligible. In no event
shall the establishment of a Reserve in respect of a particular actual or
contingent liability obligate Lender to make advances hereunder to pay such
liability or otherwise obligate Lender with respect thereto.
1.3 OTHER PROVISIONS APPLICABLE TO CREDIT ACCOMMODATIONS. Lender may, in its
sole discretion and on terms and conditions acceptable to Lender, make Credit
Accommodations available to Borrower either by issuing them, or by causing other
financial institutions to issue them supported by Lender's guaranty or
indemnification; PROVIDED, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Borrower agrees to execute
all documentation required by Lender or the issuer of any Credit Accommodation
in connection with any such Credit Accommodation.
1.4 REPAYMENT. Accrued interest on all monetary Obligations shall be payable on
the first day of each month. Principal of the Term Loan shall be repaid as set
forth in Section 2(b) of Schedule A. If at any time any of the Loan Limits are
exceeded, Borrower will immediately pay to Lender such amounts (or provide cash
collateral to Lender with respect to the Credit Accommodation Balance in the
manner set forth in Section 7.3), as shall cause Borrower to be in full
compliance with all of the Loan Limits. Notwithstanding the foregoing, Lender
may, in its sole discretion, make or permit Revolving Loans, the Term Loan, any
Credit Accommodations or any other monetary Obligations to be in excess of any
of the Loan Limits; PROVIDED, that Borrower shall, upon Lender's demand, pay to
Lender such amounts as shall cause Borrower to be in full compliance with all of
the Loan Limits. All unpaid monetary Obligations shall be payable in full on the
Maturity Date (as defined in Section 7.1) or, if earlier, the date of any early
termination pursuant to Section 7.2.
1.5 MINIMUM BORROWING. Subject to the terms and conditions of this Agreement,
Borrower agrees to (i) borrow sufficient amounts to cause the outstanding
principal balance of the Loans to equal or exceed, at all times prior to the
Maturity Date, the Minimum Loan Amount set forth in Section 4 of Schedule A and
(ii) maintain Availability sufficient to enable Borrower to do so. However,
Lender shall not be obligated to loan Borrower the Minimum Loan Amount other
than in accordance with all of the terms and conditions of this Agreement.
2. INTEREST AND FEES.
2.1 INTEREST. All Loans and other monetary Obligations shall bear interest at
the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
PROVIDED, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
thereto (the "DEFAULT RATE") until paid in full (notwithstanding the entry of
any judgment against Borrower or the exercise of any other right or remedy by
Lender), and all such interest shall be payable on demand. Changes in the
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Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the extent necessary to comply with applicable law and Lender will
refund to Borrower any such excess interest received by Lender.
2.2 FEES AND WARRANTS. Borrower shall pay Lender the following fees, and issue
Lender the following warrants, which are in addition to all interest and other
sums payable by Borrower to Lender under this Agreement, and are not refundable:
(a) CLOSING FEE. A closing fee in the amount set forth in Section 6(a) of
Schedule A, which shall be deemed to be fully earned as of, and payable on, the
date hereof.
(b) FACILITY FEES. (i) A facility fee for the Initial Term, which shall be fully
earned as of the date of this Agreement, and shall be payable in equal
installments in the amount set forth in Section 6(b)(i) of Schedule A on each
anniversary of this Agreement during the Initial Term, and (ii) a facility fee
for each Renewal Term, which shall be fully earned as of the first day of such
Renewal Term, and shall be payable in equal installments in the amount set forth
in Section 6(b)(ii) of Schedule A on the first day of such Renewal Term and on
each anniversary thereof during such Renewal Term.
(c) SERVICING FEE. A monthly servicing fee in the amount set forth in Section
6(c) of Schedule A, in consideration of Lender's administration and other
services for each month (or part thereof), which shall be fully earned as of,
and payable in advance on, the date of this Agreement and on the first day of
each month thereafter so long as any of the Obligations are outstanding.
(d) UNUSED LINE FEE. An unused line fee at a rate equal to the percentage per
annum set forth in Section 6(d) of Schedule A of the amount by which the Maximum
Facility Amount exceeds the average monthly outstanding principal balance of the
Loans and the Credit Accommodation Balance during the immediately preceding
month (or part thereof), which fee shall be payable, in arrears, on the first
day of each month so long as any of the Obligations are outstanding and on the
Maturity Date.
(e) MINIMUM BORROWING FEE. A minimum borrowing fee equal to the excess, if any,
of (i) interest which would have been payable in respect of each period set
forth in Section 6(e)(i) of Schedule A if, at all times during such period, the
principal balance of the Loans was equal to the Minimum Loan Amount over (ii)
the actual interest payable in respect of such period, which fee shall be fully
earned as of the last day of such period and payable on the date set forth in
Section 6(e)(ii) of Schedule A and on the Maturity Date, commencing with the
immediately following period.
(f) SUCCESS FEE. A success fee in the amount set forth in Section 6(f) of
Schedule A, which shall be fully earned as of the date of this Agreement and
payable as set forth in Section 6(f) of Schedule A.
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(g) WARRANTS. Warrants to acquire the capital stock of Borrower, as summarized
in Section 6(g) of Schedule A and as more fully set forth in a separate warrant
agreement executed by Borrower contemporaneously with this Agreement.
(h) CREDIT ACCOMMODATION FEES. All of the fees relating to Credit Accommodations
set forth in Section 6(i) of Schedule A.
2.3 COMPUTATION OF INTEREST AND FEES. All interest and fees shall be calculated
daily on the closing balances in the Loan Account based on the actual number of
days elapsed in a year of 360 days. For purposes of calculating interest and
fees, if the outstanding daily principal balance of the Revolving Loans is a
credit balance, such balance shall be deemed to be zero.
2.4 LOAN ACCOUNT; MONTHLY ACCOUNTINGS. Lender shall maintain a loan account for
Borrower reflecting all advances, charges, expenses and payments made pursuant
to this Agreement (the "LOAN ACCOUNT"), and shall provide Borrower with a
monthly accounting reflecting the activity in the Loan Account. Each accounting
shall be deemed correct, accurate and binding on Borrower and an account stated
(except for reverses and reapplications of payments made and corrections of
errors discovered by Lender), unless Borrower notifies Lender in writing to the
contrary within sixty days after such account is rendered, describing the nature
of any alleged errors or admissions. However, Lender's failure to maintain the
Loan Account or to provide any such accounting shall not affect the legality or
binding nature of any of the Obligations. Interest, fees and other monetary
Obligations due and owing under this Agreement (including fees and other amounts
paid by Lender to issuers of Credit Accommodations) may, in Lender's reasonable
discretion, be charged to the Loan Account, and will thereafter be deemed to be
Revolving Loans and will bear interest at the same rate as other Revolving
Loans.
3. SECURITY INTEREST.
3.1 To secure the full payment and performance of all of the Obligations,
Borrower hereby grants to Lender a continuing security interest in all of
Borrower's personal property and interests in personal property, whether
tangible or intangible, now owned or in existence or hereafter acquired or
arising, wherever located, including Borrower's interest in all of the
following, whether or not eligible for lending purposes: (i) all Accounts,
Chattel Paper, Instruments, Documents, Goods (including Inventory, Equipment,
farm products and consumer goods), Investment Property, General Intangibles,
Deposit Accounts and money, (ii) all proceeds and products of all of the
foregoing (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties for loss or any destruction of any of the
foregoing) and (iii) all books and records relating to any of the foregoing.
4. ADMINISTRATION.
4.1 LOCK BOXES AND BLOCKED ACCOUNTS. Borrower will, at its expense, establish
(and revise from time to time as Lender may require) collection procedures
acceptable to Lender, in Lender's reasonable discretion, for the collection of
checks, wire transfers and other proceeds of Accounts ("ACCOUNT PROCEEDS"),
which may include (i) directing all Account Debtors to send all such proceeds
directly to a post office box designated by Lender either in the name of
Borrower (but as to which Lender has exclusive access) or, at Lender's option,
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in the name of Lender (a "Lock Box"), provided that Lender shall not give any
such direction to Account Debtors unless a Default or an Event of Default has
occurred and is continuing or, absent a Default or an Event of Default, Lender
has a good faith belief that Borrower is engaging in fraudulent conduct in its
dealings with Lender, or (ii) depositing all Account Proceeds received by
Borrower into one or more bank accounts maintained in Lender's name (each, a
"BLOCKED ACCOUNT"), under an arrangement reasonably acceptable to Lender with a
depository bank acceptable to Lender, pursuant to which all funds deposited into
each Blocked Account are to be transferred to Lender in such manner, and with
such frequency, as Lender shall specify or (iii) a combination of the foregoing.
Borrower agrees to execute, and to cause its depository banks to execute, such
Lock Box and Blocked Account agreements and other documentation as Lender shall
require from time to time in connection with the foregoing.
4.2 REMITTANCE OF PROCEEDS. Except as provided in Section 4.1, all proceeds
arising from the sale or other disposition of any Collateral shall be delivered,
in kind, by Borrower to Lender in the original form in which received by
Borrower not later than the following Business Day after receipt by Borrower.
Until so delivered to Lender, Borrower shall hold such proceeds separate and
apart from Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 APPLICATION OF PAYMENTS. Lender may, in its reasonable discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations are due, and whether
before or after the occurrence of a Default or an Event of Default. For purposes
of determining Availability, such amounts will be credited to the Loan Account
and the Collateral balances to which they relate upon Lender's receipt of advice
from Lender's Bank (set forth in Section 11 of Schedule A) that such items have
been credited to Lender's account at Lender's Bank (or upon Lender's deposit
thereof at Lender's Bank in the case of payments received by Lender in kind), in
each case subject to final payment and collection. However, for purposes of
computing interest on the Obligations, such items shall be deemed applied by
Lender two Business Days after Lender's receipt of advice of deposit thereof at
Lender's Bank.
