ex10_31.htm


    
      

    

    Exhibit 10.31

     

     

    FORBEARANCE
AGREEMENT AND AMENDMENT TO CREDIT AND SECURITY AGREEMENT

    


    
      	
              DATE:

            	
              Effective
      as of July 31, 2009

            


    

    


    
      	
              PARTIES:

            	
              Borrowers:

            	
              NUTRACEA,
      a California corporation, and

              NUTRAPHOENIX,
      LLC, a Delaware limited liability company

            
	 
      	 
      	 
      
	 
      	
              Lender:

            	
              WELLS
      FARGO BANK, NATIONAL ASSOCIATION,

              acting
      through its Wells Fargo Business Credit operating
  division

            


    

    


    


    
      	
              I.

            	
              RECITALS:

            


    

    


    A.         
  Obligations Owing to
Lender. Borrowers are obligated to Lender pursuant to the terms and
conditions of the Credit and Security Agreement dated as of December 18, 2008
(the "Credit Agreement"), which evidence the Indebtedness. Unless otherwise
indicated, capitalized terms used in this Agreement will correspond to the
capitalized terms used in the Credit Agreement.

    


    B.        
   Security for Repayment and
Satisfaction of Obligations Owing to Lender. As security for repayment
and satisfaction of all Indebtedness owing from Borrower, Lender holds (among
other things) valid, perfected, and enforceable first priority liens and a
Security Interest in all of the Collateral described in the Credit Agreement and
a first lien on a certain real property with a street address of 4502 West
Monterosa, Phoenix, Arizona (the "Property").

    


    C.     
      Loan Documents. The
obligations set forth in Paragraph A above, and the Security Interest of Lender
in the Collateral described in Paragraph B above are evidenced by (among other
things) the following Loan Documents:

    


    1.           The
Credit Agreement;

    


    2.           The
Revolving Note dated December 18, 2008 in the original principal amount of
$2,500,000 (the "Revolving Note");

    


    3.           The
Term Note dated December 18, 2008 in the original principal amount of $2,500,000
(the "Term Note");

    


    4.           The
Real Estate Note dated December 18, 2008 in the original principal amount of
$5,000,000 (the "Real Estate Note and together with the Revolving Note and the
Term Note, the "Notes");

    


    5.           The
Deed of Trust, Assignment of Rents and Leases, and Fixture Filing dated December
18, 2008, executed by NutraPhoenix, LLC, in favor of Lender and recorded
December 22, 2008 as Document No. 2008-1076174 in the Official Records of
Maricopa County; and

    


    6.           Various
UCC Financing Statements.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    D.           Outstanding Indebtedness
Under the Loan Documents. Computed as of July 24, 2009, Borrowers are
indebted to Lender in the amount of at least $3,309,439.00 in unpaid principal,
not including accrued and accruing interest, costs, and expenses (including
attorneys' fees), and not including issued and undrawn obligations under the
Letters of Credit, for which Borrowers are also indebted to Lender under the
Loan Documents.

    


    E.            Existing Defaults Under the
Credit Agreement. Borrowers are presently in default of their obligations
to Lender under the Credit Agreement and the Loan Documents, for inter
alia (collectively, the "Existing Defaults"):

    


    1.           Section
1.4(a) of the Credit Agreement as a result of Borrowers' failure to deposit all
Proceeds of Accounts and other Collateral into the Collection
Account.

    


    2.           Section
1.4(b) of the Credit Agreement as a result of Borrowers' Letter Agreement dated
May 14, 2009 with Fanners Rice Cooperative ("FCR Agreement"), which requires
Borrowers to instruct its customers to make certain payments (the "FCR
Payments") into a lockbox account jointly established by Farmers Rice
Cooperative and NutraCea.

    


    3.           Section
5.1(a) of the Credit Agreement as a result of Borrowers' failure to deliver
audited financial statements for 2008 within 90 days of Borrowers' fiscal year
end.

    


    4.           Section
5.1(b) of the Credit Agreement as a result of Borrowers' failure to deliver
quarterly financial statements for the period ending March 31, 2009 by May 10,
2009.

    


    5.           Section
5.1(c) of the Credit Agreement as a result of Borrowers' failure to deliver
their February 2009, March 2009, May 2009, and June 2009 collateral reports
within 15 days of the end of the applicable month.

    


    6.           Section
5.2(d) of the Credit Agreement as a result of Borrowers' Capital Expenditures
exceeding $5,000,000.00 in the aggregate during the fourth quarter
2008.

