EXHIBIT 10.24

 

THIS WARRANT WAS ORIGINALLY ISSUED ON SEPTEMBER 2, 2004, AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS WARRANT.  THIS WARRANT IS ALSO SUBJECT TO A WARRANT
AGREEMENT DATED AS OF JANUARY 10, 2002 BY AND BETWEEN THE ISSUER HEREOF (THE
“COMPANY”) AND THE ORIGINAL HOLDER HEREOF.  A COPY OF SUCH AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON REQUEST.

 

STOCK PURCHASE WARRANT

 

Date of Issuance: September 2, 2004

Certificate No. W-50

 

For value received, GARDENBURGER, INC., an Oregon corporation (the “Company”),
hereby grants to ANNEX HOLDINGS I LP (the “Initial Purchaser”), or its
transferees and assigns, the right to purchase from the Company a total of
557,981 Warrant Shares (as defined herein) at a price equal to $0.28 per share
(such price per share, the “Initial Exercise Price”).  This Warrant is one of
the warrants (including any warrants issued in exchange or substitution
therefor, collectively, the “Warrants”) issued pursuant to the terms of the
Warrant Agreement, dated as of January 10, 2002 (as amended, restated or
modified from time to time, the “Warrant Agreement”), by and between the Company
and the Initial Purchaser, as transferee of this Warrant from DRESDNER KLEINWORT
BENSON PRIVATE EQUITY PARTNERS LP, a Delaware limited liability partnership. 
The Initial Purchaser agrees to be bound by all of the terms and provisions of
the Warrant Agreement under that certain Instrument of Adherence dated September
2, 2004.  The exercise price and number of Warrant Shares (and the amount and
kind of other securities) for which this Warrant is exercisable shall be subject
to adjustment as provided herein.  Certain capitalized terms used herein are
defined in Section 5 hereof.

 

This Warrant is subject to the following provisions:

 

SECTION 1.  EXERCISE OF WARRANT.

 

A.            EXERCISE PERIOD.  THE PURCHASE RIGHTS REPRESENTED BY THIS WARRANT
MAY BE EXERCISED, IN WHOLE OR IN PART, AT ANY TIME AND FROM TIME TO TIME AFTER
THE DATE HEREOF TO AND INCLUDING 5:00 P.M., NEW YORK TIME, ON JANUARY 10, 2012
OR, IF SUCH DAY IS NOT A BUSINESS DAY, ON THE NEXT PRECEDING BUSINESS DAY (THE
“EXERCISE PERIOD”).

 

B.            EXERCISE PROCEDURE.

 

(I)            THIS WARRANT SHALL BE DEEMED TO HAVE BEEN EXERCISED WHEN ALL OF
THE FOLLOWING ITEMS HAVE BEEN DELIVERED TO THE COMPANY (THE “EXERCISE TIME”):

 

(A)           A COMPLETED EXERCISE AGREEMENT, AS DESCRIBED IN SECTION 1C BELOW,
EXECUTED BY THE PERSON EXERCISING ALL OR PART OF THE PURCHASE RIGHTS REPRESENTED
BY THIS WARRANT (THE “PURCHASER”);

 

(B)           THIS WARRANT; AND

 

(C)           EITHER (I) A CHECK PAYABLE TO THE COMPANY IN AN AMOUNT EQUAL TO
THE PRODUCT OF THE EXERCISE PRICE (AS DEFINED IN SECTION 2) MULTIPLIED BY THE
NUMBER OF WARRANT SHARES BEING PURCHASED UPON SUCH EXERCISE (THE “AGGREGATE
EXERCISE PRICE”), (II) THE SURRENDER TO THE COMPANY OF SECURITIES OF THE COMPANY
OR ITS SUBSIDIARIES HAVING A VALUE EQUAL TO THE AGGREGATE EXERCISE PRICE OF THE
WARRANT SHARES BEING PURCHASED UPON SUCH EXERCISE (WHICH VALUE IN THE CASE OF
DEBT SECURITIES SHALL BE DEEMED TO BE EQUAL TO THE AGGREGATE OUTSTANDING

 

--------------------------------------------------------------------------------

 

PRINCIPAL AMOUNT THEREOF PLUS ALL ACCRUED AND UNPAID INTEREST THEREON, AND IN
THE CASE OF SHARES OF COMMON STOCK SHALL BE THE FAIR MARKET VALUE THEREOF), OR
(III) THE DELIVERY OF A NOTICE TO THE COMPANY THAT THE PURCHASER IS EXERCISING
THE WARRANT BY AUTHORIZING THE COMPANY TO REDUCE THE NUMBER OF WARRANT SHARES
SUBJECT TO THE WARRANT BY THE NUMBER OF SHARES HAVING AN AGGREGATE FAIR MARKET
VALUE EQUAL TO THE AGGREGATE EXERCISE PRICE.

 

(II)           CERTIFICATES FOR WARRANT SHARES PURCHASED UPON EXERCISE OF THIS
WARRANT SHALL BE DELIVERED BY THE COMPANY TO THE PURCHASER WITHIN FIVE DAYS
AFTER THE DATE OF THE EXERCISE TIME TOGETHER WITH ANY CASH PAYABLE IN LIEU OF A
FRACTION OF A SHARE PURSUANT TO SECTION 13 HEREOF.  UNLESS THIS WARRANT HAS
EXPIRED OR ALL OF THE PURCHASE RIGHTS REPRESENTED HEREBY HAVE BEEN EXERCISED,
THE COMPANY SHALL PREPARE A NEW WARRANT, SUBSTANTIALLY IDENTICAL HERETO,
REPRESENTING THE RIGHTS FORMERLY REPRESENTED BY THIS WARRANT WHICH HAVE NOT
EXPIRED OR BEEN EXERCISED AND SHALL, WITHIN SUCH FIVE-DAY PERIOD, DELIVER SUCH
NEW WARRANT TO THE PERSON DESIGNATED FOR DELIVERY IN THE EXERCISE AGREEMENT.

 

(III)          THE WARRANT SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
SHALL BE DEEMED TO HAVE BEEN ISSUED TO THE PURCHASER AT THE EXERCISE TIME, AND
THE PURCHASER SHALL BE DEEMED FOR ALL PURPOSES TO HAVE BECOME THE REGISTERED
HOLDER OF SUCH WARRANT SHARES AT THE EXERCISE TIME.

 

(IV)          THE ISSUANCE OF CERTIFICATES FOR WARRANT SHARES UPON EXERCISE OF
THIS WARRANT SHALL BE MADE WITHOUT CHARGE TO THE REGISTERED HOLDER OR THE
PURCHASER FOR ANY ISSUANCE TAX IN RESPECT THEREOF OR OTHER COST INCURRED BY THE
COMPANY IN CONNECTION WITH SUCH EXERCISE AND THE RELATED ISSUANCE OF WARRANT
SHARES.

 

(V)           THE COMPANY SHALL NOT CLOSE ITS BOOKS AGAINST THE TRANSFER OF THIS
WARRANT OR OF ANY WARRANT SHARES ISSUED OR ISSUABLE UPON THE EXERCISE OF THIS
WARRANT IN ANY MANNER WHICH INTERFERES WITH THE TIMELY EXERCISE OF THIS WARRANT.

 

(VI)          THE COMPANY SHALL ASSIST AND COOPERATE WITH THE REGISTERED HOLDER
OR ANY PURCHASER REQUIRED TO MAKE ANY GOVERNMENTAL FILINGS OR OBTAIN ANY
GOVERNMENTAL APPROVALS PRIOR TO OR IN CONNECTION WITH ANY EXERCISE OF THIS
WARRANT.