4.4 NOTIFICATION; VERIFICATION. Lender or its designee may, from time to time,
whether or not a Default or Event of Default has occurred and is continuing: (i)
verify directly with the Account Debtors the validity, amount and other matters
relating to the Accounts and Chattel Paper, by means of mail, telephone or
otherwise, either in the name of Borrower or Lender or such other name as Lender
may choose; (ii) notify Account Debtors that Lender has a security interest in
the Accounts and that payment thereof is to be made directly to Lender, but only
if a Default or an Event of Default has occurred and is continuing, or absent an
Event of Default, Lender has a good faith belief that Borrower is engaging in
fraudulent conduct in its dealings with Lender, and (iii) demand, collect or
enforce payment of any Accounts and Chattel Paper (but without any duty to do
so), subject to the same limitation as set forth in Subsection (ii) herein.
4.5 POWER OF ATTORNEY. Borrower hereby grants to Lender an irrevocable power of
attorney, coupled with an interest, authorizing and permitting Lender (acting
through any of its officers, employees, attorneys or agents), at any time after
a Default or Event of Default has occurred and is continuing, except as
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expressly provided below, at Lender's option, but without obligation, with or
without notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise: (i) whether or not a Default or
Event of Default has occurred, execute on behalf of Borrower any documents that
Lender may, in its reasonable discretion, deem advisable in order to perfect and
maintain Lender's security interests in the Collateral, to exercise a right of
Borrower or Lender, or to fully consummate all the transactions contemplated by
this Agreement and the other Loan Documents (including such financing statements
and continuation financing statements, and amendments thereto, as Lender shall
deem necessary or appropriate) and to file as a financing statement any copy of
this Agreement or any financing statement signed by Borrower; (ii) execute on
behalf of Borrower any document exercising, transferring or assigning any option
to purchase, sell or otherwise dispose of or lease (as lessor or lessee) any
real or personal property which is part of the Collateral or in which Lender has
an interest; (iii) whether or not a Default or an Event of Default has occurred
and is continuing, upon Lender's request and Borrower's refusal to promptly
execute on behalf of Borrower any draft against any Account Debtor, any proof of
claim in bankruptcy, any notice of Lien or claim, and any assignment or
satisfaction of mechanic's, materialman's or other Lien; (iv) whether or not a
Default or Event of Default has occurred and is continuing, provided Lender has
a good faith belief that Borrower is engaging in fraudulent conduct in its
dealings with Lender, execute on behalf of Borrower any notice to any Account
Debtor; (v) whether or not a Default or an Event of Default has occurred and is
continuing, receive and otherwise take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; (vi) whether or not a
Default or an Event of Default has occurred and is continuing, endorse
Borrower's name on all checks and other forms of remittances received by Lender;
(vii) pay, contest or settle any Lien, charge, encumbrance, security interest
and adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same; (viii) grant
extensions of time to pay, compromise claims relating to, and settle Accounts,
Chattel Paper and General Intangibles for less than face value and execute all
releases and other documents in connection therewith; (ix) pay any sums required
on account of Borrower's taxes or to secure the release of any Liens therefor;
(x) pay any amounts necessary to obtain, or maintain in effect, any of the
insurance described in Section 5.12; (xi) settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (xii) instruct any third party having custody or control of any
Collateral or books or records belonging to, or relating to, Borrower to give
Lender the same rights of access and other rights with respect thereto as Lender
has under this Agreement; and (xiii) change the address for delivery of
Borrower's mail and receive and open all mail addressed to Borrower. Any and all
sums paid, and any and all costs, expenses, liabilities, obligations and
reasonable attorneys' fees incurred, by Lender with respect to the foregoing
shall be added to and become part of the Obligations, shall be payable on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations. Borrower agrees that Lender's rights under
the foregoing power of attorney or any of Lender's other rights under this
Agreement or the other Loan Documents shall not be construed to indicate that
Lender is in control of the business, management or properties of Borrower.
4.6 DISPUTES. Borrower shall promptly notify Lender of all disputes or claims
relating to Accounts and Chattel Paper. Borrower will not, without Lender's
prior written consent, compromise or settle any Account or Chattel Paper for
less than the full amount thereof, grant any extension of time of payment of any
Account or Chattel Paper, release (in whole or in part) any Account Debtor or
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other person liable for the payment of any Account or Chattel Paper or grant any
credits, discounts, allowances, deductions, return authorizations or the like
with respect to any Account or Chattel Paper; except that prior to the
occurrence of an Event of Default, Borrower may take any of such actions in the
ordinary course of its business, PROVIDED that Borrower promptly reports the
same to Lender.
4.7 INVOICES. After the occurrence of a Default or an Event of Default and the
continuance thereof, at Lender's request, Borrower will cause all invoices and
statements which it sends to Account Debtors or other third parties to be
marked, in a manner satisfactory to Lender, to reflect Lender's security
interest therein.
4.8 INVENTORY. Borrower will not, without Lender's prior written consent, (i)
store any Inventory with any warehouseman or other third party other than as set
forth in Section 9(d) of Schedule A or (ii) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis. All of
the Inventory has been produced only in accordance with the Fair Labor Standards
Act of 1938 and all rules, regulations and orders promulgated thereunder.
4.9 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy Borrower's books and
records. Lender shall take reasonable steps to keep confidential all information
obtained in any such inspection or examination, but Lender shall have the right
to disclose any such information to its auditors, regulatory agencies, attorneys
and participants, and pursuant to any subpoena or other legal process. Borrower
agrees to give Lender access to any or all of Borrower's premises to enable
Lender to conduct such inspections and examinations. Such inspections and
examinations shall be at Borrower's expense and the charge therefor shall be
$750 per person per day (or such higher amount as shall represent Lender's then
current standard charge), plus reasonable out-of-pocket expenses. Lender may, at
Borrower's expense, use Borrower's personnel, computer and other equipment,
programs, printed output and computer readable media, supplies and premises for
the collection, sale or other disposition of Collateral to the extent Lender, in
its reasonable discretion, deems appropriate. Borrower hereby irrevocably
authorizes all accountants and third parties to disclose and deliver to Lender,
at Borrower's expense, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Borrower. Borrower will not enter into any agreement with any accounting firm,
service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address without first obtaining Lender's written
consent (which consent may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Lender the same rights with respect
to access to books and records and related rights as Lender has under this
Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, Borrower represents, warrants
and covenants as follows (it being understood that (i) each such representation
and warranty will be deemed remade as of the date on which each Loan is made and
each Credit Accommodation is provided and shall not be affected by any knowledge
of, or any investigation by, Lender, and (ii) the accuracy of each such
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representation, warranty and covenant will be a condition to each Loan and
Credit Accommodation):
5.1 EXISTENCE AND AUTHORITY. Borrower is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
formation. Borrower is qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement and all of the other Loan Documents have been duly and validly
authorized, do not violate Borrower's articles or certificate of incorporation,
by-laws or other organizational documents, or any law or any agreement or
instrument or any court order which is binding upon Borrower or its property, do
not constitute grounds for acceleration of any indebtedness or obligation under
any agreement or instrument which is binding upon Borrower or its property, and
do not require the consent of any Person other than Dresdner Kleinwort Benson
Private Equity Partners LP and those consents previously obtained. This
Agreement and such other Loan Documents have been duly executed and delivered
by, and are enforceable against, Borrower, and all other Obligors who have
signed them, in accordance with their respective terms. Sections 9(g) and 9(h)
of Schedule A set forth the ownership of Borrower and the names and ownership of
Borrower's Subsidiaries as of the date of this Agreement.
5.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the heading
to this Agreement is its correct and complete legal name as of the date hereof.
Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior names of
Borrower and all of Borrower's present and prior trade names. Borrower shall
give Lender at least thirty days' prior written notice before changing its name
or doing business under any other name. Borrower has complied with all laws
relating to the conduct of business under a fictitious business name. Borrower
represents and warrants that (i) each trade name does not refer to another
corporation or other legal entity; (ii) all Accounts invoiced under any such
trade names are owned exclusively by Borrower and are subject to the security
interest of Lender and the other terms of this Agreement and (iii) all schedules
of Accounts, including any sales made or services rendered using any trade name
shall show Borrower's name as assignor.
5.3 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower has good and marketable title
to the Collateral. The Collateral now is and will remain free and clear of any
and all liens, charges, security interests, encumbrances and adverse claims,
except for Permitted Liens. Lender now has, and will continue to have, a
first-priority perfected and enforceable security interest in all of the
Collateral, subject only to the Permitted Liens, and Borrower will at all times
defend Lender and the Collateral against all claims of others. None of the
Collateral which is Equipment is or will be affixed to any real property in such
a manner, or with such intent, as to become a fixture. Except for leases or
subleases as to which Borrower has delivered to Lender a landlord's waiver in
form and substance satisfactory to Lender, Borrower is not a lessee or sublessee
under any real property lease or sublease pursuant to which the lessor or
sublessor may obtain any rights in any of the Collateral, and no such lease or
sublease now prohibits, restrains, impairs or conditions, or will prohibit,
restrain, impair or condition, Borrower's right to remove any Collateral from
the premises. Whenever any Collateral is located upon premises in which any
third party has an interest (whether as owner, mortgagee, beneficiary under a
deed of trust, lien or otherwise), Borrower shall, whenever requested by Lender,
cause each such third party to execute and deliver to Lender, in form and
substance acceptable to Lender, such waivers and subordinations as Lender shall
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specify, so as to ensure that Lender's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party. Borrower will
keep in full force and effect, and will comply with all the terms of, any lease
of real property where any of the Collateral now or in the future may be
located.