    


    7.           Section
5.12 of the Credit Agreement as a result of Borrowers' failure to pay real
estate taxes from the Property when due.

    


    8.           Section
5.12 of the Credit Agreement as a result of Borrowers' failure to pay all lawful
claims for labor, materials and supplies.

    


    9.           Section
5.13(b) of the Credit Agreement as a result of the filing of Notices and Claims
of Mechanic's and Materialman's Liens (collectively, the "Mechanic's Liens") on
the Property.

    


    10.           Section
4.4 of the Deed of Trust as a result of the Mechanic's Liens being filed on the
Property without prior approval of Lender.

    


    11.           Based
upon the draft income statement for the twelve months ending December 31, 2008
delivered by Borrowers to Lender, Borrowers additionally appear to be in default
of various financial covenants under the Credit Agreement, including without
limitation Borrowers' failure to maintain a cumulative quarterly Debt Service
Coverage Ratio of not less than 1.2 to 1.0, for the quarter ending March 31,
2009.


    
      
         


      

      
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    F.          
 Acknowledgement
of Lender's Rights and Remedies. Based on the Existing Defaults,
Borrowers acknowledge and confirm that Lender has (among other things) the
unconditional right to exercise all of its remedies under the Loan Documents,
including but not limited to, the right to declare the Indebtedness immediately
due and payable and to proceed immediately with collection and liquidation of
its Collateral and its Security Interest.

    


    G.        
   Request for Forbearance and
Other Modifications of Loan Documents. Borrowers have requested that
Lender forbear from exercising its rights and remedies with respect to all
Existing Defaults from the date of this Agreement through January 31, 2010 (the
"Forbearance Period"). Borrowers also have requested certain modifications to
the Loan Documents. Although it is under no obligation to do so, Lender agrees
to accommodate Borrowers' request for certain modifications to the Loan
Documents, and Lender agrees to forbear from exercising its rights and remedies
with respect to the Existing Defaults, so long as Borrowers satisfy all of the
conditions set forth in Section II below, and provided that Borrowers comply
with all other obligations under the Credit Agreement and Loan Documents (as
modified by this Agreement).

    


    
      	
              II.

            	
              OPERATIVE
      PROVISIONS.

            


    

    


    For
present and fair consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:

    


    1.           
INCORPORATION OF
RECITALS. The foregoing Recitals are incorporated into these Operative
Provisions without any difference or distinction between the two (2) segments of
this Agreement. Borrowers acknowledge and confirm that each of the foregoing
Recitals is true and correct.

    


    
      	
              2.

            	
              CONDITIONS.

            


    

    


    2.1           Conditions to Forbearance
and Loan Modifications. Lender's forbearance with respect to Existing
Defaults and the modification of the Loan Documents pursuant to this Agreement
are expressly conditioned upon the satisfaction of the following
conditions:

    


    (a)         Delivery of this
Agreement. Borrowers shall have delivered to Lender a fully-executed
original of this Agreement.

    


    (b)         No New Defaults. No
new default or Event of Default shall occur under the Loan Documents, as amended
by this Agreement. Notwithstanding the foregoing, Lender will not be deemed to
have waived any rights or remedies arising as a result of any new default or
Event of Default by Borrowers under the Loan Documents.

    


    (c)         Reimbursement of Lender's
Costs and Expenses. Borrowers will reimburse Lender for all of its costs
and expenses (including attorneys' fees) incurred in relation to this Agreement
and the transactions contemplated by this Agreement.


    
      
         


      

      
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    (d)         Dillon Property Deed of
Trust. Borrowers will deliver to Lender a fully-executed Deed of Trust
(the "Dillon Deed of Trust") in a form acceptable to Lender in its sole and
absolute discretion, granting Lender a first priority lien on certain real
property located at 3512 E. Bench Dillon, Montana (the
"Dillon Property"). In addition, if Lender requires, Borrowers, at Borrowers'
expense, will provide a Lender's policy or other title policy in a form
acceptable to Lender. Borrowers anticipate negotiating the sale of the Dillon
Property prior to the expiration of the Forbearance Period. In the event
Borrowers seek to sell the Dillon Property, such sale is subject to Lender's
review and approval of the purchase and sale agreement, in Lender's sole and
absolute discretion. Subject to Lender's review and approval of the purchase
agreement, in the event there are no additional defaults or Events of Default,
and provided there is no material adverse change in Borrowers' financial
condition, Lender will release the Dillon Deed of Trust in connection with such
sale upon Lender's receipt of $1,000,000.00 of the proceeds of such
sale.