 

(VII)         NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IF AN EXERCISE OF ANY
PORTION OF THIS WARRANT IS TO BE MADE IN CONNECTION WITH A PUBLIC OFFERING OR A
SALES EVENT, SUCH EXERCISE MAY AT THE ELECTION OF THE REGISTERED HOLDER BE
CONDITIONED UPON THE CONSUMMATION OF SUCH TRANSACTION, IN WHICH CASE SUCH
EXERCISE SHALL NOT BE DEEMED TO BE EFFECTIVE UNTIL IMMEDIATELY PRIOR TO THE
CONSUMMATION OF SUCH TRANSACTION.

 

(VIII)        THE COMPANY SHALL AT ALL TIMES RESERVE AND KEEP AVAILABLE OUT OF
ITS AUTHORIZED BUT UNISSUED COMMON STOCK SOLELY FOR THE PURPOSE OF ISSUANCE UPON
THE EXERCISE OF THE WARRANTS, THE MAXIMUM NUMBER OF WARRANT SHARES ISSUABLE UPON
EXERCISE OF ALL OUTSTANDING WARRANTS.  ALL WARRANT SHARES WHICH ARE SO ISSUABLE
SHALL, WHEN ISSUED AND UPON THE PAYMENT OF THE APPLICABLE EXERCISE PRICE, BE
DULY AND VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND FREE FROM ALL TAXES,
LIENS, ADVERSE CLAIMS AND CHARGES.  THE COMPANY SHALL TAKE ALL SUCH ACTIONS AS
MAY BE NECESSARY TO ENSURE THAT ALL SUCH WARRANT SHARES MAY BE SO ISSUED WITHOUT
VIOLATION BY THE COMPANY OF ANY APPLICABLE LAW OR GOVERNMENTAL REGULATION OR ANY
REQUIREMENTS OF ANY DOMESTIC OR FOREIGN SECURITIES EXCHANGE UPON WHICH SHARES OF
COMMON STOCK, OR OTHER SECURITIES CONSTITUTING WARRANT SHARES, MAY BE LISTED
(EXCEPT FOR OFFICIAL NOTICE OF ISSUANCE WHICH SHALL BE IMMEDIATELY DELIVERED BY
THE COMPANY UPON EACH SUCH ISSUANCE).  THE COMPANY SHALL USE ITS BEST EFFORTS TO
CAUSE THE WARRANT SHARES, IMMEDIATELY UPON SUCH EXERCISE, TO BE LISTED ON ANY
DOMESTIC OR FOREIGN SECURITIES EXCHANGE UPON WHICH SHARES OF COMMON STOCK, OR
OTHER SECURITIES CONSTITUTING WARRANT SHARES, ARE LISTED AT THE TIME OF SUCH
EXERCISE.  THE COMPANY SHALL NOT TAKE ANY ACTION WHICH WOULD CAUSE THE NUMBER OF
AUTHORIZED BUT UNISSUED SHARES OF COMMON STOCK TO BE LESS THAN THE NUMBER OF
SHARES REQUIRED TO BE RESERVED HEREUNDER FOR ISSUANCE UPON EXERCISE OF THE
WARRANTS.

 

(IX)           IF THE WARRANT SHARES ISSUABLE BY REASON OF EXERCISE OF THIS
WARRANT ARE CONVERTIBLE INTO OR EXCHANGEABLE FOR ANY OTHER STOCK OR SECURITIES
OF THE COMPANY, THE COMPANY SHALL, AT THE PURCHASER’S OPTION AND UPON SURRENDER
OF THIS WARRANT BY SUCH PURCHASER AS PROVIDED ABOVE TOGETHER WITH ANY NOTICE,
STATEMENT OR PAYMENT REQUIRED TO EFFECT SUCH CONVERSION OR EXCHANGE OF WARRANT
SHARES, DELIVER TO SUCH PURCHASER (OR AS OTHERWISE SPECIFIED BY SUCH PURCHASER)
A CERTIFICATE OR CERTIFICATES REPRESENTING THE STOCK OR

 

2

--------------------------------------------------------------------------------

 

SECURITIES INTO WHICH THE WARRANT SHARES ISSUABLE BY REASON OF SUCH CONVERSION
ARE CONVERTIBLE OR EXCHANGEABLE, REGISTERED IN SUCH NAME OR NAMES AND IN SUCH
DENOMINATION OR DENOMINATIONS AS SUCH PURCHASER HAS SPECIFIED.

 

(X)            THE COMPANY SHALL NOT, AND SHALL NOT PERMIT ITS SUBSIDIARIES TO,
DIRECTLY OR INDIRECTLY, BY ANY ACTION (INCLUDING, WITHOUT LIMITATION,
REINCORPORATING IN A JURISDICTION OTHER THAN OREGON OR DELAWARE, AMENDING ITS
ARTICLES OF INCORPORATION OR THROUGH ANY ORGANIC CHANGE (AS DEFINED IN
SECTION 2D), THE ISSUANCE OR SALE OF SECURITIES OR ANY OTHER VOLUNTARY ACTION)
AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS OF THIS
WARRANT (EXCEPT FOR ANY ACTION WHICH RATABLY AFFECTS ALL WARRANT SHARES AND
SHARES OF COMMON STOCK), BUT SHALL AT ALL TIMES IN GOOD FAITH ASSIST IN THE
CARRYING OUT OF ALL SUCH TERMS OF THIS WARRANT.  WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, THE COMPANY SHALL (A) OBTAIN ALL SUCH AUTHORIZATIONS,
EXEMPTIONS OR CONSENTS FROM ANY PUBLIC REGULATORY BODY HAVING JURISDICTION
THEREOF AS MAY BE NECESSARY TO ENABLE THE COMPANY TO PERFORM ITS OBLIGATIONS
UNDER THIS WARRANT AND (B) NOT UNDERTAKE ANY REVERSE STOCK SPLIT, COMBINATION,
REORGANIZATION OR OTHER RECLASSIFICATION OF ITS CAPITAL STOCK WHICH WOULD HAVE
THE EFFECT OF MAKING THIS WARRANT EXERCISABLE FOR LESS THAN ONE SHARE OF COMMON
STOCK.  NOTWITHSTANDING THE FOREGOING, THE REGISTERED HOLDERS MAY WAIVE ANY OF
THEIR RIGHTS UNDER THIS WARRANT, INCLUDING WITHOUT LIMITATION, THE ANTIDILUTION
RIGHTS SET FORTH IN SECTION 2 BELOW.

 

C.            EXERCISE AGREEMENT.  UPON ANY EXERCISE OF THIS WARRANT, THE
PURCHASER SHALL DELIVER TO THE COMPANY AN EXERCISE AGREEMENT IN SUBSTANTIALLY
THE FORM SET FORTH IN EXHIBIT I HERETO, EXCEPT THAT IF THE WARRANT SHARES ARE
NOT TO BE ISSUED IN THE NAME OF THE REGISTERED HOLDER, THE EXERCISE AGREEMENT
SHALL ALSO STATE THE NAME OF THE PERSON TO WHOM THE CERTIFICATES FOR THE WARRANT
SHARES ARE TO BE ISSUED, AND IF THE NUMBER OF WARRANT SHARES TO BE ISSUED DOES
NOT INCLUDE ALL OF THE WARRANT SHARES PURCHASABLE HEREUNDER, IT SHALL ALSO STATE
THE NAME OF THE PERSON TO WHOM A NEW WARRANT FOR THE UNEXERCISED PORTION OF THE
RIGHTS HEREUNDER IS TO BE ISSUED.