5.4 ACCOUNTS AND CHATTEL PAPER. As of each date reported by Borrower, all
Accounts which Borrower has reported to Lender as being Eligible Accounts comply
in all respects with the criteria for eligibility established by Lender and in
effect at such time. All Accounts and Chattel Paper are genuine and in all
respects what they purport to be, arise out of a completed, bona fide and
unconditional and non-contingent sale and delivery of goods or rendition of
services by Borrower in the ordinary course of its business and in accordance
with the terms and conditions of all purchase orders, contracts or other
documents relating thereto, each Account Debtor thereunder had the capacity to
contract at the time any contract or other document giving rise to such Accounts
and Chattel Paper were executed, and the transactions giving rise to such
Accounts and Chattel Paper comply with all applicable laws and governmental
rules and regulations.
5.5 INVESTMENT PROPERTY. Borrower will take any and all actions required or
requested by Lender, from time to time, to (i) cause Lender to obtain exclusive
control of any Investment Property in a manner acceptable to Lender and (ii)
obtain from any issuers of Investment Property and such other Persons as Lender
shall specify, for the benefit of Lender, written confirmation of Lender's
exclusive control over such Investment Property and take such other actions as
Lender may request to perfect Lender's security interest in such Investment
Property. For purposes of this Section 5.5, Lender shall have exclusive control
of Investment Property if (A) such Investment Property consists of certificated
securities and Borrower delivers such certificated securities to Lender (with
appropriate endorsements if such certificated securities are in registered
form); (B) such Investment Property consists of uncertificated securities and
either (x) Borrower delivers such uncertificated securities to Lender or (y) the
issuer thereof agrees, pursuant to documentation in form and substance
satisfactory to Lender, that it will comply with instructions originated by
Lender without further consent by Borrower, and (C) such Investment Property
consists of security entitlements and either (x) Lender becomes the entitlement
holder thereof or (y) the appropriate securities intermediary agrees, pursuant
to documentation in form and substance satisfactory to Lender, that it will
comply with entitlement orders originated by Lender without further consent by
Borrower.
5.6 PLACE OF BUSINESS; LOCATION OF COLLATERAL. Borrower's Address is Borrower's
chief executive office and the location of its books and records. In addition,
except as provided in the immediately following sentence, Borrower has places of
business and Collateral located only at the locations set forth on Sections 9(d)
and 9(e) of Schedule A. Borrower will give Lender at least thirty days' prior
written notice before opening any additional place of business, changing its
chief executive office or the location of its books and records, or moving any
of the Collateral to a location other than Borrower's Address or one of the
locations set forth in Sections 9(d) and 9(e) of Schedule A, and will execute
and deliver all financing statements and other agreements, instruments and
documents which Lender shall require as a result thereof.
5.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
delivered to Lender by or on behalf of Borrower have been prepared in conformity
with GAAP and completely and fairly reflect the financial condition of Borrower,
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at the times and for the periods therein stated. Between the last date covered
by any such financial statement provided to Lender and the date hereof (or, with
respect to the remaking of this representation in connection with the making of
any Loan or the providing of any Credit Accommodation, the date such Loan is
made or such Credit Accommodation is provided), there has been no material
adverse change in the financial condition or business of Borrower. Borrower is
solvent and able to pay its debts as they come due, and has sufficient capital
to carry on its business as now conducted and as proposed to be conducted. All
schedules, reports and other information and documentation delivered by Borrower
to Lender with respect to the Collateral are, or will be, when delivered, true,
correct and complete as of the date delivered or the date specified therein.
5.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely filed
all tax returns and reports required by applicable law, has timely paid all
applicable taxes, assessments, deposits and contributions owing by Borrower and
will timely pay all such items in the future as they became due and payable.
Borrower may, however, defer payment of any contested taxes; PROVIDED, that
Borrower (i) in good faith contests Borrower's obligation to pay such taxes by
appropriate proceedings promptly and diligently instituted and conducted; (ii)
notifies Lender in writing of the commencement of, and any material development
in, the proceedings; (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a Lien upon any of the Collateral and (iv)
maintains adequate reserves therefor in conformity with GAAP. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay, all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not withdrawn from
participation in, permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
5.9 COMPLIANCE WITH LAWS. Borrower has complied in all material respects with
all provisions of all applicable laws and regulations, including those relating
to Borrower's ownership of real or personal property, the conduct and licensing
of Borrower's business, the payment and withholding of taxes, ERISA and other
employee matters, safety and environmental matters.
5.10 LITIGATION. Section 9(f) of Schedule A discloses all claims, proceedings,
litigation or investigations pending or (to the best of Borrower's knowledge)
threatened against Borrower. There is no claim, suit, litigation, proceeding or
investigation pending or (to the best of Borrower's knowledge) threatened by or
against or affecting Borrower in any court or before any governmental agency (or
any basis therefor known to Borrower) which may result, either separately or in
the aggregate, in any material adverse change in the financial condition or
business of Borrower, or in any material impairment in the ability of Borrower
to carry on its business in substantially the same manner as it is now being
conducted. Borrower will promptly inform Lender in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted
by or against Borrower.
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5.11 USE OF PROCEEDS. All proceeds of all Loans will be used solely for lawful
business purposes.
5.12 INSURANCE. Borrower will at all times carry property, liability and other
insurance, with insurers acceptable to Lender, in such form and amounts, and
with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender, each liability
insurance policy shall name Lender as an additional insured, and each business
interruption insurance policy shall be collaterally assigned to Lender, all in
form and substance satisfactory to Lender. All policies of insurance shall
provide that they may not be cancelled or changed without at least thirty days'
prior written notice to Lender, shall contain breach of warranty coverage, and
shall otherwise be in form and substance satisfactory to Lender. Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations as Lender shall determine in its sole discretion.
Borrower will promptly deliver to Lender copies of all reports made to insurance
companies.
5.13 FINANCIAL AND COLLATERAL REPORTS. Borrower has kept and will keep adequate
records and books of account with respect to its business activities and the
Collateral in which proper entries are made in accordance with GAAP reflecting
all its financial transactions, and will cause to be prepared and furnished to
Lender the following (all to be prepared in accordance with GAAP, unless
Borrower's certified public accountants concur in any change therein and such
change is disclosed to Lender):
(a) COLLATERAL REPORTS. On or before the fifteenth day of each month, an aging
of Borrower's Accounts, Chattel Paper and notes receivable, and weekly Inventory
reports, all in such form, and together with such additional certificates,
schedules and other information with respect to the Collateral or the business
of Borrower or any Obligor, as Lender shall request; PROVIDED, that Borrower's
failure to execute and deliver the same shall not affect or limit Lender's
security interests and other rights in any of the Accounts, nor shall Lender's
failure to advance or lend against a specific Account affect or limit Lender's
security interest and other rights therein. Together with each such schedule,
Borrower shall furnish Lender with copies (or, at Lender's request, originals)
of all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Accounts, and Borrower warrants the genuineness of all of the foregoing.
In addition, Borrower shall deliver to Lender the originals of all Instruments,
Chattel Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts, immediately upon receipt thereof and in the
same form as received, with all necessary endorsements. Lender may destroy or
otherwise dispose of all documents, schedules and other papers delivered to
Lender pursuant to this Agreement (other than originals of Instruments, Chattel
Paper, security agreements, guaranties and other documents and property
evidencing or securing any Accounts) six months after Lender receives them,
unless Borrower requests their return in writing in advance and arranges for
their return to Borrower at Borrower's expense.
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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(b) ANNUAL STATEMENTS. Not later than one hundred twenty days after the close of
each fiscal year of Borrower, unqualified (except for a qualification for a
change in accounting principles with which the accountant concurs) audited
financial statements of Borrower and its Subsidiaries as of the end of such
year, on a consolidated and consolidating basis, certified by a firm of
independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender, together with a copy of any management letter
issued in connection therewith and a letter from such accountants acknowledging
that Lender is relying on such financial statements;
(c) INTERIM STATEMENTS. Not later than twenty-five days after the end of each
month hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower and its Subsidiaries as of the end of
such month and of the portion of Borrower's fiscal year then elapsed, on a
consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(d) PROJECTIONS, ETC. Such business projections, Availability projections,
business plans, budgets and cash flow statements for Borrower and its
Subsidiaries as Lender shall request from time to time;
(e) SHAREHOLDER REPORTS, ETC. Promptly after the sending or filing thereof, as
the case may be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower files
with the Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange;
(f) ERISA REPORTS. Upon request by Lender, copies of any annual report to be
filed pursuant to the requirements of ERISA in connection with each plan subject
thereto; and
(g) OTHER INFORMATION. Such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or related to
the Collateral or Borrower's and each of its Subsidiary's financial condition or
results of operations.
5.14 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Lender, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that Lender may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.15 MAINTENANCE OF COLLATERAL, ETC. Borrower will maintain all of its Equipment
in good working condition, ordinary wear and tear excepted, and Borrower will
not use the Collateral for any unlawful purpose. Borrower will immediately
advise Lender in writing of any material loss or damage to the Collateral and of
any investigation, action, suit, proceeding or claim relating to the Collateral
or which may result in an adverse impact upon Borrower's business, assets or
financial condition.
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5.16 NOTIFICATION OF CHANGES. Borrower will promptly notify Lender in writing of
any change in its officers or directors, the opening of any new bank account or
other deposit account, or any material adverse change in the business or
financial affairs of Borrower or the existence of any circumstance which would
make any representation or warranty of Borrower untrue in any material respect
or constitute a material breach of any covenant of Borrower.
5.17 FURTHER ASSURANCES. Borrower agrees, at its expense, to take all actions,
and execute or cause to be executed and delivered to Lender all promissory
notes, security agreements, agreements with landlords, mortgagees and processors
and other bailees, subordination and intercreditor agreements and other
agreements, instruments and documents as Lender may request from time to time,
to perfect and maintain Lender's security interests in the Collateral and to
fully effectuate the transactions contemplated by this Agreement.