    


    (e)         Master Agreement for
Treasury Management Services. Borrowers shall deliver to Lender a
fully-executed Master Agreement for Treasury Management Services, and Lockbox
and Collection Account Service Agreement Description and Acceptance of
Services.

    


    (f)          Certificate of Officer;
Certificates of Good Standing. Borrowers shall deliver to Lender
Certificates of Officers (in form and substance acceptable to Lender) certifying
as to the authority of an Officer of each Borrower to execute and deliver this
Agreement and such other matters as Lender may require, along with a certificate
of good standing for each Borrower issued by the governmental authorities in
each of the states in which Borrowers conduct their business activities, each
dated no earlier than the date that is 30 days prior to the date of this
Agreement evidencing Borrowers' good standing in such states.

    


    (g)         Resolutions and
Authorizations. Borrowers shall deliver to Lender resolutions and
authorizations (in form and substance acceptable to Lender), together with such
additional documentation as Lender may require, authorizing Borrowers to enter
into this Agreement and to perform their respective duties and obligations
hereunder.

    


    (h)         No Material Adverse
Change. No material adverse change (to be determined in Lender's sole
judgment) shall have occurred relative to or affecting Borrowers, Borrowers'
business activities, operations and projections, the Collateral, the Premises,
the Security Interest or the liens, security interests, and rights of
Lender.

    


    (i)           Miscellaneous.
Borrowers shall perform or cause to be performed such additional conditions and
shall deliver or cause to be delivered to Lender such additional documentation
as Lender may require in Lender's sole and absolute discretion.

    


    2.2           Continued Effect of Loan
Documents. Except as otherwise provided herein, the Loan Documents and
all other documents and agreements between Lender and Borrowers shall remain in
full force and effect.

    


    2.3           No Accommodations Without
Satisfaction of All Conditions. Unless all of the conditions set forth
above are satisfied, Lender will be free to exercise all of its rights and
remedies under the Loan Documents.   So long as all of the
conditions set forth above are satisfied, and provided that the Borrowers comply
with all of their respective obligations under the Loan Documents as modified by
this Agreement, Lender will forbear during the Forbearance Period from
exercising its rights and remedies with respect to the Existing Defaults, and
Lender will agree to modify the Loan Documents as provided
below.


    
      
         


      

      
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              3. 

            	
              MODIFICATION OF LOAN
      DOCUMENTS. The Loan Documents are modified as
    follows:

            


    

    


    3.1           Modification of Borrowing
Base. Section 1.2(a) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:

    


    
      	
               
      

            	
              "Borrowing
      Base.   The borrowing base (the "Borrowing Base") is
      an amount equal to:

            


    

    


    (i)           
75% or such lesser percentage of Eligible Accounts as Wells Fargo in its sole
discretion may deem appropriate, or $1,500,000.00, which ever is less, less

    


    (ii)      
     the Borrowing Base Reserve, less

    


    (iii)           Indebtedness
that Company owes Wells Fargo that has not been advanced on the Revolving Note,
less

    


    (iv)           Indebtedness
that is not otherwise described in Section 1, including Indebtedness that Wells
Fargo in its sole discretion finds on the date of determination to be equal to
Wells Fargo's net credit exposure with respect to any swap, derivative, foreign
exchange, hedge, deposit, treasury management or similar transaction or
arrangement extended to Company by Wells Fargo and any Indebtedness owed by
Company to Wells Fargo Merchant Services, L.L.C.

    


    Notwithstanding
the foregoing, Borrowers acknowledge that until the expiration of the FCR
Agreement and the termination of the lockbox account jointly established between
Farmers Rice Cooperative and NutraCea, the FCR Payments shall not be deemed
Eligible Accounts.

    


    3.2           Lockbox. Pursuant to
Section 1.4 of the Credit Agreement, Borrowers shall immediately direct all of
Borrowers' account debtors to make all payments to the Lockbox or to Lender
directly by wire transfer or other immediately available funds.

    


    3.3           Interest Rates Applicable to
Line of Credit and Real Estate Loan. Section 1.7(a) of the Credit
Agreement is hereby deleted in its entirety and replaced with the
following:

    


    "Except
as otherwise provided in this Agreement, the unpaid principal amount of each
Line of Credit Advance evidenced by the Revolving Note and the Real Estate Loan
Advance evidenced by the Real Estate Term Note, shall accrue interest at an
annual interest rate calculated as follows:


    
      
         


      

      
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    Floating
Rate:

    


    Line of
Credit Advances = the Prime Rate plus five and one half percent
(5.5%);

    


    Real
Estate Loan Advance = the Prime Rate plus six percent (6.0%);

    


    which
interest rate shall change whenever the Prime Rate changes (the "Floating
Rate"). Notwithstanding the foregoing, as an accommodation to Borrowers, Lender
will defer three percentage points of each of the Floating Rates set forth above
until the earlier of: (i) termination of the Credit Facility; or (ii) January
31, 2010, at which time all such deferred interest shall be due and
payable.