 

D.            AUTOMATIC EXERCISE.

 

(I)            THIS WARRANT SHALL BE DEEMED TO HAVE BEEN EXERCISED IN FULL
AUTOMATICALLY IN A CASHLESS EXERCISE AS DESCRIBED IN SECTION 1B(I)(C)(III) ABOVE
UPON THE CLOSING OF A TRANSACTION CONSTITUTING A SALES EVENT.

 

(II)           IF A SALES EVENT OCCURS IN WHICH THE PROCEEDS TO THE HOLDER OF
THIS WARRANT EXCEED THE AGGREGATE EXERCISE PRICE FOR THE WARRANT SHARES, THE
EXERCISE OF THIS WARRANT WILL BE DEEMED TO OCCUR, AND THE EXERCISE TIME WILL BE
DEEMED TO BE, IMMEDIATELY PRIOR TO THE CLOSING OF SUCH SALES EVENT; PROVIDED,
THAT THIS WARRANT SHALL BE CANCELLED IN THE EVENT THAT THE PROCEEDS TO THE
HOLDER OF THIS WARRANT WOULD BE LESS THAN OR EQUAL TO THE AGGREGATE EXERCISE
PRICE FOR THE WARRANT SHARES.  THE PROVISIONS OF SECTION 1B(II) THROUGH (X) WILL
APPLY TO SUCH EXERCISE.

 

SECTION 2.  ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES.  IN ORDER TO
PREVENT DILUTION OF THE RIGHTS GRANTED UNDER THIS WARRANT, THE INITIAL EXERCISE
PRICE SHALL BE SUBJECT TO ADJUSTMENT FROM TIME TO TIME AS PROVIDED IN THIS
SECTION 2 (AS SO ADJUSTED, THE “EXERCISE PRICE”), AND THE NUMBER OF WARRANT
SHARES OBTAINABLE UPON EXERCISE OF THIS WARRANT SHALL BE SUBJECT TO ADJUSTMENT
FROM TIME TO TIME, EACH AS PROVIDED IN THIS SECTION 2.

 

A.            ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
COMMON STOCK.

 

(I)            IF AND WHENEVER, ON OR AFTER THE DATE OF ISSUANCE, THE COMPANY
ISSUES OR SELLS, OR IN ACCORDANCE WITH SECTION 2B IS DEEMED TO HAVE ISSUED OR
SOLD (OTHER THAN PURSUANT TO A PERMITTED ISSUANCE) ANY SHARES OF COMMON STOCK
FOR A CONSIDERATION PER SHARE LESS THAN THE PER SHARE EXERCISE PRICE IMMEDIATELY
PRIOR TO SUCH ISSUANCE OR SALE, THEN IMMEDIATELY UPON SUCH ISSUANCE OR SALE, THE
EXERCISE PRICE SHALL BE REDUCED TO A PRICE (CALCULATED TO THE NEAREST CENT)
DETERMINED BY MULTIPLYING THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH
ISSUANCE OR SALE BY A FRACTION, (A) THE NUMERATOR OF WHICH SHALL BE THE NUMBER
OF SHARES OF COMMON STOCK DEEMED OUTSTANDING IMMEDIATELY PRIOR TO SUCH ISSUANCE
OR SALE PLUS THE NUMBER OF SHARES OF COMMON STOCK WHICH THE AGGREGATE
CONSIDERATION RECEIVED BY THE COMPANY FOR THE TOTAL NUMBER OF ADDITIONAL SHARES
OF COMMON STOCK ACTUALLY SO ISSUED WOULD PURCHASE AT THE EXERCISE PRICE IN
EFFECT IMMEDIATELY PRIOR TO SUCH ISSUANCE OR SALE, AND (B) THE DENOMINATOR OF
WHICH WILL BE THE NUMBER OF SHARES OF COMMON STOCK DEEMED OUTSTANDING
IMMEDIATELY PRIOR TO SUCH ISSUANCE OR SALE PLUS THE NUMBER OF ADDITIONAL SHARES
OF COMMON STOCK ACTUALLY SO ISSUED.

 

3

--------------------------------------------------------------------------------

 

(II)           UPON EACH SUCH ADJUSTMENT OF THE EXERCISE PRICE HEREUNDER, THE
NUMBER OF WARRANT SHARES ACQUIRABLE UPON EXERCISE OF THIS WARRANT SHALL BE
ADJUSTED TO EQUAL THE NUMBER OF SHARES DETERMINED BY MULTIPLYING THE EXERCISE
PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ADJUSTMENT BY THE NUMBER OF WARRANT
SHARES ACQUIRABLE UPON EXERCISE OF THIS WARRANT IMMEDIATELY PRIOR TO SUCH
ADJUSTMENT AND DIVIDING THE PRODUCT THEREOF BY THE EXERCISE PRICE RESULTING FROM
SUCH ADJUSTMENT.

 

B.            EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS.  FOR PURPOSES OF
DETERMINING THE ADJUSTED EXERCISE PRICE UNDER SECTION 2A, THE FOLLOWING SHALL BE
APPLICABLE:

 

(I)            ISSUANCE OF RIGHTS OR OPTIONS.  IF AFTER THE DATE OF ISSUANCE THE
COMPANY IN ANY MANNER GRANTS ANY RIGHTS OR OPTIONS (OTHER THAN PURSUANT TO A
PERMITTED ISSUANCE) TO SUBSCRIBE FOR OR TO PURCHASE COMMON STOCK OR ANY STOCK OR
OTHER SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR COMMON STOCK (INCLUDING
WITHOUT LIMITATION CONVERTIBLE COMMON STOCK) (SUCH RIGHTS OR OPTIONS BEING
HEREIN CALLED “OPTIONS” AND SUCH CONVERTIBLE OR EXCHANGEABLE STOCK OR SECURITIES
BEING HEREIN CALLED “CONVERTIBLE SECURITIES”) AND THE PRICE PER SHARE FOR WHICH
COMMON STOCK IS ISSUABLE UPON THE EXERCISE OF SUCH OPTIONS OR UPON CONVERSION OR
EXCHANGE OF SUCH CONVERTIBLE SECURITIES IS LESS THAN THE EXERCISE PRICE THEN IN
EFFECT, THEN THE TOTAL MAXIMUM NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON
THE EXERCISE OF SUCH OPTIONS OR UPON CONVERSION OR EXCHANGE OF THE TOTAL MAXIMUM
AMOUNT OF SUCH CONVERTIBLE SECURITIES ISSUABLE UPON THE EXERCISE OF SUCH OPTIONS
SHALL BE DEEMED TO BE OUTSTANDING AND TO HAVE BEEN ISSUED AND SOLD BY THE
COMPANY FOR SUCH PRICE PER SHARE.  FOR PURPOSES OF THIS PARAGRAPH, THE “PRICE
PER SHARE FOR WHICH COMMON STOCK IS ISSUABLE UPON EXERCISE OF SUCH OPTIONS OR
UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES” IS DETERMINED BY
DIVIDING (A) THE TOTAL AMOUNT, IF ANY, RECEIVED OR RECEIVABLE BY THE COMPANY AS
CONSIDERATION FOR THE GRANTING OF SUCH OPTIONS, PLUS THE MINIMUM AGGREGATE
AMOUNT OF ADDITIONAL CONSIDERATION PAYABLE TO THE COMPANY UPON THE EXERCISE OF
ALL SUCH OPTIONS, PLUS IN THE CASE OF SUCH OPTIONS WHICH RELATE TO CONVERTIBLE
SECURITIES, THE MINIMUM AGGREGATE AMOUNT OF ADDITIONAL CONSIDERATION, IF ANY,
PAYABLE TO THE COMPANY UPON THE ISSUANCE OR SALE OF SUCH CONVERTIBLE SECURITIES
AND THE CONVERSION OR EXCHANGE THEREOF, BY (B) THE TOTAL MAXIMUM NUMBER OF
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH OPTIONS OR UPON THE
CONVERSION OR EXCHANGE OF ALL SUCH CONVERTIBLE SECURITIES ISSUABLE UPON THE
EXERCISE OF SUCH OPTIONS.  NO FURTHER ADJUSTMENT OF THE EXERCISE PRICE SHALL BE
MADE UPON THE ACTUAL ISSUANCE OF SUCH COMMON STOCK OR OF SUCH CONVERTIBLE
SECURITIES UPON THE EXERCISE OF SUCH OPTIONS OR UPON THE ACTUAL ISSUANCE OF SUCH
COMMON STOCK UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES.