5.18 NEGATIVE COVENANTS. Except as set forth in Section 13 of Schedule A,
Borrower will not, without Lender's prior written consent, (i) merge or
consolidate with another Person, form any new Subsidiary or acquire any interest
in any Person; (ii) acquire any assets except in the ordinary course of business
and as otherwise permitted by this Agreement and the other Loan Documents; (iii)
enter into any transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral or other assets, except that Borrower may sell finished
goods Inventory in the ordinary course of its business; (v) make any loans to,
or investments in, any Affiliate or other Person in the form of money or other
assets; (vi) incur any debt outside the ordinary course of business; (vii)
guaranty or otherwise become liable with respect to the obligations of another
party or entity; (viii) pay or declare any dividends or other distributions on
Borrower's stock, if Borrower is a corporation (except for dividends payable
solely in capital stock of Borrower) or with respect to any equity interests, if
Borrower is not a corporation; (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's capital stock or other equity
interests; (x) make any change in Borrower's capital structure; (xi) dissolve or
elect to dissolve; (xii) pay any principal or interest on any indebtedness owing
to an Affiliate, (xiii) enter into any transaction with an Affiliate other than
on arms-length terms; or (xiv) agree to do any of the foregoing. Provided,
however, with respect to Subsections (i), (ii) and (iii) of Section 5.18 Lender
shall not unreasonably withhold its consent and provided further that if Lender
does not consent to such actions by Borrower, notwithstanding anything contained
to the contrary in Section 7.2 of the Agreement and Section 6 (h) of Schedule A,
Borrower may terminate this Agreement and shall pay Lender an Early Termination
Fee of 1% of the Maximum Facility Amount. If such Termination by Borrower occurs
during the last year of the Term, Borrower shall pay Lender an Early Termination
Fee of 0.5% of the Maximum Facility Amount.
5.19 FINANCIAL COVENANTS.
(a) CAPITAL EXPENDITURES. Borrower will not expend or commit to expend, directly
or indirectly, for capital expenditures (including capital lease obligations) in
excess of the amount set forth in Section 8(a) of Schedule A as the Capital
Expenditure Limitation in any fiscal year.
(b) NET WORTH. Borrower will at all times maintain a net worth of at least the
amount set forth in Section 8(b) of Schedule A.
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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(c) TANGIBLE NET WORTH. Borrower will at all times maintain a minimum tangible
net worth of at least the amount set forth in Section 8(c) of Schedule A.
(d) WORKING CAPITAL. Borrower will at all times maintain working capital of at
least the amount set forth in Section 8(d) of Schedule A.
(e) NET LOSSES. Borrower will not permit its cumulative net cash losses to
exceed the amount set forth in Section 8(e) of Schedule A.
(f) NET INCOME. Borrower will not permit its cumulative net income to be less
than the amount set forth in Section 8(f) of Schedule A.
(g) LEVERAGE. Borrower will not permit the ratio of its total liabilities to its
net worth to exceed, at any time, the ratio set forth in Section 8(g) of
Schedule A.
(h) OTHER FINANCIAL COVENANTS. Borrower will comply with any additional
financial covenants set forth in Section 8(j) of Schedule A.
5.20 YEAR 2000 COMPLIANCE REPRESENTATION. Borrower has (i) initiated a review
and assessment of all areas within its and each of its Subsidiaries' business
and operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
application used by the Borrower or any of its Subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dated prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, reasonably believes that all computer
applications (including those of its suppliers and vendors) that are material to
its or any of its Subsidiaries' business and operations will on a timely basis
be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent
that a failure to do so could not reasonably be expected to have a material
adverse effect on Borrower's business or on the condition or value of the
Collateral ("Material Adverse Effect"). Borrower will promptly notify Lender in
the event the Borrower discovers or determines that any computer application
(including those of its suppliers and vendors) that is material to its or any of
its Affiliates' business and operations will not be Year 2000 compliant on a
timely basis, except to the extent that such failure could not reasonably be
expected to have a material adverse effect.
6. RELEASE AND INDEMNITY.
6.1 RELEASE. Borrower hereby releases Lender and its Affiliates and their
respective directors, officers, employees, attorneys and agents and any other
Person affiliated with or representing Lender (the "RELEASED PARTIES") from any
and all liability arising from acts or omissions under or pursuant to this
Agreement, whether based on errors of judgment or mistake of law or fact, except
for those arising from gross negligence or willful misconduct. However, in no
circumstance will any of the Released Parties be liable for lost profits or
other special or consequential damages. Such release is made on the date hereof
and remade upon each request for a Loan or Credit Accommodation by Borrower.
Without limiting the foregoing:
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(a) Lender shall not be liable for (i) any shortage or discrepancy in, damage
to, or loss or destruction of, any goods, the sale or other disposition of which
gave rise to an Account; (ii) any error, act, omission, or delay of any kind
occurring in the settlement, failure to settle, collection or failure to collect
any Account; (iii) settling any Account in good faith for less than the full
amount thereof; or (iv) any of Borrower's obligations under any contract or
agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying transaction,
Lender shall not be responsible for the conformity of any goods to the documents
presented, the validity or genuineness of any documents, delay, default or fraud
by Borrower, shippers and/or any other Person. Borrower agrees that any action
taken by Lender, if taken in good faith, or any action taken by an issuer of any
Credit Accommodation, under or in connection with any Credit Accommodation,
shall be binding on Borrower and shall not create any resulting liability to
Lender. In furtherance thereof, Lender shall have the full right and authority
to clear and resolve any questions of non-compliance of documents, to give any
instructions as to acceptance or rejection of any documents or goods, to execute
for Borrower's account any and all applications for steamship or airway
guaranties, indemnities or delivery orders, to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents, and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the Credit Accommodations or applications and other documentation pertaining
thereto.
6.2 INDEMNITY. Borrower hereby agrees to indemnify the Released Parties and hold
them harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
attorneys' fees), of every nature, character and description, which the Released
Parties may sustain or incur based upon or arising out of any of the
transactions contemplated by this Agreement or the other Loan Documents or any
of the Obligations, including any transactions or occurrences relating to the
issuance of any Credit Accommodation, the Collateral relating thereto, any
drafts thereunder and any errors or omissions relating thereto (including any
loss or claim due to any action or inaction taken by the issuer of any Credit
Accommodation) (and for this purpose any charges to Lender by any issuer of
Credit Accommodations shall be conclusive as to their appropriateness and may be
charged to the Loan Account), or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Lender relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of the Released Parties).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement.
7. TERM.
7.1 MATURITY DATE. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect until the
Initial Maturity Date set forth in Section 7 of Schedule A (the "INITIAL TERM");
PROVIDED, that such date shall automatically be extended (the Initial Maturity
Date, as it may be so extended, being referred to as the "MATURITY DATE") for
successive additional terms of three years each (each a "RENEWAL TERM"), unless
one party gives written notice to the other, not less than sixty days prior to
the Maturity Date, that such party elects not to extend the Maturity Date. This
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Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
Borrower contained herein and therein, shall remain in full force and effect
after the Maturity Date until all of the monetary Obligations are indefeasibly
paid in full.
7.2 EARLY TERMINATION. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement may be terminated prior to the Maturity Date
as follows: (i) by Borrower, effective thirty business days after written notice
of termination is given to Lender or (ii) by Lender at any time after the
occurrence of an Event of Default, without notice, effective immediately;
PROVIDED, that if any Affiliate of Borrower is also a party to a financing
arrangement with Lender, no such early termination shall be effective unless
such Affiliate simultaneously terminates its financing arrangement with Lender.
If so terminated under this Section 7.2, Borrower shall pay to Lender (i) an
early termination fee (the "EARLY TERMINATION FEE") in the amount set forth in
Section 6(h) of Schedule A plus (ii) any earned but unpaid Facility Fee. Such
fee shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations. In addition, if Borrower so terminates and repays the Obligations
without having provided Lender with at least thirty days' prior written notice
thereof, an additional amount equal to thirty days of interest at the applicable
Interest Rate(s), based on the average outstanding amount of the Obligations for
the six month period immediately preceding the date of termination.
7.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay in full all Obligations, whether or not
all or any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if, on the Maturity Date or on any
earlier effective date of termination, there are any outstanding Credit
Accommodations, then on such date Borrower shall provide to Lender cash
collateral in an amount equal to 110% of the Credit Accommodation Balance to
secure all of the Obligations (including estimated attorneys' fees and other
expenses) relating to said Credit Accommodations or such greater percentage or
amount as Lender reasonably deems appropriate, pursuant to a cash pledge
agreement in form and substance satisfactory to Lender.