    


    3.4           Line of Credit
Advances. Notwithstanding the Section 3.1 herein or any other provisions
in the Credit Agreement or the Loan Documents, during the Forbearance Period,
Lender shall make to Borrowers the following advances under the Line of
Credit:

    


    (a)         $250,000.00
for settlement of all claims arising out of or in connection with that certain
complaint filed by W.D. Manor Mechanical Contractors, Inc., Maricopa County
Superior Court Case No. CV2009-013957 (the "Complaint"), which may be made in
increments upon receipt of all requirements set forth in Section 3.12 of this
Agreement and further subject to the terms and conditions set forth herein;
and

    


    (b)         $85,000.00
for payment of past due taxes, assessments and governmental charges levied or
imposed upon the Property;

    


    (c)         Such
other and future advances as Lender may agree to in its sole and absolute
discretion;

    


    The
unpaid principal amount of the Line of Credit Advances shall be due and payable
in equal monthly installments of $10,000.00, beginning on October 1, 2009, and
on the first day of each month thereafter until the earlier of: (i) termination
of the Credit Facility; or (ii) January 31, 2010, when the entire balance of
unpaid principal of the Line of Credit Advances shall be due and payable in
full;

    


    So long
as any amounts funded under the Line of Credit remains outstanding, Borrowers
shall deliver to Lender on Wednesday for the prior week, a weekly detailed aging
of the Company's accounts receivable and accounts payable, in a form
satisfactory to Lender in its sole and absolute discretion.

    


    3.5           Real Estate Loan.
Lender has applied the Cash Collateral to reduce the Indebtedness of Borrowers
to Lender. Accordingly, the principal balance outstanding under the Real Estate
Loan has been reduced $3,249,439. Notwithstanding any other provision of the
Loan Documents to the contrary, Lender shall have no obligations to make any
further advances to Borrower in connection with the Real Estate Loan. Lender
shall reserve an amount equal to one month of principal and interest owed under
the Real Estate Term Note.


    
      
         


      

      
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    3.6           Term Loan Advance.
The Term Loan in Section 1.6 of the Credit Agreement is hereby terminated and
Lender shall have no obligation to advance the Term Loan to the
Borrowers.

    


    3.7           Payments on Loans: Default
Interest. Borrowers shall continue to make principal and interest
payments on the Line of Credit and Real Estate Loan as provided for in the
Credit Agreement. Borrowers hereby confirm that Lender is owed $53,338.88 in
default interest (the "Default Interest"), which accrued upon Borrowers' default
under the Credit Agreement. As an accommodation to Borrowers, Lender will defer
the Default Interest until the earlier of: (i) termination of the Credit
Facility; or (ii) January 31, 2010, at which time such amount shall be due and
payable.

    


    3.8           Letters of Credit:
Amount. Section 1.11(a) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following: "Lender shall not issue any Letter of
Credit if the face amount of the Letter of Credit would exceed the lesser of:
(i) $1,500,000 less the L/C Amount, or (ii) the Borrowing Base, less an amount
equal to aggregate unreimbursed Line of Credit Advances plus the L/C Amount.
That certain Irrevocable Standby Letter of Credit Dated September 5, 2006, as
amended, with an original face amount of $865,000.00, and that certain
Irrevocable Standby Letter of Credit dated June 1, 2007, as amended, with an
original face amount of $1,358,161.00 (collectively, the "Issued L/C") shall
hereafter be deemed to have been issued under the Credit Agreement and shall be
subject to the terms and conditions of the Credit Agreement. Notwithstanding
anything contained in the Issued L/C or the Credit Agreement to the contrary,
Lender shall have no obligation to issue any further Letter of Credit after
January 31, 2010.

    


    3.9           Cash Collateral.
Borrower agrees that the collateral pledged pursuant to the Commercial Pledge
Agreement dated September 1, 2006 by and between Lender and NutraCea and the
Commercial Pledge Agreement dated May 14, 2007 by and between Lender and
NutraCea (collectively, the "Pledge Agreements") shall be deposited into the
Special Account concurrently with the execution and delivery of this Agreement,
and shall be subject to the terms and conditions of the Credit Agreement and
other Loan Documents.