 

(II)           ISSUANCE OF CONVERTIBLE SECURITIES.  IF AFTER THE DATE OF
ISSUANCE THE COMPANY IN ANY MANNER ISSUES OR SELLS ANY CONVERTIBLE SECURITIES
(OTHER THAN PURSUANT TO A PERMITTED ISSUANCE) AND THE PRICE PER SHARE FOR WHICH
COMMON STOCK IS ISSUABLE UPON SUCH CONVERSION OR EXCHANGE THEREOF IS LESS THAN
THE EXERCISE PRICE THEN IN EFFECT, THEN THE MAXIMUM NUMBER OF SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES SHALL
BE DEEMED TO BE OUTSTANDING AND TO HAVE BEEN ISSUED AND SOLD BY THE COMPANY FOR
SUCH PRICE PER SHARE.  FOR THE PURPOSES OF THIS PARAGRAPH, THE “PRICE PER SHARE
FOR WHICH COMMON STOCK IS ISSUABLE UPON SUCH CONVERSION OR EXCHANGE THEREOF” IS
DETERMINED BY DIVIDING (A) THE TOTAL AMOUNT RECEIVED OR RECEIVABLE BY THE
COMPANY AS CONSIDERATION FOR THE ISSUANCE OR SALE OF SUCH CONVERTIBLE
SECURITIES, PLUS THE MINIMUM AGGREGATE AMOUNT OF ADDITIONAL CONSIDERATION, IF
ANY, PAYABLE TO THE COMPANY UPON THE CONVERSION OR EXCHANGE THEREOF, BY (B) THE
TOTAL MAXIMUM NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OR
EXCHANGE OF ALL SUCH CONVERTIBLE SECURITIES.  NO FURTHER ADJUSTMENT OF THE
EXERCISE PRICE SHALL BE MADE UPON THE ACTUAL ISSUE OF SUCH COMMON STOCK UPON
CONVERSION OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES, AND IF ANY SUCH ISSUANCE
OR SALE OF SUCH CONVERTIBLE SECURITIES IS MADE UPON EXERCISE OF ANY OPTIONS FOR
WHICH ADJUSTMENTS OF THE EXERCISE PRICE HAVE BEEN OR ARE TO BE MADE PURSUANT TO
OTHER PROVISIONS OF THIS SECTION 2B, NO FURTHER ADJUSTMENT OF THE EXERCISE PRICE
SHALL BE MADE BY REASON OF SUCH ISSUANCE OR SALE.

 

(III)          CHANGE IN OPTION PRICE OR CONVERSION RATE.  IF THE PURCHASE PRICE
PROVIDED FOR IN ANY OPTIONS, THE ADDITIONAL CONSIDERATION, IF ANY, PAYABLE UPON
THE ISSUE, CONVERSION OR EXCHANGE OF ANY CONVERTIBLE SECURITIES, OR THE RATE AT
WHICH ANY CONVERTIBLE SECURITIES ARE CONVERTIBLE INTO OR EXCHANGEABLE FOR COMMON
STOCK SHALL CHANGE AT ANY TIME, THE EXERCISE PRICE IN EFFECT AT THE TIME OF SUCH
CHANGE SHALL BE ADJUSTED TO THE EXERCISE PRICE WHICH WOULD HAVE BEEN IN EFFECT
AT SUCH TIME HAD SUCH OPTIONS OR CONVERTIBLE SECURITIES STILL OUTSTANDING
PROVIDED FOR SUCH CHANGED PURCHASE PRICE, ADDITIONAL CONSIDERATION OR CHANGED
CONVERSION RATE, AS THE CASE MAY BE, AT THE TIME INITIALLY GRANTED, ISSUED OR
SOLD AND THE NUMBER OF WARRANT SHARES SHALL BE CORRESPONDINGLY READJUSTED.

 

4

--------------------------------------------------------------------------------

 

(IV)          TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES.  UPON THE EXPIRATION OF ANY OPTION OR THE TERMINATION OF ANY RIGHT
TO CONVERT OR EXCHANGE ANY CONVERTIBLE SECURITIES, IN EITHER CASE WITHOUT THE
EXERCISE OF SUCH OPTION OR RIGHT, THE EXERCISE PRICE THEN IN EFFECT AND THE
NUMBER OF WARRANT SHARES ACQUIRABLE HEREUNDER SHALL BE ADJUSTED TO THE EXERCISE
PRICE AND THE NUMBER OF SHARES WHICH WOULD HAVE BEEN IN EFFECT AT THE TIME OF
SUCH EXPIRATION OR TERMINATION HAD SUCH OPTION OR CONVERTIBLE SECURITIES, TO THE
EXTENT OUTSTANDING IMMEDIATELY PRIOR TO SUCH EXPIRATION OR TERMINATION, NEVER
BEEN ISSUED; PROVIDED, THAT IN NO EVENT SHALL THE EXERCISE PRICE BE ADJUSTED TO
AN AMOUNT GREATER THAN THE INITIAL EXERCISE PRICE.

 

(V)           CALCULATION OF CONSIDERATION RECEIVED.  IF ANY COMMON STOCK,
OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED OR SOLD OR DEEMED TO HAVE BEEN
ISSUED OR SOLD FOR CASH, THE CONSIDERATION RECEIVED THEREFOR SHALL BE DEEMED TO
BE THE NET AMOUNT RECEIVED BY THE COMPANY THEREFOR.  IN CASE ANY COMMON STOCK,
OPTIONS OR CONVERTIBLE SECURITIES ARE ISSUED OR SOLD FOR A CONSIDERATION OTHER
THAN CASH, THE AMOUNT OF THE CONSIDERATION OTHER THAN CASH RECEIVED BY THE
COMPANY SHALL BE THE FAIR VALUE OF SUCH CONSIDERATION, EXCEPT WHERE SUCH
CONSIDERATION CONSISTS OF MARKETABLE SECURITIES, IN WHICH CASE THE AMOUNT OF
CONSIDERATION RECEIVED BY THE COMPANY SHALL BE THE MARKET PRICE THEREOF AS OF
THE DATE OF RECEIPT.  IN CASE ANY COMMON STOCK, OPTIONS OR CONVERTIBLE
SECURITIES ARE ISSUED TO THE OWNERS OF THE NON-SURVIVING ENTITY IN CONNECTION
WITH ANY MERGER, AMALGAMATION OR OTHER BUSINESS COMBINATION OR RE-ORGANIZATION
IN WHICH THE COMPANY IS THE SURVIVING ENTITY, THE AMOUNT OF CONSIDERATION
THEREFOR SHALL BE DEEMED TO BE THE FAIR VALUE OF SUCH PORTION OF THE NET ASSETS
AND BUSINESS OF THE NON-SURVIVING ENTITY AS IS ATTRIBUTABLE TO SUCH COMMON
STOCK, OPTIONS OR CONVERTIBLE SECURITIES, AS THE CASE MAY BE.  THE FAIR VALUE OF
ANY CONSIDERATION OTHER THAN CASH OR MARKETABLE SECURITIES SHALL BE DETERMINED
JOINTLY BY THE COMPANY AND THE REQUIRED HOLDERS THROUGH GOOD FAITH
NEGOTIATIONS.  IF SUCH PARTIES ARE UNABLE TO REACH AGREEMENT WITHIN A REASONABLE
PERIOD OF TIME, SUCH FAIR VALUE SHALL BE DETERMINED BY AN APPRAISER JOINTLY
SELECTED BY THE COMPANY AND THE REQUIRED HOLDERS, WHOSE DETERMINATION SHALL BE
FINAL AND BINDING ON THE COMPANY, AND THE FEES AND EXPENSES OF SUCH APPRAISER
SHALL BE PAID ONE-HALF BY THE COMPANY AND ONE-HALF BY THE REQUIRED HOLDERS ON A
PRO RATA BASIS.