7.4 EFFECT OF TERMINATION. No termination shall affect or impair any right or
remedy of Lender or relieve Borrower of any of the Obligations until all of the
monetary Obligations have been indefeasibly paid in full. Upon indefeasible
payment and performance in full of all of the monetary Obligations (and the
provision of cash collateral with respect to any Credit Accommodation Balance as
required by Section 7.3) and termination of this Agreement, Lender shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be reasonably required to terminate Lender's
security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "EVENT OF DEFAULT" under this Agreement, and Borrower shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by Borrower or any
of Borrower's officers, employees or agents is untrue or misleading; (ii) if
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Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if Borrower breaches any covenant or obligation
contained in this Agreement or any other Loan Document or fails to perform any
other non-monetary Obligation; (iv) if any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made or permitted
to exist on all or any part of the Collateral; (v) if one or more judgments
aggregating in excess of $500,000 that is not otherwise covered under a policy
of insurance, after the application of any deductible, or any material
injunction or attachment, is obtained against Borrower or any Obligor which
remains unstayed for more than ten days or is enforced; (vi) the occurrence of
any default under any financing agreement, security agreement or other
agreement, instrument or document executed and delivered by (A) Borrower with,
or in favor of, any Person other than Lender, including but not limited to that
certain Note Purchase Agreement dated as of March 27, 1998 Between Borrower and
Dresdner Kleinwort Benson Private Equity Partners LP or (B) Borrower or any
Affiliate of Borrower with, or in favor of, Lender or any Affiliate of Lender;
(vii) the dissolution, death, termination of existence in good standing,
insolvency or business failure or suspension or cessation of business as usual
of Borrower or any Obligor (or of any general partner of Borrower or any Obligor
if it is a partnership) or the appointment of a receiver, trustee or custodian
for all or any part of the property of, or an assignment for the benefit of
creditors by Borrower or any Obligor, or the commencement of any proceeding by
Borrower or any Obligor under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, or if Borrower makes or sends
a notice of a bulk transfer or calls a meeting of its creditors; (viii) the
commencement of any proceeding against Borrower or any Obligor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; (ix) the actual or attempted revocation or termination of, or
limitation or denial of liability upon, any guaranty of the Obligations, or any
security document securing the Obligations, by any Obligor; (x) if Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations attempts to limit or terminate its subordination agreement; (xi)
if there is any actual or threatened indictment of Borrower or any Obligor under
any criminal statute or commencement or threatened commencement of criminal or
civil proceedings against Borrower or any Obligor, pursuant to which the
potential penalties or remedies sought or available include forfeiture of any
property of Borrower or such Obligor; (xii) if there is a change in the record
or beneficial ownership of an aggregate of more than 49% of the outstanding
shares of stock of Borrower (or partnership or membership interests if it is a
partnership or limited liability company), in one or more transactions, compared
to the ownership of outstanding shares of stock (or partnership or membership
interests) of Borrower as of the date hereof, without the prior written consent
of Lender, which shall not be unreasonably withheld, provided however, if Lender
withholds such consent, Borrower may terminate this Agreement and shall pay
Lender an Early Termination Fee of 1% of the Maximum Facility Amount. If such
Termination by Borrower occurs during the last year of the Term, Borrower shall
pay Lender an Early Termination Fee of 0.5% of the Maximum Facility Amount;
(xiii) if there is any change in the chief executive officer, chief operating
officer or chief financial officer of Borrower and such officer is not replaced
within sixty days of such termination with a person reasonably acceptable to
Lender, which acceptance shall not be unreasonably withheld; (xiv) if an Event
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of Default occurs under any Loan and Security Agreement between Lender and an
Affiliate of Borrower; or (xv) if Lender determines in good faith that the
Collateral is insufficient to fully secure the Obligations or that the prospect
of payment or performance of the Obligations is impaired.
8.2 REMEDIES. Upon the occurrence of any Default, and at any time thereafter,
Lender, at its option, may cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other Loan Document. Upon the occurrence of
any Event of Default, and at any time thereafter, Lender, at its option, and
without notice or demand of any kind (all of which are hereby expressly waived
by Borrower), may do any one or more of the following: (i) cease making Loans or
otherwise extending credit to Borrower under this Agreement or any other Loan
Document; (ii) accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any of
the Obligations; (iii) take possession of any or all of the Collateral wherever
it may be found, and for that purpose Borrower hereby authorizes Lender, without
judicial process, to enter onto any of Borrower's premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain (or cause a custodian to remain) on the premises in exclusive control
thereof, without charge for so long as Lender deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; PROVIDED, that if Lender seeks to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives (A) any bond and
any surety or security relating thereto required by law as an incident to such
possession, (B) any demand for possession prior to the commencement of any suit
or action to recover possession thereof and (C) any requirement that Lender
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (iv) require Borrower to assemble any or all of the
Collateral and make it available to Lender at one or more places designated by
Lender which are reasonably convenient to Lender and Borrower, and to remove the
Collateral to such locations as Lender may deem advisable; (v) complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Lender shall have
the right to use Borrower's premises, vehicles and other Equipment and all other
property without charge; (vi) sell, lease or otherwise dispose of any of the
Collateral, in its condition at the time Lender obtains possession of it or
after further manufacturing, processing or repair, at one or more public or
private sales, in lots or in bulk, for cash, exchange or other property, or on
credit (a "SALE"), and to adjourn any such Sale from time to time without notice
other than oral announcement at the time scheduled for Sale (and, in connection
therewith, (A) Lender shall have the right to conduct such Sale on Borrower's
premises without charge, for such times as Lender deems reasonable, on Lender's
premises, or elsewhere, and the Collateral need not be located at the place of
Sale; (B) Lender may directly or through any of its Affiliates purchase or lease
any of the Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition and (C) any Sale of Collateral shall
not relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title, physical condition or otherwise at the time of sale);
(vii) demand payment of and collect any Accounts, Chattel Paper, Instruments and
General Intangibles included in the Collateral and, in connection therewith,
Borrower irrevocably authorizes Lender to endorse or sign Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
relating thereto. In addition to the foregoing remedies, upon the occurrence of
any Event of Default resulting from a breach of any of the financial covenants
set forth in Section 5.19, Lender may, at its option, upon not less than ten
days' prior notice to Borrower, reduce any or all of the Advance Rates set forth
in Section 1(b) of Schedule A to the extent Lender, in its reasonable
discretion, deems appropriate. In addition to the rights and remedies set forth
above, Lender shall have all the other rights and remedies accorded a secured
party after default under the UCC and under all other applicable laws, and under
any other Loan Document, and all of such rights and remedies are cumulative and
non-exclusive. Exercise or partial exercise by Lender of one or more of its
rights or remedies shall not be deemed an election or bar Lender from subsequent
exercise or partial exercise of any other rights or remedies. The failure or
delay of Lender to exercise any rights or remedies shall not operate as a waiver
thereof, but all rights and remedies shall continue in full force and effect
until all of the Obligations have been fully paid and performed. If notice of
any sale or other disposition of Collateral is required by law, notice at least
seven days prior to the sale designating the time and place of sale in the case
of a public sale or the time after which any private sale or other disposition
is to be made shall be deemed to be reasonable notice, and Borrower waives any
other notice. If any Collateral is sold or leased by Lender on credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment is collected by Lender.
8.3 APPLICATION OF PROCEEDS. Subject to any application required by law, all
proceeds realized as the result of any Sale shall be applied by Lender to the
Obligations in such order as Lender shall determine in its reasonable
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; but Borrower shall remain liable to Lender for any deficiency.
If Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally, by reputable private delivery service, by
regular first-class mail or certified mail return receipt requested, addressed
to Lender or Borrower at the address shown in the heading to this Agreement, or
by facsimile to the facsimile number shown in Section 9(i) of Schedule A, or at
any other address (or to any other facsimile number) designated in writing by
one party to the other party in the manner prescribed in this Section 9.1. All
notices shall be deemed to have been given when received or when delivery is
refused by the recipient.
9.2 SEVERABILITY. If any provision of this Agreement, or the application thereof
to any party or circumstance, is held to be void or unenforceable by any court
of competent jurisdiction, such defect shall not affect the remainder of this
Agreement, which shall continue in full force and effect.
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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9.3 INTEGRATION. This Agreement and the other Loan Documents represent the
final, entire and complete agreement between Borrower and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 WAIVERS. The failure of Lender at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other Loan
Documents shall not waive or diminish any right of Lender later to demand and
receive strict compliance therewith. Any waiver of any default shall not waive
or affect any other default, whether prior or subsequent, and whether or not
similar. None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Lender or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Lender and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 AMENDMENT. The terms and provisions of this Agreement may not be amended or
modified except in a writing executed by Borrower and a duly authorized officer
of Lender.
9.6 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement and the other Loan Documents.
9.7 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Lender for all reasonable
attorneys' and paralegals' fees (including in-house attorneys and paralegals
employed by Lender) and all filing, recording, search, title insurance,
appraisal, audit, and other costs incurred by Lender, pursuant to, in connection
with, or relating to this Agreement, including all reasonable attorneys' fees
and costs Lender incurs to prepare and negotiate this Agreement and the other
Loan Documents; to obtain legal advice in connection with this Agreement and the
other Loan Documents or Borrower or any Obligor; to administer this Agreement
and the other Loan Documents (including the cost of periodic financing
statement, tax lien and other searches conducted by Lender); to enforce, or seek
to enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; to commence, intervene in, or defend any action or proceeding;
to initiate any complaint to be relieved of the automatic stay in bankruptcy; to
file or prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; to examine, audit, copy, and inspect any of the Collateral or any
of Borrower's books and records; to protect, obtain possession of, lease,
dispose of, or otherwise enforce Lender's security interests in, the Collateral;
and to otherwise represent Lender in any litigation relating to Borrower. If
either Lender or Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Lender may be entitled pursuant to this Section shall immediately
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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become part of the Obligations, shall be due on demand, and shall bear interest
at a rate equal to the highest interest rate applicable to any of the
Obligations.
9.8 BENEFIT OF AGREEMENT; ASSIGNABILITY. The provisions of this Agreement shall
be binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Lender; provided, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Lender, and any prohibited assignment shall
be void. No consent by Lender to any assignment shall release Borrower from its
liability for any of the Obligations. Lender shall have the right to assign all
or any of its rights and obligations under the Loan Documents, and to sell
participating interests therein, to one or more other Persons, and Borrower
agrees to execute all agreements, instruments and documents reasonably requested
by Lender in connection with each such assignment and participation.