    


    3.10         Credit Facility Prepayment
Fees: Facility Fees. Notwithstanding Section 1.8(e) of the Credit
Agreement, Lender shall waive the termination fee for: (i) prepayments made
pursuant to this Agreement; and (ii) Borrowers' termination of the Credit
Facility or prepayment of the Indebtedness owed to Lender during the Forbearance
Period. Subject to the terms and conditions of this Agreement, the Credit
Agreement and the Loan Documents, Notwithstanding Section 1.8(c) of the Credit
Agreement, Lender shall waive the Facility Fee owed to Lender on December 15,
2009.

    


    3.11         Release of Lake Charles
Collateral. Borrowers have represented to Lender that they are engaged in
discussions to sell the Stabilized Rice Bran equipment located on the Premises
with a street address of 6029 Joe Spears Road, Iowa, LA 70647 (the "Lake Charles
Equipment"). Provided Borrowers are not in default of the Credit Agreement or
Loan Documents and upon satisfaction of the conditions set forth in Section II
of this Agreement, Lender shall release its interest and rights to the Lake
Charles Equipment.


    
      
         


      

      
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    3.12         Brycon Construction
Lien. Borrowers have represented to Lender that they are engaged in
discussions with Brycon Residential Construction Co., Inc. ("Brycon"), the
general contractor retained by Borrowers to perform certain construction work on
the Property, pursuant to which Brycon would pay all current subcontractors who
have delivered goods or services to the Property in exchange for the dismissal
of the Complaint and delivery of lien waivers acceptable to Lender in its sole
and absolute discretion. In order to facilitate the payment of the
subcontractors, Borrowers have requested that Lender consent to the recordation
of a deed of trust in favor of Brycon (the "Brycon Deed of Trust"), subordinate
to the Deed of Trust. Lender wishes to evidence its agreement to accommodate
Borrowers' request and make the advance set forth in Section 3.3(a) herein,
expressly contingent on the following:

    


    (a)         Settlement Agreement.
Lenders review and approval of any settlement or other agreement between
Borrowers and Brycon and the Brycon Deed of Trust.

    


    (b)         Subordination
Agreement. Borrowers shall cause Brycon to execute and deliver to Lender
a Subordination Agreement in a form acceptable to Lender in its sole and
absolute discretion.

    


    (c)         Lien Releases. No
later than 30 days after the full execution and delivery of this Agreement,
Lender shall have received lien waivers bearing a then current date in a form
satisfactory to the Lender, in its sole and absolute discretion, from Brycon and
such subcontractors or materialmen as the Lender may designate.

    


    (d)         Dismissal of Claims.
No later than 30 days after the full execution and delivery of this Agreement,
Borrowers shall deliver to Lender, evidence satisfactory to Lender in its sole
and absolute discretion, that the Complaint and all crossclaims and
counterclaims related thereto, have been fully and finally dismissed with
prejudice.

    


    (d)         Permits No later than
30 days after the full execution and delivery of this Agreement, Borrowers shall
deliver to Lender any and all documents requested by Lender which Lender
determines in its sole discretion are necessary to obtain certificates of
occupancy for the Property, together with all necessary consents and reliance
letters requested by Lender in its sole and absolute discretion.

    


    3.13         Operating Account.
The Credit Agreement, as modified herein, constitutes the entire agreement
between Borrowers and Lender pertaining to the Operating Account and supersedes
all prior agreements, understandings, negotiations and discussions, including
the correspondence dated July 9, 2009, and Lender makes no warranty,
representation or other agreement with respect to the Operating Account except
as specifically set forth herein.

    


    3.14         Defaults Under
Agreement. Each of the Loan Documents is modified to provide that it
shall be a new default and a new Event of Default thereunder if Borrowers fail
to comply with any of their duties or Obligations under this Agreement. Further,
it shall be a new default and a new Event of Default under each of the Loan
Documents if any representation or warranty made by Borrowers in relation to
this Agreement is materially incomplete, incorrect, or
misleading.


    
      
         


      

      
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    3.15         Lender's Rights. In
the event of any new default or Event of Default under the Credit Agreement,
including any default or breach by Borrowers of their duties or obligations
under this Agreement, Lender may immediately enforce its rights and remedies
under the Loan Documents in any order or priority that Lender elects in its sole
and absolute discretion, without notice and without any cure periods, including
without limitation any of Lender's rights to setoff.

    


    4.          
 RATIFICATION OF
LOAN DOCUMENTS AND COLLATERAL. The Loan Documents are ratified and
affirmed by Borrowers, and the Loan Documents shall and do remain in full force
and effect as modified by this Agreement. The liens and Security Interest
granted to Lender in the Collateral also remain in full force and
effect.