 

(VI)          INTEGRATED TRANSACTIONS.  IN CASE ANY OPTION IS ISSUED IN
CONNECTION WITH THE ISSUE OR SALE OF OTHER SECURITIES OF THE COMPANY, TOGETHER
COMPRISING ONE INTEGRATED TRANSACTION IN WHICH NO SPECIFIC CONSIDERATION IS
ALLOCATED TO SUCH OPTIONS BY THE PARTIES THERETO, THE OPTION SHALL BE DEEMED TO
HAVE BEEN ISSUED FOR NO CONSIDERATION.

 

(VII)         TREASURY SHARES.  THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
AT ANY GIVEN TIME DOES NOT INCLUDE SHARES OWNED OR HELD BY OR FOR THE ACCOUNT OF
THE COMPANY OR ANY SUBSIDIARY OF THE COMPANY AND THE DISPOSITION OF ANY SHARES
SO OWNED OR HELD SHALL BE CONSIDERED AN ISSUE OR SALE OF COMMON STOCK.

 

(VIII)        RECORD DATE.  IF THE COMPANY TAKES A RECORD OF THE HOLDERS OF
COMMON STOCK FOR THE PURPOSE OF ENTITLING THEM (A) TO RECEIVE A DIVIDEND OR
OTHER DISTRIBUTION PAYABLE IN COMMON STOCK, OPTIONS OR CONVERTIBLE SECURITIES OR
(B) TO SUBSCRIBE FOR OR PURCHASE COMMON STOCK, OPTIONS OR CONVERTIBLE
SECURITIES, THEN SUCH RECORD DATE SHALL BE DEEMED TO BE THE DATE OF THE ISSUE OR
SALE OF THE SHARES OF COMMON STOCK DEEMED TO HAVE BEEN ISSUED OR SOLD UPON THE
DECLARATION OF SUCH DIVIDEND OR THE MAKING OF SUCH OTHER DISTRIBUTION OR THE
DATE OF THE GRANTING OF SUCH RIGHT OF SUBSCRIPTION OR PURCHASE, AS THE CASE MAY
BE.

 

C.            SUBDIVISION OR COMBINATION OF COMMON STOCK.  IF THE COMPANY AT ANY
TIME SUBDIVIDES (BY ANY STOCK SPLIT, STOCK DIVIDEND, RECAPITALIZATION OR
OTHERWISE) THE COMMON STOCK INTO A GREATER NUMBER OF SHARES OR PAYS A DIVIDEND
OR MAKES A DISTRIBUTION TO HOLDERS OF THE COMMON STOCK IN THE FORM OF SHARES OF
COMMON STOCK, THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH SUBDIVISION
SHALL BE PROPORTIONATELY REDUCED AND THE NUMBER OF WARRANT SHARES OBTAINABLE
UPON EXERCISE OF THIS WARRANT SHALL BE PROPORTIONATELY INCREASED.  SUBJECT TO
CLAUSE (B) OF SECTION 1B(X), IF THE COMPANY AT ANY TIME COMBINES (BY REVERSE
STOCK SPLIT OR OTHERWISE) THE COMMON STOCK INTO A SMALLER NUMBER OF SHARES, THE
EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH COMBINATION SHALL BE
PROPORTIONATELY INCREASED AND THE NUMBER OF WARRANT SHARES OBTAINABLE UPON
EXERCISE OF THIS WARRANT SHALL BE PROPORTIONATELY DECREASED.

 

D.            ORGANIC CHANGE.  ANY RECAPITALIZATION, REORGANIZATION,
RECLASSIFICATION OR OTHER TRANSACTION WHICH DOES NOT CONSTITUTE A SALES EVENT
AND IS EFFECTED IN SUCH A WAY THAT HOLDERS OF COMMON STOCK ARE ENTITLED TO
RECEIVE (EITHER DIRECTLY OR UPON SUBSEQUENT LIQUIDATION) STOCK, SECURITIES OR
ASSETS WITH RESPECT TO OR IN

 

5

--------------------------------------------------------------------------------

 

EXCHANGE FOR COMMON STOCK IS REFERRED TO HEREIN AS AN “ORGANIC CHANGE”.  PRIOR
TO THE CONSUMMATION OF ANY ORGANIC CHANGE, THE COMPANY SHALL MAKE APPROPRIATE
PROVISION TO ENSURE THAT EACH REGISTERED HOLDER OF WARRANTS SHALL THEREAFTER
HAVE THE RIGHT TO ACQUIRE AND RECEIVE UPON EXERCISE THEREOF, IN LIEU OF OR
ADDITION TO (AS THE CASE MAY BE) THE WARRANT SHARES IMMEDIATELY THERETOFORE
ACQUIRABLE AND RECEIVABLE UPON EXERCISE OF SUCH REGISTERED HOLDER’S WARRANTS,
SUCH SHARES OF STOCK, SECURITIES OR ASSETS AS MAY BE ISSUED OR PAYABLE WITH
RESPECT TO OR IN EXCHANGE FOR THE NUMBER OF WARRANT SHARES IMMEDIATELY
THERETOFORE ACQUIRABLE AND RECEIVABLE UPON EXERCISE OF SUCH REGISTERED HOLDER’S
WARRANTS HAD SUCH ORGANIC CHANGE NOT TAKEN PLACE.  IN ANY SUCH CASE, THE COMPANY
SHALL MAKE APPROPRIATE PROVISION (IN FORM AND SUBSTANCE SATISFACTORY TO THE
REQUIRED HOLDERS) WITH RESPECT TO SUCH REGISTERED HOLDER’S RIGHTS AND INTERESTS
TO INSURE THAT THE PROVISIONS HEREOF (INCLUDING SECTIONS 2, 3 AND 4 HEREOF)
SHALL THEREAFTER BE APPLICABLE TO THE WARRANTS (INCLUDING, IN THE CASE OF ANY
SUCH ORGANIC CHANGE IN WHICH THE SUCCESSOR ENTITY OR PURCHASING ENTITY IS OTHER
THAN THE COMPANY, AN IMMEDIATE ADJUSTMENT OF THE EXERCISE PRICE TO THE VALUE FOR
THE COMMON STOCK REFLECTED BY THE TERMS OF SUCH ORGANIC CHANGE AND A
CORRESPONDING IMMEDIATE ADJUSTMENT IN THE NUMBER OF WARRANT SHARES ACQUIRABLE
AND RECEIVABLE UPON EXERCISE OF THE WARRANTS, IF THE VALUE SO REFLECTED IS LESS
THAN THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ORGANIC CHANGE). 
THE COMPANY SHALL NOT EFFECT ANY SUCH ORGANIC CHANGE UNLESS, PRIOR TO THE
CONSUMMATION THEREOF, THE SUCCESSOR ENTITY (IF OTHER THAN THE COMPANY) RESULTING
FROM SUCH ORGANIC CHANGE (INCLUDING A PURCHASER OF ALL OR SUBSTANTIALLY ALL THE
COMPANY’S ASSETS) ASSUMES BY WRITTEN INSTRUMENT (IN FORM AND SUBSTANCE
SATISFACTORY TO THE REQUIRED HOLDERS) THE OBLIGATION TO DELIVER TO EACH
REGISTERED HOLDER OF THE WARRANTS SUCH SHARES OF STOCK, SECURITIES OR ASSETS AS,
IN ACCORDANCE WITH THE FOREGOING PROVISIONS, SUCH REGISTERED HOLDER MAY BE
ENTITLED TO ACQUIRE.