9.9 HEADINGS; CONSTRUCTION. Section and subsection headings are used in this
Agreement only for convenience. Borrower and Lender acknowledge that the
headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or Borrower under any rule of construction or
otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN LOS ANGELES,
CALIFORNIA, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SUCH STATE. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE AND FEDERAL
COURTS IN LOS ANGELES, CALIFORNIA OR THE STATE IN WHICH ANY OF THE COLLATERAL IS
LOCATED SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER ALSO AGREES THAT ANY CLAIM OR
DISPUTE BROUGHT BY BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT SHALL BE BROUGHT EXCLUSIVELY IN THE STATE AND FEDERAL COURTS LOCATED IN
LOS ANGELES, CALIFORNIA. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER
AND SHALL BE DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE
EXTENT PERMITTED BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE THE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY
(WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS
OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR ANY
OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OR ANY
OTHER PERSONS AFFILIATED WITH LENDER OR BORROWER, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE; (ii) THE RIGHT TO INTERPOSE ANY CLAIMS, DEDUCTIONS, SET-OFFS
OR COUNTERCLAIMS OF ANY KIND IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER
WITH RESPECT TO THE LOAN DOCUMENTS OR ANY MATTER RELATING THERETO, EXCEPT FOR
COMPULSORY COUNTERCLAIMS; (iii) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR
CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY
COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES AND (iv) THE
BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS. BORROWER ACKNOWLEDGES
THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO
THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS
FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
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BANC OF AMERICA COMMERCIAL FUNDING LOAN AND SECURITY AGREEMENT
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IN WITNESS WHEREOF, Borrower and Lender have signed this Agreement as
of the date set forth in the heading.
BORROWER: LENDER:
GARDENBURGER, INC. BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION THROUGH ITS COMMERCIAL
FUNDING DIVISION
By /s/ Lyle G. Hubbard By /s/
-------------------------------- -----------------------------
Its CEO Its Authorized Signatory
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<PAGE>
SCHEDULE A
DESCRIPTION OF CERTAIN TERMS
This Schedule is an integral part of the Loan and Security Agreement
between GARDENBURGER, INC. and BANC OF AMERICA COMMERCIAL FINANCE CORPORATION
THROUGH ITS COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
1. Loan Limits for Revolving Loans:
(a) Maximum Facility Amount: $25,000,000 provided however, that
unless and until Lender obtains a
participant acceptable to Lender in
this facility in the principal
amount of $7,500,000, the Maximum
Facility Amount shall be
$17,500,000
(b) Advance Rates:
(i) Accounts Advance Rate: 85%; PROVIDED, that if the Dilution
Percentage calculated on the
greater of (i) a rolling 90 day
average and (ii) for the prior 12
months exceeds 5%, such advance
rate will be reduced by the number
of full or partial percentage
points of such excess
(ii) Inventory Advance Rate(s):
(A) Finished goods: 60 %
(B) Raw materials: 60%
(C) Work in process: Not Applicable
(c) Accounts Sublimit: Not Applicable
(d) Inventory Sublimit(s):
(i) Overall sublimit on $11,000,000 including the amount
Eligible Inventory set forth in (d)(iii) below
(ii) Sublimit on advances Not Applicable
against finished goods
(iii) Sublimit on advances $1,500,000
against raw materials
(iv) Sublimit on advances Not Applicable
against work in process
A-1
<PAGE>
(e) Credit Accommodation $500,000
Limit:
(f) Permanent Reserve
Amount: 40% of the face amount of letters
of credit or bankers acceptances
used for the purchase of inventory
plus all duty and freight and 100%
for all standby letters of credit
(g) Overadvance Amount: Not Applicable
(h) Tradename: $2,500,000 which may be increased
in proportion to the amount of any
participation, not to exceed
$5,000,000
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance Not Applicable
(ii) Real Property Advance: Not Applicable
(iii) Tradename Advance: The lesser of (i) the tradename
loan sublimit set forth in Section
1(h) then in effect and (ii) 25% of
the fair market value of such
tradename
(b) Repayment Schedule:
(i) Equipment Advance: Not Applicable
(ii) Real Property Advance: Not Applicable
(iii) Tradename Advance: Shall be repaid in equal
consecutive monthly installments of
principal amortized over 60 months
payable on the first day of each
calendar month commencing February
1, 2000, with the entire unpaid
balance due and payable on the
Maturity Date. Lender, at its
option and at Borrower's cost, may
conduct an annual fair market value
appraisal of Borrower's Tradenames
and Trademarks. If as a result of
such appraisal, 12 months after the
date of the Agreement and each 12
A-2
<PAGE>
months thereafter, the unpaid
principal balance of the Tradename
Advance exceeds 25% of the fair
market value of the Tradename at
such time (as reflected in an
appraisal conducted as of such time
by an appraiser acceptable to
Lender), then, Borrower shall repay
such excess in 6 equal consecutive
monthly installments payable on the
first day of each calendar month
commencing with the month
immediately following such
appraisal (which payments shall be
in addition to the regular
amortization payments set forth
above).
3. Interest Rates:
(a) Revolving Loans: 0.125% per annum in excess of the
Prime Rate
(b) Term Loan: 0.125% per annum in excess of the
Prime Rate
4. Minimum Loan Amount: Not Applicable
5. Maximum Days:
(a) Maximum days after
original INVOICE DATE
for Eligible Accounts: 90
(b) Maximum days after
original INVOICE DUE
DATE for Eligible Accounts: Not Applicable
6. Fees:
(a) Closing Fee: $50,000, provided however, if the
Maximum Facility Amount increases
above $20,000,000, Borrower shall
pay Lender an additional fee of
0.50% of such excess concurrently
upon such increase
(b) Facility Fee:
(i) Term: Not Applicable
(ii) Renewal Term(s): Not Applicable
A-3
<PAGE>
(c) Servicing Fee: Not Applicable
(d) Unused Line Fee: 0.25% per annum on the difference
between the average monthly balance
of loans outstanding and the
Maximum Facility Amount then in
effect
(e) Minimum Borrowing Fee: Not Applicable
(i) Applicable period: Not Applicable
(ii) Date payable: Not Applicable
(f) Success Fee: Not Applicable
(g) Warrants: Not Applicable
(h) Early Termination Fee: 1% of the Maximum Facility Amount
multiplied by the remaining number
of full or partial (calculated on
the basis of months) years in the
Term. The Early Termination Fee
will be waived if, after the
expiration of 18 months from the
date hereof, (i) Borrower is not
then in Default and (ii) the Loans
are paid with proceeds of a loan
from Bank of America or any of its
affiliates. If the termination is
as a result of a sale or merger of
Borrower the Early Termination Fee
shall be 1% of the Maximum Facility
Amount
(i) Fees for letters of credit 1% per annum of the face amount of
and other Credit each open Credit Accommodation,
Accommodations (or plus all costs and fees charged by
Guaranties thereof by the issuer
Lender):
7. Initial Maturity Date: December 23, 2002
8. Financial Covenants:
(a) Capital Expenditure
Limitation: Not Applicable
(b) Minimum Net Worth
Requirement: Not Applicable
(c) Minimum Tangible
Net Worth: Not Applicable
A-4
<PAGE>
(d) Minimum Working
Capital: Not Applicable
(e) Maximum Cumulative
Net Cash Loss: $5,000,000 on a cumulative basis
for the period from the date
hereof through the end of the
Initial Term or any Renewal Term.
To be calculated net of any
proceeds from new issues of stock
or subordinated debt.
(f) Minimum Cumulative
Net Income: Not Applicable
(g) Maximum Leverage Ratio: Not Applicable
(h) Limitation on
Purchase Money
Security Interests: Not Applicable
(i) Limitation on
Equipment Leases: Not Applicable
(j) Additional Financial Not Applicable
Covenants:
9. Borrower Information:
(a) Prior Names of
Borrower: None
(b) Prior Trade Names
of Borrower: None
(c) Existing Trade Names
of Borrower: See Exhibit 9 (c) attached hereto
(d) Inventory Locations: See Exhibit 9 (d) attached hereto
(e) Other Locations: Not Applicable
(f) Litigation: See Exhibit 9 (f)
(g) Ownership of Borrower: Paul Wenner 20.0%
Dresdner Kleinwort Benson 12.2%
HLM Management Co. 8.5%
Gruber & McBaine 6.1%
Lyle Hubbard 4.0%
A-5
<PAGE>
(h) Subsidiaries (and
ownership thereof): None
(i) Facsimile Numbers:
Borrower: (503) 205-1650
Lender: (212) 597-1666
10. Description of Real Property: Not Applicable
11. Lender's Bank: The First National Bank of Chicago/
NBD
12. Other Covenants: Not Applicable
13. Exceptions to Negative
Covenants: None
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
GARDENBURGER, INC. BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION THROUGH ITS COMMERCIAL
FUNDING DIVISION
By /s/ Lyle G. Hubbard By /s/
------------------------------ -----------------------------------
Its CEO Its Authorized Signatory
A-6
<PAGE>
SCHEDULE B
DEFINITIONS
This Schedule is an integral part of the Loan and Security Agreement
between GARDENBURGER, INC. and BANC OF AMERICA COMMERCIAL FINANCE CORPORATION
THROUGH ITS COMMERCIAL FUNDING DIVISION (the "AGREEMENT").
As used in the Agreement, the following terms have the following meanings:
"ACCOUNT" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"ACCOUNT DEBTOR" means the obligor on an Account or Chattel Paper.
"ACCOUNT PROCEEDS" has the meaning set forth in Section 4.1.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"AGREEMENT" and "THIS AGREEMENT" mean the Loan and Security Agreement
of which this Schedule B is a part and the Schedules thereto.
"AVAILABILITY" has the meaning set forth in Section 1.1(a)
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C.ss.101 et seq.).
"BLOCKED ACCOUNT" has the meaning set forth in Section 4.1.
"BORROWER" has the meaning set forth in the heading to the Agreement.
"BORROWER'S ADDRESS" has the meaning set forth in the heading to the
Agreement.
"BUSINESS DAY" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
"CHATTEL PAPER" has the meaning set forth in the UCC.