    


    5.           
 REPRESENTATIONS
AND WARRANTIES OF BORROWERS. Borrowers represent and warrant to Lender as
follows:

     

    5.1           No Adverse Claims.
Borrowers have no claims, counterclaims, defenses, off sets, or recoupments of
any kind against Lender with respect to the Indebtedness owing under the Loan
Documents, or the liens and Security Interest of Lender in the
Collateral.

    


    5.2           Valid and Binding
Obligations Owing to Lender. The Loan Documents as modified by this
Agreement are the legal, valid, and binding Obligations of Borrowers. Any person
executing this Agreement for Borrowers in a representative capacity confirms and
acknowledges that he or she has full authority to bind Borrowers to the terms
and conditions of this Agreement.

    


    5.3           Requisite Power and
Authority. Borrowers are each validly existing under the laws of the
jurisdiction of their respective formation and organization and in good standing
under the laws of any jurisdiction in which Borrowers conduct business
activities, and Borrowers have the requisite power and authority to execute and
deliver this Agreement to Lender and to perform all obligations under the Loan
Documents as modified by this Agreement.

    


    6.          
  AFFIRMATIVE COVENANTS OF
BORROWER.

    


    6.1           No New Defaults. The
accommodations provided by Lender are limited to the exercise of Lender's rights
and remedies arising as a result of the Existing Defaults, and Lender will not
be deemed to have waived or suspended any rights or remedies arising as a result
of a new default or Event of Default by Borrower under the Loan Documents (as
amended). Borrower will not commit any new default or Event of Default under any
of the Loan Documents (as modified).

    


    6.2           Reimbursement of Lender's
Costs and Expenses. Borrower will reimburse Lender for all of its costs
and expenses (including attorneys' fees) reasonably incurred in relation to the
Existing Defaults and in relation to this Agreement.

    


    6.3           Subordination of Debt to
Indebtedness Owing to Lender. All existing and future indebtedness
(whether direct or indirect, liquidated or contingent) owing from Borrower to
any Subsidiary, and any Affiliate, both now existing or arising in the future,
is and will remain subordinated to the Indebtedness owing to Lender under the
Loan Documents. In addition, any liens, security interests, mortgages, or
pledges of assets of Borrower to any Subsidiary, and any Affiliate, both now
existing or arising in the future, are expressly subordinate and junior in
priority to the liens, Security Interest, mortgages, and pledges of the
Collateral held by Lender regardless of the record priority or dates of public
filings or other documentary rights assertable by any Subsidiary, and any
Affiliate. Without limiting the generality of the foregoing, any Subsidiary, and
any Affiliate (individually or collectively) will not receive any payments or
transfers of property on account of any existing or future indebtedness or
equity interests unless and until all Indebtedness owing to Lender under the
Loan Documents are satisfied indefeasibly and in full.


    
      
         


      

      
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    6.4           Modification Fee. In
consideration of Lender's willingness to modify the Credit Agreement as provided
in this agreement, Borrowers will pay to Lender a fee in the amount of
$325,000.00 (the "Modification Fee"), which Modification Fee is fully-earned as
of the date of this Agreement, but which shall be payable on the earlier of: (i)
termination of the Credit Facility; or (ii) January 31, 2010.

    


    6.5           Further Assurances.
Borrower will perform such acts, and will execute, deliver, and provide Lender
with any documents, agreements, or instruments as are reasonably necessary to
carry out the terms and conditions of this Agreement.

    


    6.6           Release of Lender. In
consideration of the benefits provided by Lender through this Agreement,
Borrowers, by signing below (collectively, the "Releasing Parties") hereby
fully, finally, and absolutely and forever release and discharge Lender and its
present and former directors, shareholders, officers, employees, agents,
representatives, attorneys, predecessors (including, without limitation, Wells
Fargo Business Credit, Inc.), successors and assigns, and their separate and
respective heirs, personal representatives, successors and assigns (the
"Released Parties"), from any and all actions, causes of action, claims, debts,
damages, demands, liabilities, obligations, and suits, of whatever kind or
nature, in law or equity of the Releasing Parties and, whether now known or
unknown to the Releasing Parties, and whether contingent or matured: (i) in
respect of any of the Loan Documents, or the actions or omissions of Lender
occurring prior to the date of this Agreement in respect of the loan to
Borrower, or any duties under the Loan Documents; and (ii) arising from events
occurring prior to the date of this Agreement. Releasing Parties acknowledge
that they have been informed by their attorneys, and are aware of and familiar
with the general principle of law which provides that a general release does not
extend to claims which a creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by him must have materially
affected his settlement with a debtor (the "Unknown Claims"). To the extent
applicable, Releasing Parties expressly waive and relinquish all rights and
benefits they may have under the principle of law relating to the release of
Unknown Claims.