 

E.             CERTAIN EVENTS.  IF ANY EVENT OCCURS OF THE TYPE CONTEMPLATED BY
THE PROVISIONS OF THIS SECTION 2 BUT NOT EXPRESSLY PROVIDED FOR BY SUCH
PROVISIONS (INCLUDING, WITHOUT LIMITATION, THE GRANTING OF STOCK APPRECIATION
RIGHTS, PHANTOM STOCK RIGHTS OR OTHER RIGHTS WITH EQUITY FEATURES BUT EXCLUDING
ANY PERMITTED ISSUANCE), THEN THE COMPANY’S BOARD OF DIRECTORS AND THE REQUIRED
HOLDERS SHALL NEGOTIATE IN GOOD FAITH AND AGREE ON AN APPROPRIATE ADJUSTMENT IN
THE EXERCISE PRICE AND THE NUMBER OF WARRANT SHARES OBTAINABLE UPON EXERCISE OF
THIS WARRANT SO AS TO PROTECT THE RIGHTS OF THE REGISTERED HOLDER OF THIS
WARRANT.

 

F.             NOTICES.

 

(I)            PROMPTLY UPON ANY ADJUSTMENT OF THE EXERCISE PRICE, THE COMPANY
SHALL GIVE WRITTEN NOTICE THEREOF TO THE REGISTERED HOLDER, SETTING FORTH IN
REASONABLE DETAIL AND CERTIFYING THE CALCULATION OF SUCH ADJUSTMENT.

 

(II)           THE COMPANY SHALL GIVE WRITTEN NOTICE TO THE REGISTERED HOLDER AT
LEAST 30 DAYS PRIOR TO THE DATE ON WHICH THE COMPANY CLOSES ITS BOOKS OR TAKES A
RECORD (A) WITH RESPECT TO ANY DIVIDEND OR DISTRIBUTION UPON THE COMMON STOCK,
(B) WITH RESPECT TO ANY PRO RATA SUBSCRIPTION OFFER TO HOLDERS OF COMMON STOCK,
OR (C) FOR DETERMINING RIGHTS TO VOTE WITH RESPECT TO ANY ORGANIC CHANGE,
DISSOLUTION OR LIQUIDATION.

 

(III)          THE COMPANY SHALL ALSO GIVE WRITTEN NOTICE TO THE REGISTERED
HOLDER AT LEAST 30 DAYS PRIOR TO THE DATE ON WHICH ANY ORGANIC CHANGE,
DISSOLUTION OR LIQUIDATION SHALL TAKE PLACE.

 

SECTION 3.  DIVIDENDS; SHAREHOLDERS RIGHTS.  IF THE COMPANY PAYS A DIVIDEND OR
DISTRIBUTION UPON THE COMMON STOCK, OTHER THAN DIVIDENDS OR DISTRIBUTIONS
DESCRIBED IN SECTION 2C, THEN THE COMPANY SHALL PAY TO THE HOLDER OF THIS
WARRANT, AT THE TIME OF PAYMENT THEREOF, SUCH DIVIDEND OR DISTRIBUTION WHICH
WOULD HAVE BEEN PAID TO SUCH HOLDER HAD THIS WARRANT BEEN FULLY EXERCISED
IMMEDIATELY PRIOR TO THE DATE ON WHICH A RECORD IS TAKEN FOR SUCH DIVIDEND OR
DISTRIBUTION OR, IF NO RECORD IS TAKEN, THE DATE AS OF WHICH THE RECORD HOLDERS
OF COMMON STOCK ENTITLED TO SAID DIVIDENDS OR DISTRIBUTIONS ARE TO BE
DETERMINED.  EXCEPT AS SET FORTH HEREIN, THIS WARRANT DOES NOT ENTITLE THE
HOLDER OF THIS WARRANT TO ANY OF THE RIGHTS OF A STOCKHOLDER OF THE COMPANY
UNTIL SUCH HOLDER HAS EXERCISED OR IS DEEMED TO HAVE EXERCISED THIS WARRANT IN
ACCORDANCE WITH THE TERMS HEREOF.

 

SECTION 4.  PURCHASE RIGHTS.  IF AT ANY TIME THE COMPANY GRANTS, ISSUES OR SELLS
ANY OPTIONS, CONVERTIBLE SECURITIES OR RIGHTS TO PURCHASE STOCK, WARRANTS,
SECURITIES OR OTHER PROPERTY PRO RATA TO THE RECORD HOLDERS OF THE COMMON STOCK
(THE “PURCHASE RIGHTS”), THEN THE COMPANY SHALL GRANT, ISSUE OR SELL (AS THE
CASE MAY BE) TO THE REGISTERED HOLDER THE AGGREGATE PURCHASE RIGHTS WHICH SUCH
REGISTERED HOLDER WOULD HAVE ACQUIRED IF SUCH REGISTERED HOLDER HAD HELD THE
MAXIMUM NUMBER OF WARRANT SHARES ACQUIRABLE UPON COMPLETE EXERCISE OF THIS

 

6

--------------------------------------------------------------------------------

 

WARRANT IMMEDIATELY BEFORE THE DATE ON WHICH A RECORD IS TAKEN FOR THE GRANT,
ISSUANCE OR SALE OF SUCH PURCHASE RIGHTS OR, IF NO SUCH RECORD IS TAKEN, THE
DATE AS OF WHICH THE RECORD HOLDERS OF COMMON STOCK ARE TO BE DETERMINED FOR THE
GRANT, ISSUE OR SALE OF SUCH PURCHASE RIGHTS.

 

SECTION 5.  DEFINITIONS.  THE FOLLOWING TERMS HAVE THE MEANINGS SET FORTH BELOW:

 

“Common Stock” means, collectively, the Company’s Common Stock, no par value,
and any capital stock of any class of the Company hereafter authorized which is
not limited to a fixed sum or percentage of par or stated value in respect of
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.

 

“Common Stock Deemed Outstanding” means, at any given time, the number of shares
of all classes of the Common Stock outstanding at such time, calculated on a
fully diluted basis to give effect to the conversion of all outstanding
Preferred Stock into Common Stock and any other securities convertible or
exchangeable into Common Stock, and the exercise of all outstanding rights,
options and warrants to subscribe for or purchase Common Stock, regardless, in
each case, of whether such securities are actually convertible, exchangeable or
exercisable at such time, but excluding any Warrant Shares.