"COLLATERAL" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"CREDIT ACCOMMODATION" has the meaning set forth in Section 1.1(a).
B-1
<PAGE>
"CREDIT ACCOMMODATION BALANCE" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"DEFAULT" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"DEFAULT RATE" has the meaning set forth in Section 2.1.
"DEPOSIT ACCOUNT" has the meaning set forth in the UCC.
"DILUTION PERCENTAGE" means the gross amount of all returns,
allowances, discounts, credits, write-offs and similar items relating to
Borrower's Accounts computed as a percentage of Borrower's gross sales,
calculated on a ninety (90) day rolling average.
"DOCUMENT" has the meaning set forth in the UCC.
"EARLY TERMINATION FEE" has the meaning set forth in Section 7.2.
"ELIGIBLE ACCOUNT" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrower). An Account shall be deemed to meet the
current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of Borrower; (ii) it does not
remain unpaid more than the earlier to occur of (A) the number of days after the
original invoice date set forth in Section 5(a) of Schedule A or (B) the number
of days after the original invoice due date set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to Borrower comprising more than 25% of all of the Accounts owing
to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts owing by
the Account Debtor or its Affiliates do not represent more than 20% of all
otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be considered Eligible
Accounts to the extent of the amount thereof which does not exceed 20% of all
otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States or
Provinces of Canada which have adopted the Personal Property Security Act or a
similar act, unless (A) the sale is fully backed by a letter of credit, guaranty
or acceptance acceptable to Lender in its sole discretion, and if backed by a
letter of credit, such letter of credit has been issued or confirmed by a bank
satisfactory to Lender, is sufficient to cover such Account, and if required by
Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender or (B) such Account is subject to credit
B-2
<PAGE>
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender; (viii) it is absolutely owing to Borrower and does not
arise from a sale on a bill-and-hold, guarantied sale, sale-or-return,
sale-on-approval, consignment, retainage or any other repurchase or return basis
or consist of progress billings; (ix) Lender shall have verified the Account in
a manner satisfactory to Lender; (x) the Account Debtor is not the United States
of America or any state or political subdivision (or any department, agency or
instrumentality thereof), unless Borrower has complied with the Assignment of
Claims Act of 1940 (31 U.S.C. ss.203 et seq.) or other applicable similar state
or local law in a manner satisfactory to Lender; (xi) it is at all times subject
to Lender's duly perfected, first priority security interest and to no other
Lien that is not a Permitted Lien, and the goods giving rise to such Account (A)
were not, at the time of sale, subject to any Lien except Permitted Liens and
(B) have been delivered to and accepted by the Account Debtor, or the services
giving rise to such Account have been performed by Borrower and accepted by the
Account Debtor; (xii) the Account is not evidenced by Chattel Paper or an
Instrument of any kind and has not been reduced to judgment; (xiii) the Account
Debtor's total indebtedness to Borrower does not exceed the amount of any credit
limit established by Borrower or Lender and the Account Debtor is otherwise
deemed to be creditworthy by Lender (provided, that Accounts which are deemed to
be ineligible solely by reason of this clause (xiii) shall be considered
Eligible Accounts to the extent the amount of such Accounts does not exceed the
lower of such credit limits); (xiv) there are no facts or circumstances
existing, or which could reasonably be anticipated to occur, which might result
in any adverse change in the Account Debtor's financial condition or impair or
delay the collectibility of all or any portion of such Account; (xv) Lender has
been furnished with all documents and other information pertaining to such
Account which Lender has requested, or which Borrower is obligated to deliver to
Lender, pursuant to this Agreement; (xvi) Borrower has not made an agreement
with the Account Debtor to extend the time of payment thereof beyond the time
periods set forth in clause (ii) above; and (xvii) Borrower has not posted a
surety or other bond in respect of the contract under which such Account arose.
"ELIGIBLE EQUIPMENT" means, at any time of determination, Equipment
owned by Borrower which Lender, in its sole discretion, deems to be eligible for
borrowing purposes.
"ELIGIBLE INVENTORY" means, at any time of determination, Inventory
(other than packaging materials and supplies) which satisfies the general
criteria set forth below and which is otherwise acceptable to Lender (provided,
that Lender may, in its sole discretion, change the general criteria for
acceptability of Eligible Inventory upon at least fifteen days' prior written
notice to Borrower). Inventory shall be deemed to meet the current general
criteria if (i) it consists of raw materials or finished goods, or
work-in-process that is readily marketable in its current form; (ii) it is in
good, new and saleable condition; (iii) it is not slow-moving, obsolete,
unmerchantable, returned or repossessed; (iv) it is not in the possession of a
processor, consignee or bailee, or located on premises leased or subleased to
Borrower, or on premises subject to a mortgage in favor of a Person other than
Lender, unless such processor, consignee, bailee or mortgagee or the lessor or
sublessor of such premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination or other
limitation or extinguishment of such Person's rights with respect to such
Inventory and Lender's right to gain access thereto; (v) it meets all standards
imposed by any governmental agency or authority; (vi) it conforms in all
respects to any covenants, warranties and representations set forth in the
Agreement; (vii) it is at all times subject to Lender's duly perfected, first
B-3
<PAGE>
priority security interest and no other Lien except a Permitted Lien; and (viii)
it is situated at an Inventory Location listed in Section 9(d) of Schedule A or
other location of which Lender has been notified as required by Section 5.6.
"ELIGIBLE REAL PROPERTY" means, at any time of determination, Real
Property owned by Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"EQUIPMENT" means all Goods which are used or bought for use primarily
in business (including farming or a profession) or by a Person who is a
non-profit organization or governmental subdivision or agency and which are not
Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"EQUIPMENT ADVANCE" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules, regulations and orders promulgated thereunder.
"EVENT OF DEFAULT" has the meaning set forth in Section 8.1.
"GAAP" means generally accepted accounting principles as in effect
from time to time, consistently applied.
"GENERAL INTANGIBLES" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of Borrower or any other
Person, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature.
"GOODS" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
B-4
<PAGE>
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"INITIAL TERM" has the meaning set forth in Section 7.1.
"INSTRUMENT" has the meaning set forth in the UCC.
"INVENTORY" means all Goods held for sale or lease or furnished or to
be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"INVESTMENT PROPERTY" shall mean all of Borrower's securities, whether
certificated or uncertificated, securities entitlements, securities accounts,
commodity contracts and commodity accounts.
"LENDER" has the meaning set forth in the heading to the Agreement.
"LIEN" means any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, Borrower shall be deemed
to be the owner of any property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"LOAN ACCOUNT" has the meaning set forth in Section 2.4.
"LOAN DOCUMENTS" means the Agreement and all notes, guaranties,
security agreements, certificates, landlord's agreements, Lock Box and Blocked
Account agreements and all other agreements, documents and instruments now or
hereafter executed or delivered by Borrower or any Obligor in connection with,
or to evidence the transactions contemplated by, this Agreement.
"LOAN LIMITS" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"LOANS" means, collectively, the Revolving Loans and any Term Loan.
"LOCK BOX" has the meaning set forth in Section 4.1.
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 5.20.
B-5
<PAGE>
"MATURITY DATE" has the meaning set forth in Section 7.1.
"NET CASH LOSSES" means pre-tax income or loss plus any non-cash
charges (e.g. depreciation, accrued but unpaid interest or dividends and the
like), less any debt service.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Lender, whether evidenced by this Agreement or any
other Loan Document, whether arising from an extension of credit, opening of a
Credit Accommodation, guaranty, indemnification or otherwise (including all
fees, costs and other amounts which may be owing to issuers of Credit
Accommodations and all taxes, duties, freight, insurance, costs and other
expenses, costs or amounts payable in connection with Credit Accommodations or
the underlying goods), whether direct or indirect (including those acquired by
assignment and any participation by Lender in Borrower's indebtedness owing to
others), whether absolute or contingent, whether due or to become due, and
whether arising before or after the commencement of a proceeding under the
Bankruptcy Code or any similar statute, including all interest, charges,
expenses, fees, attorney's fees, expert witness fees, audit fees, letter of
credit fees, Closing Fees, Facility Fees, Servicing Fees, Unused Line Fees,
Minimum Borrowing Fees, Success Fees, amounts owing under Warrants, Credit
Accommodation Fees and any other sums chargeable to Borrower under this
Agreement or under any other Loan Document.
"OBLIGOR" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than Borrower.
"PERMITTED LIENS" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics, warehousemen or carriers arising in the ordinary course of business
and securing obligations which are not delinquent; (vii) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (i) or (ii) above; PROVIDED,
that any extension, renewal or replacement Lien is limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase; (viii) Liens in favor
of customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and (ix) security deposits posted in
connection with real property leases or subleases. Lender will have the right to
require, as a condition to its consent under clause (iv) above, that the holder
of the additional Lien sign an intercreditor agreement in form and substance
satisfactory to Lender, in its sole discretion, acknowledging that the Lien is
subordinate to the security interests of Lender, and agreeing not to take any
action to enforce its subordinate Lien so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate Lien shall also constitute an Event of Default under
this Agreement.
B-6
<PAGE>
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"PRIME RATE" means, at any given time, the prime rate as quoted in The
Wall Street Journal as the base rate on corporate loans posted as of such time
by at least 75% of the nation's 30 largest banks (which rate is not necessarily
the lowest rate offered by such banks).
"REAL PROPERTY" means the real property described in Section 10 of
Schedule A.
"REAL PROPERTY ADVANCE" has the meaning set forth in Section 1.1(b).
"RELEASED PARTIES" has the meaning set forth in Section 6.1.
"RENEWAL TERM" has the meaning set forth in Section 7.1.
"RESERVES" has the meaning set forth in Section 1.2.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(a).