    


    6.7           Term Sheet for
Refinancing. On or before December 15, 2009, Borrowers shall have
delivered to Lender a signed term sheet from a financial institution, in form
and substance acceptable to Lender in its sole and absolute discretion, to
refinance the Credit Facility.

    


    6.8           Additional Equity: By
not later than October 31, 2009, Borrowers will have obtained a cash infusion
for working capital of at least $1,250,000.00 in the form of equity ("Additional
Equity") or subordinated debt ("Subordinated Debt") (which shall be subordinated
pursuant to a Subordination Agreement in form and substance acceptable to Lender
in its sole discretion). The Additional Equity and Subordinated Debt shall be
used solely for working capital of Borrowers.


    
      
         


      

      
        - 10
-

        
          

        

      

      
         


      

    


    6.9           Appraisal of
Equipment. Borrowers shall have provided to Lender an appraisal of
Borrower's equipment located on the Property in form and substance acceptable to
Lender within 30 days after Borrower's execution of this Agreement.

    


    6.10         Appraisal of Property.
Borrowers shall have provided to Lender an appraisal of the Property in form and
substance acceptable to Lender within 30 days after Borrower's execution of this
Agreement.

    


    6.11         Minimum Quarterly Net
Income. The financial covenants set forth in Sections 5.2(a) - (e) shall
not apply during the Forbearance Period. Instead, Borrowers shall achieve, for
each period described below, Net Income of not less than the amount set forth
for each such period (numbers appearing between "< >" are
negative):

     

    
      	
              Quarter
      Ending

            	
              Minimum
      Net Income

            
	 	 
	
              June
      30. 2009

            	
              <$6,000,000.00>

            
	 	 
	
              September
      30. 2009

            	
              <$4,500,000.00>

            


    

     

     

    7.          
  EXECUTION
AND DELIVERY OF AGREEMENT BY LENDER. Lender is not bound by this
Agreement until: (i) Lender has executed and delivered this Agreement to
Borrowers; and (ii) all of the conditions set forth above in Section II are
satisfied.

    


    8.          
  BINDING
EFFECT. The Loan Documents, as modified by this Agreement, will be
binding upon and will inure to the benefit of Borrowers and Lender and their
respective successors and assigns.

    


    9.          
  CHOICE OF
LAW/VENUE. This Agreement will be governed by and will be construed in
accordance with the laws of the State of Arizona, without giving effect to any
conflicts of law principles. Borrowers agree that the exclusive venue for any
voluntary or involuntary bankruptcy of Borrowers will be the United States
Bankruptcy Court for the District of Arizona (Phoenix Division), and that the
exclusive venue for any litigation or disputes arising under or with respect to
the Loan Documents or this Agreement will be in Maricopa County,
Arizona.

    


    10.           COUNTERPARTS. This
Agreement may be signed in any number of counterparts. Facsimile signatures will
be deemed acceptable as original signatures.

    


    11.           NOTICES. Any notice
or other communication required or permitted hereunder or under the Loan
Agreement will be in writing and personally delivered; sent by telecopier,
telefax, or facsimile transmission; or sent by prepaid overnight courier
service; and addressed to the relevant party at its address set forth below, or
at such other address as such party may, by written notice, designate as its
address for purposes of notice hereunder:


    
      
         


      

      
        - 11
-

        
          

        

      

      
         


      

    

     

    
      	 
      	
              (a)

            	
              If
      to Lender, at:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              Wells
      Fargo Bank, National Association

            
	 
      	 
      	 
      	
              Attn:
      Shane Luke

            
	 
      	 
      	 
      	
              100
      West Washington Street, 15th
      Floor

            
	 
      	 
      	 
      	
              MACS4101-158

            
	 
      	 
      	 
      	
              Phoenix,
      Arizona 85003

            
	 
      	 
      	 
      	
              Telephone
      (602) 378-2468

            
	 
      	 
      	 
      	
              Fax:
      (602) 378-6215

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              with
      a copy to:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              Greenberg
      Traurig, LLP

            
	 
      	 
      	 
      	
              Attn:
      Julie Rystad, Esq.