 

“Date of Issuance” means September 2, 2004.

 

“Fair Market Value” means (i) the average of the closing sales prices of the
Common Stock on all domestic securities exchanges on which the Common Stock is
listed, or (ii) if there have been no sales, the average of the high bid and low
ask prices on all such exchanges at the end of such day, or (iii) if on any day
the Common Stock is not so listed on an exchange, the sales price for the Common
Stock as of 4:00 P.M., Eastern time as reported on the Nasdaq National Market,
or (iv) if the Common Stock is not listed on an exchange or reported on the
Nasdaq National Market, the average of the representative bid and ask quotations
for the Common Stock as of 4:00 P.M., Eastern time, as reported on the Nasdaq
interdealer quotation system or any similar successor organization, in each such
case averaged over a period of ten consecutive trading days, including the day
as of which “Fair Market Value” is being determined.  Notwithstanding the
foregoing, if at any time of determination either (x) the Common Stock is not
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq system, or (y) less than 25% of the outstanding Common
Stock is held by the public free of transfer restrictions under the Securities
Act of 1933, as amended, then Fair Market Value shall mean the price that would
be paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, as determined pursuant to good faith negotiations
between the Board and the Warrant holders.  In the event the parties cannot
agree on Fair Market Value, the Required Holders shall have the right to require
that an independent investment banking firm mutually acceptable to the Company
and the Required Holders determine Fair Market Value, which firm shall submit to
the Company and the Warrant holders a written report setting forth such
determination.  The expenses of such firm will be borne one-half by the Company
and one-half by such holders on a pro rata basis, and the determination of such
firm will be final and binding upon all parties.

 

“Independent Third Party” means any Person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of the Company’s Common
Stock on a fully-diluted basis (a “5% Owner”), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other Persons.

 

“Permitted Issuance” means any issuance by the Company of shares of Common Stock
or other securities (i) upon the exercise or conversion of Options or other
securities granted pursuant to employee benefit plans or option agreements
existing on the Date of Issuance; provided, that the aggregate number of Options
and other securities so granted shall not exceed 4,651,000, (ii) upon conversion
of outstanding shares of the Preferred Stock, in each case to the extent issued
and outstanding on the Date of Issuance, (iii) which are restricted securities
subject to a substantial risk of forfeiture issued pursuant to benefit plans
adopted by the Board; provided, that the aggregate

 

7

--------------------------------------------------------------------------------

 

number of restricted securities plus shares subject to Options shall not exceed
4,651,000, (iv) pursuant to employee benefit plans qualified under
Section 401(k) or 423 of the Internal Revenue Code; provided, that the aggregate
number of such securities shall not exceed 250,000, (v) upon conversion of the
Second Amended and Restated Convertible Senior Subordinated Note issued to Annex
Holdings I LP, dated September 2, 2004 (the “Annex Notes”) pursuant to their
terms as in effect on the Date of Issuance or to satisfy semi-annual interest
obligations to holders of the Annex Notes outstanding on the Date of Issuance,
(vi) upon exercise of warrants to purchase an aggregate of up to 1,115,962
shares of Common Stock issued or to be issued to holders of the Annex Notes, the
Preferred Stock or their permitted transferees or assigns, or (vii) pursuant to
the Company’s Rights Agreement as in effect on the Date of Issuance, including
the Rights as defined therein and contemplated thereby.

 

“Person” means any individual, partnership, limited liability company, fund,
joint venture, corporation, trust, unincorporated organization or government or
department or agency thereof.

 

“Preferred Stock” means, collectively, (i) the Company’s Series A Convertible
Preferred Stock, no par value and (ii) the Company’s Series B Convertible
Preferred Stock, no par value and (iii) in each case, any capital stock (other
than Common Stock) issued in exchange, substitution, or replacement therefor,
including without limitation the Company’s Series C Convertible Preferred Stock,
no par value, and the Company’s Series D Convertible Preferred Stock, no par
value.

 

“Registered Holder” means the holder of this Warrant as reflected in the records
of the Company maintained pursuant to Section 12.

 

“Required Holders” means the holders of a majority of the purchase rights
represented by all Warrants as originally issued which remain outstanding and
unexercised at the time of determination.

 

“Sales Event” means the sale of the Company to an Independent Third Party or
group of Independent Third Parties pursuant to which such party or parties
acquire (i) capital stock of the Company possessing the voting power under
normal circumstances to elect a majority of the Company’s board of directors
(whether by merger, consolidation or sale or transfer of the Company’s capital
stock) or (ii) all or substantially all of the Company’s assets determined on a
consolidated basis.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Warrant Shares” means shares of Common Stock issuable upon exercise of the
Warrant; provided, that if the securities issuable upon exercise of the Warrants
are issued by an entity other than the Company or there is a change in the class
of securities so issuable, then the term “Warrant Shares” shall mean shares of
the security issuable upon exercise of the Warrants if such security is issuable
in shares, or shall mean the equivalent units in which such security is issuable
if such security is not issuable in shares.

 

SECTION 6.  RESTRICTION ON TRANSFERABILITY.  THIS WARRANT SHALL NOT BE SOLD,
ASSIGNED, TRANSFERRED OR PLEDGED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS
WARRANT, WHICH CONDITIONS ARE INTENDED TO ENSURE COMPLIANCE WITH THE PROVISIONS
OF THE SECURITIES ACT.  EACH HOLDER OF THIS WARRANT WILL CAUSE ANY PROPOSED
PURCHASER, ASSIGNEE, TRANSFEREE, OR PLEDGEE OF THIS WARRANT TO AGREE TO TAKE AND
HOLD SUCH SECURITIES SUBJECT TO THE PROVISIONS AND UPON THE CONDITIONS SPECIFIED
IN THIS WARRANT.

 

SECTION 7.  RESTRICTIONS ON TRANSFER.

 

(I)            CONSENT TO RESTRICTION.  EACH HOLDER CONSENTS TO THE COMPANY
MAKING A NOTATION ON ITS RECORDS AND GIVING INSTRUCTIONS TO ANY TRANSFER AGENT
OF ITS WARRANTS IN ORDER TO IMPLEMENT THE RESTRICTIONS ON TRANSFER ESTABLISHED
IN THIS AGREEMENT.

 

(II)           CONDITIONS OF TRANSFER.  THE HOLDER OF THIS WARRANT, BY
ACCEPTANCE THEREOF, AGREES NOT TO MAKE ANY DISPOSITION OF ALL OR ANY PORTION OF
THIS WARRANT UNLESS AND UNTIL SUCH HOLDER SHALL HAVE NOTIFIED THE COMPANY IN
WRITING OF THE PROPOSED DISPOSITION AND FURNISHED THE COMPANY WITH (I) A
DETAILED STATEMENT

 

8

--------------------------------------------------------------------------------

 

OF THE CIRCUMSTANCES SURROUNDING THE PROPOSED DISPOSITION, (II) A PROPERLY
EXECUTED ASSIGNMENT (IN SUBSTANTIALLY THE FORM OF EXHIBIT II HERETO), (III) THIS
WARRANT, AND (IV) IF REASONABLY REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH DISPOSITION SHALL NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT OR QUALIFICATION OR REGISTRATION UNDER
STATE SECURITIES LAWS.  NOTWITHSTANDING THE FOREGOING, NO SUCH OPINION OF
COUNSEL SHALL BE NECESSARY FOR A TRANSFER BY A HOLDER OF THIS WARRANT TO AN
AFFILIATE (AS DEFINED IN THE SECURITIES ACT) OF SUCH HOLDER.