"SALE" has the meaning set forth in Section 8.2.
"SUBSIDIARY" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"TERM" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
"UCC" means, at any given time, the Uniform Commercial Code as adopted
and in effect at such time in the State of California.
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "INCLUDING," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
B-7
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
BORROWER: LENDER:
GARDENBURGER, INC. BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION THROUGH ITS COMMERCIAL
FUNDING DIVISION
By /s/ Lyle G. Hubbard By /s/
------------------------------ -----------------------------------
Its CEO Its Authorized Signatory
FIRST AMENDMENT TO
NOTE PURCHASE AGREEMENT
THIS FIRST AMENDMENT (this "AMENDMENT"), dated as of December __,
1999, to the Note Purchase Agreement, dated as of March 27, 1998, by and among
DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP, a Delaware limited
partnership ("the PURCHASER"), and GARDENBURGER, INC., an Oregon corporation
(the "COMPANY").
WHEREAS, the parties hereto have entered into the Note Purchase
Agreement, dated as of March 27, 1998 (the "AGREEMENT"); unless otherwise
defined herein, all capitalized terms used herein (including the recitals
hereto) shall have the meanings assigned to such terms in the Agreement, as
amended hereby;
WHEREAS, the Company has entered into a Loan and Security Agreement
dated as of December 23, 1999 (the "NEW SENIOR CREDIT AGREEMENT") with Banc of
America Commercial Finance Corporation through its Commercial Funding Division
("BOFA") pursuant to which, among other things, the Company will refinance its
obligations under the existing Senior Credit Agreement (as defined in the
Agreement prior to giving effect to this Amendment) and will receive a credit
facility with an aggregate maximum borrowing availability of $25,000,000;
WHEREAS, the Company has requested the Purchaser to amend the
Agreement and the Convertible Notes on the terms and conditions set forth in
this Amendment;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants contained herein, the parties hereto agree as follows.
1. CONSENTS. Subject to the terms and conditions set forth herein, the
Purchaser hereby consents, pursuant to paragraph 2N of the Agreement, to the
Company entering into the New Senior Credit Agreement. Nothing contained herein
shall be deemed to constitute a waiver of any other Event of Default that may
heretofore or hereafter occur or have occurred and be continuing or to modify
any provision of the Agreement except as expressly set forth herein. No consent
or waiver and, except as otherwise specifically provided herein, no other change
of the terms or provisions of the Agreement is intended or implied. This
Amendment shall not constitute a waiver by the Purchaser of any existing
defaults under the Agreement, whether or not the Purchaser has knowledge of the
same, and shall not constitute a waiver of any future defaults.
2. AMENDMENTS.
(a) Subparagraph 2C(ix) of the Agreement is hereby amended by
replacing the reference to "$20,000,000" therein with "$27,500,000".
<PAGE>
(b) The definition of "Senior Credit Agreement" in the Agreement is
hereby amended and restated in its entirety to read as follows:
"SENIOR CREDIT AGREEMENT" means the Loan and Security Agreement
dated as of December 23, 1999 among the Company and Banc of America
Commercial Finance Corporation through its Commercial Funding Division
(the "Bank"), as such agreement may be amended, restated, supplemented
or otherwise modified from time to time pursuant to and in accordance
with paragraph 2N hereof; provided that if the Company enters into a
loan agreement with a financial institution other than the Bank with
terms that would be permitted as an amendment to Senior Indebtedness
pursuant to paragraph 2N, such loan agreement shall thereafter be
deemed to be the Senior Credit Agreement.
(c) The definition of "Senior Indebtedness" in the Agreement is hereby
amended by replacing the reference to "20,000,000" therein with
"27,500,000."
(d) The following provision is hereby added at the end of subparagraph
6P(ii) of the Agreement as clause (c):
(c) In the event of any Bankruptcy Event, the Registered Holders
hereby expressly consent to the granting by Company to the holders of
Senior Indebtedness of senior liens and priorities in connection with
any post-petition financing of the Company by such holders of Senior
Indebtedness.
(e) The introductory clause of subparagraph 2D(b) of the Agreement is
hereby amended and restated in its entirety to read as follows:
"So long as any Convertible Notes remain outstanding (provided that
during the Term as described in paragraph 2D(c) below, the following
covenants set forth in this subparagraph 2D(b) shall not be
effective), the Company agrees:"
(f) The following provision is hereby added following subparagraph
2D(b) of the Agreement as subparagraph 2D(c):
"During the period commencing with the effective date of the financing
arrangements pursuant to the Senior Credit Agreement as in effect on
the Amendment Effective Date (the "New Credit Facility"), and
continuing throughout the three-year term of the New Credit Facility
(hereinafter the "Term"), but only for so long as any Convertible
<PAGE>
Notes remain outstanding, the Company will not incur cumulative 'net
cash losses' in excess of Five Million Dollars ($5,000,000). 'Net cash
losses' shall mean pre-tax income or loss, in each case as determined
in accordance with generally accepted accounting principles, (a) in
the case of pre-tax income, increased by any non-cash charges and cash
proceeds from new issuances of capital stock or subordinated debt and
decreased by any amounts paid as debt service, or (b) in the case of
pre-tax loss, increased by any amounts paid as debt service and
decreased (offset) by any non-cash charges and cash proceeds from new
issuances of capital stock or subordinated debt. Non-cash charges
include, but are not limited to, depreciation, amortization, and
accrued but unpaid interest or dividends. The covenant set forth in
this paragraph 2D(c) shall apply in lieu of the covenants set forth in
Section 2D(b) above throughout the Term."
(g) The following definition shall be added to paragraph 5A of the
Agreement immediately following the definition of affiliated therein:
"AMENDMENT EFFECTIVE DATE" means December 30, 1999."
(h) The first sentence of Section 2 of the Convertible Notes is hereby
amended and restated in its entirety to read as follows:
"Interest will accrue at the rate of seven percent (7%) per annum
(computed on the basis of a 360-day year, as appropriate, and the
actual number of days elapsed in any year) on the unpaid principal
amount of this Convertible Note outstanding from time to time;
provided that such rate shall be deemed automatically to be (i) eight
percent (8%) during any period in which the aggregate amount
outstanding under the Senior Credit Agreement exceeds $15,000,000, up
to and including $20,000,000 and (ii) nine percent (9%) during any
period in which the aggregate amount outstanding under the Senior
Credit Agreement exceeds $20,000,000; and provided further, that in no
event shall such rate be higher than the highest rate then permitted
under applicable law (it being further agreed that any increase in the
interest rate pursuant to this Section 2 will terminate as of the
close of business on the next Business Day on which the aggregate
amount outstanding under the Senior Credit Agreement declines below
the applicable threshold (subject to subsequent increases pursuant to
this Section 2) and the interest rate will revert to (a) seven percent
(7%) if such aggregate amount outstanding is below $15,000,001 and (b)
eight percent (8%) if such aggregate amount outstanding is above
$15,000,000 and below $20,000,001."
3. RATIFICATION OF AGREEMENT.
<PAGE>
(a) To induce the Purchaser to enter into this Amendment, the Company
represents and warrants that after giving effect to this Amendment, no
violation of the terms of the Agreement exist.
(b) Except as expressly set forth in this Amendment, the terms,
provisions and conditions of the Agreement and the Investment Documents are
unchanged, and said agreements, as amended, shall remain in full force and
effect and are hereby confirmed and ratified.
4. CONDITIONS. This Amendment shall become effective as of the
Amendment Effective Date upon (i) the execution of the counterparts hereof by
the Company and the Purchaser, and (ii) the receipt by the Purchaser of evidence
of the effectiveness of the New Senior Credit Agreement.
5. BINDING ON SUCCESSORS AND ASSIGNS. All the terms and provisions of
this Amendment shall be binding upon and inure to the benefit of the parties
hereto, their respective successors, assigns and legal representatives. Whenever
in this Amendment any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party.
6. FURTHER ASSURANCES. Each of the Company and the Purchaser, as the
case may be, shall duly execute and deliver, or cause to be executed and
delivered, such further instruments and perform or cause to be performed such
further acts as may be necessary or proper in the reasonable opinion of the
Purchaser to carry out the provisions and purposes of this Amendment.
7. EFFECT OF AMENDMENT. To the extent any terms and conditions in the
Agreement shall contradict or be in conflict with any provisions of this
Amendment, the provisions of this Amendment shall govern.
8. EXPENSES. All expenses of the Purchaser incurred in connection with
this Amendment, including reasonable expenses of Purchaser's counsel, will be
paid by the Company.
9. COUNTERPARTS. This Amendment may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP
By: Dresdner Kleinwort Benson Private Equity LLC
Its: General Partner
By: /s/ Alexander P. Coleman
----------------------------------------
Its: Authorized Person
GARDENBURGER, INC.
By: /s/ Richard C. Dietz
-------------------------------------------
Its: Executive Vice President and CFO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's balance sheets and related statements of operations for the
period ended December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,505
<SECURITIES> 0
<RECEIVABLES> 8,147
<ALLOWANCES> 321
<INVENTORY> 9,932
<CURRENT-ASSETS> 26,831
<PP&E> 12,887
<DEPRECIATION> 4,428
<TOTAL-ASSETS> 50,220
<CURRENT-LIABILITIES> 12,684
<BONDS> 18,500
0
33,239
<COMMON> 10,691
<OTHER-SE> (21,584)
<TOTAL-LIABILITY-AND-EQUITY> 50,220
<SALES> 18,750
<TOTAL-REVENUES> 18,750
<CGS> 8,781
<TOTAL-COSTS> 8,781
<OTHER-EXPENSES> 8,898
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> 704
<INCOME-TAX> 260
<INCOME-CONTINUING> (8,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,772)
<EPS-BASIC> (0.99)
<EPS-DILUTED> (0.99)
</TABLE>