 

SECTION 8.  WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.  THIS WARRANT IS
EXCHANGEABLE, UPON THE SURRENDER HEREOF BY THE REGISTERED HOLDER AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY, FOR NEW WARRANTS OF LIKE TENOR
REPRESENTING IN THE AGGREGATE THE PURCHASE RIGHTS HEREUNDER, AND EACH OF SUCH
NEW WARRANTS SHALL REPRESENT SUCH PORTION OF SUCH RIGHTS AS IS DESIGNATED BY THE
REGISTERED HOLDER AT THE TIME OF SUCH SURRENDER.  AT THE REQUEST OF THE
REGISTERED HOLDER (PURSUANT TO A TRANSFER OF WARRANTS OR OTHERWISE), THIS
WARRANT MAY BE EXCHANGED FOR ONE OR MORE WARRANTS TO PURCHASE COMMON STOCK.  THE
DATE OF ISSUANCE SHALL BE DEEMED TO BE THE DATE OF ISSUANCE REGARDLESS OF THE
NUMBER OF TIMES NEW CERTIFICATES REPRESENTING THE UNEXPIRED AND UNEXERCISED
RIGHTS FORMERLY REPRESENTED BY THIS WARRANT SHALL BE ISSUED.

 

SECTION 9.  REPLACEMENT.  UPON RECEIPT OF EVIDENCE REASONABLY SATISFACTORY TO
THE COMPANY (AN AFFIDAVIT OF THE REGISTERED HOLDER SHALL BE SATISFACTORY) OF THE
OWNERSHIP AND THE LOSS, THEFT, DESTRUCTION OR MUTILATION OF ANY CERTIFICATE
EVIDENCING THIS WARRANT, AND IN THE CASE OF ANY SUCH LOSS, THEFT OR DESTRUCTION,
UPON RECEIPT OF INDEMNITY REASONABLY SATISFACTORY TO THE COMPANY (PROVIDED THAT
IF THE REGISTERED HOLDER IS A FINANCIAL INSTITUTION OR OTHER INSTITUTIONAL
INVESTOR ITS OWN AGREEMENT SHALL BE SATISFACTORY), OR, IN THE CASE OF ANY SUCH
MUTILATION UPON SURRENDER OF SUCH CERTIFICATE, THE COMPANY SHALL (AT ITS
EXPENSE) EXECUTE AND DELIVER IN LIEU OF SUCH CERTIFICATE A NEW CERTIFICATE OF
LIKE KIND REPRESENTING THE SAME RIGHTS REPRESENTED BY SUCH LOST, STOLEN,
DESTROYED OR MUTILATED CERTIFICATE AND DATED THE DATE OF SUCH LOST, STOLEN,
DESTROYED OR MUTILATED CERTIFICATE.

 

SECTION 10.  NOTICES.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, ALL
NOTICES AND DELIVERIES REFERRED TO IN THIS WARRANT SHALL BE IN WRITING, SHALL BE
DELIVERED PERSONALLY, SENT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED AND POSTAGE PREPAID OR SENT VIA NATIONALLY RECOGNIZED OVERNIGHT
COURIER OR VIA FACSIMILE, AND SHALL BE DEEMED TO HAVE BEEN GIVEN WHEN SO
DELIVERED (OR WHEN RECEIVED, IF DELIVERED BY ANY OTHER METHOD) IF SENT (I) TO
THE COMPANY, AT ITS PRINCIPAL EXECUTIVE OFFICES AND (II) TO A REGISTERED HOLDER,
AT SUCH REGISTERED HOLDER’S ADDRESS AS IT APPEARS IN THE RECORDS OF THE COMPANY
(UNLESS OTHERWISE INDICATED BY ANY SUCH REGISTERED HOLDER).

 

SECTION 11.  AMENDMENT AND WAIVER.  EXCEPT AS OTHERWISE PROVIDED HEREIN, THE
PROVISIONS OF THE WARRANTS MAY BE AMENDED AND THE COMPANY MAY TAKE ANY ACTION
HEREIN PROHIBITED, OR OMIT TO PERFORM ANY ACT HEREIN REQUIRED TO BE PERFORMED BY
IT, ONLY IF THE COMPANY HAS OBTAINED THE PRIOR WRITTEN CONSENT OF THE REQUIRED
HOLDERS.

 

SECTION 12.  WARRANT REGISTER.  THE COMPANY SHALL MAINTAIN AT ITS PRINCIPAL
EXECUTIVE OFFICES BOOKS FOR THE REGISTRATION AND THE REGISTRATION OF TRANSFER OF
WARRANTS.  THE COMPANY MAY DEEM AND TREAT THE REGISTERED HOLDER AS THE ABSOLUTE
OWNER HEREOF (NOTWITHSTANDING ANY NOTATION OF OWNERSHIP OR OTHER WRITING THEREON
MADE BY ANYONE) FOR ALL PURPOSES AND SHALL NOT BE AFFECTED BY ANY NOTICE TO THE
CONTRARY.

 

SECTION 13.  FRACTIONS OF SHARES.  THE COMPANY MAY, BUT SHALL NOT BE REQUIRED
TO, ISSUE A FRACTION OF A WARRANT SHARE UPON THE EXERCISE OF THIS WARRANT IN
WHOLE OR IN PART.  AS TO ANY FRACTION OF A SHARE WHICH THE COMPANY ELECTS NOT TO
ISSUE, THE COMPANY SHALL MAKE A CASH PAYMENT IN RESPECT OF SUCH FRACTION IN AN
AMOUNT EQUAL TO THE SAME FRACTION OF THE FAIR MARKET VALUE OF A WARRANT SHARE ON
THE DATE OF SUCH EXERCISE.

 

SECTION 14.  DESCRIPTIVE HEADINGS; GOVERNING LAW.  THE DESCRIPTIVE HEADINGS OF
THE SEVERAL SECTIONS AND PARAGRAPHS OF THIS WARRANT ARE INSERTED FOR CONVENIENCE
ONLY AND DO NOT CONSTITUTE A PART OF THIS WARRANT.  THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
OREGON, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION
OR RULE (WHETHER OF THE STATE OF OREGON OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THOSE OF THE
STATE OF OREGON.

 

* * * * *

 

9

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer and to be dated as of the date hereof.

 

 

 

GARDENBURGER, INC.

 

 

 

 

 

By:

/s/Scott C. Wallace

 

 

Name:

Scott C. Wallace

 

Title:

President

 

 

 

 

Attest:

 

 

 

 

 

 

 

 

 

10

--------------------------------------------------------------------------------

 

EXHIBIT I

 

EXERCISE AGREEMENT

 

To:

Dated:

 

 

The undersigned, pursuant to the provisions set forth in the attached Warrant
(Certificate No. W-       ), hereby agrees to subscribe for the purchase
of        Warrant Shares (in the form of Common Stock covered by such Warrant)
and makes payment herewith in full therefor at the price per share provided by
such Warrant.

 

 

 

Signature

 

 

 

 

Address

 

 

I-1

--------------------------------------------------------------------------------

 

EXHIBIT II

 

ASSIGNMENT

 

FOR VALUE RECEIVED,                          hereby sells, assigns and transfers
all of the rights of the undersigned under the attached Warrant (Certificate
No. W-      ) with respect to the number of the Warrant Shares covered thereby
set forth below, unto:

 

Names of Assignee

 

Address

 

No. of Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated:

Signature

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Witness

 

 

 

II-1

--------------------------------------------------------------------------------