            
	 
      	 
      	 
      	
              2375
      East Camelback Road, Suite 700

            
	 
      	 
      	 
      	
              Phoenix,
      Arizona 85016

            
	 
      	 
      	 
      	
              Telephone:
      (602) 445-8234

            
	 
      	 
      	 
      	
              Fax:
      (602) 445-8619

            
	 
      	 
      	 
      	 
      
	 
      	
              (b)

            	
              If
      to Borrowers, at:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              NutraCea

            
	 
      	 
      	 
      	
              NutraPhoenix,
      LLC

            
	 
      	 
      	 
      	
              5090
      N. 40th
      Street, Suite 400

            
	 
      	 
      	 
      	
              Phoenix,
      Arizona 85018

            
	 
      	 
      	 
      	
              Attn:
      W. John Short

            
	 
      	 
      	 
      	
              Telephone:
      (602) 552-3011

            
	 
      	 
      	 
      	
              Fax:
      (602) 552-7575

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              with
      a copy to:

            
	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
              Weintraub
      Genshelea Chediak

            
	 
      	 
      	 
      	
              Attn:
      Shawn Kent, Esq.

            
	 
      	 
      	 
      	
              400
      Capital Mall, 11th
      Floor

            
	 
      	 
      	 
      	
              Sacramento,
      California 95814

            
	 
      	 
      	 
      	
              Telephone:
      (916) 558-6128

            
	 
      	 
      	 
      	
              Fax:
      (916) 446-1611

            


    

    


    Notice
will be presumed to have been received upon delivery by overnight mail, by
hand-delivery, or upon communication during regular hours of the recipient by
facsimile, telecopier, or telefax.

    


    12.           ATTORNEYS' FEES. In
the event of any dispute between the parties arising out of or in connection
with this Agreement, the party which prevails in such action shall be reimbursed
by the other party for reasonable attorneys' fees, costs and expenses incurred
by such prevailing party in connection with such dispute.


    
      
         


      

      
        - 12
-

        
          

        

      

      
         


      

    


    13.           CONFLICTS.
INCONSISTENCIES. In the event of any conflict or inconsistency between
the terms and provisions of this Agreement and the terms and provisions of the
Credit Agreement or other Loan Documents, the terms and provisions of this
Agreement shall control to the extent necessary to resolve such conflict or
inconsistency.

    


    14.           COSTS. Borrowers
agree to reimburse Lender for all costs and expenses (including reasonable
attorneys' fees) incurred with respect to the modifications to the Loan
Documents contemplated by this Agreement, including the preparation and delivery
of this Agreement.

    


    15.           JOINT AND SEVERAL
LIABILITY. The obligations pursuant to this Agreement, the Credit
Agreement and each other Loan Document for each of the persons or entities of
which Borrowers are comprised are joint and several.


    
      
         


      

      
        - 13
-

        
          

        

      

      
         


      

    


    Counterpart
signature page for the "Forbearance Agreement and
Amendment to Credit and Security Agreement " dated to be effective as of
July 31, 2009 (the "Agreement"), between: (i) Wells Fargo Bank, National
Association, (ii) NutraCea, a California corporation, and (iii) NutraPhoenix,
LLC, a Delaware limited liability company.

    


    


    
      	 
      	
              NUTRACEA,
      a California corporation

            
	 
      	 
      
	 
      	
              By:

            	
              /s/
      W. John Short

            	 
      
	 
      	
              Name:
      W. John Short

            
	 
      	
              Its:
      President

            
	 
      	 
      
	 
      	 
      
	 
      	
              NUTRAPHOENIX,
      LLC, a Delaware limited liability company

            
	 
      	 
      
	 
      	
              By:

            	
              /s/
      W. John Short

            	 
      
	 
      	
              Name:
      W. John Short

            
	 
      	
              Its:
      President

            


    


    
      
         


      

      
        - 14
-

        
          

        

      

      
         


      

    


    Counterpart
signature page for the "Forbearance Agreement and
Amendment to Credit and Security Agreement " dated to be effective as of
July 31, 2009 (the "Agreement"), between: (i) Wells Fargo Bank, National
Association, (ii) NutraCea, a California corporation, and (iii) NutraPhoenix,
LLC, a Delaware limited liability company.

    
       

    

    


    
      	 
      	
              WELLS
      FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business
      Credit operating division

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:

            	
              /s/
      Shane Luke

            	 
      
	 
      	
              Name:
      Shane Luke

            
	 
      	
              Its:
      Vice President

            


    


    
      
         


      

      
        - 15
-

        
          

        

      

      
         


      

    


    CERTIFICATE
OF AUTHORITY OF BORROWERS

    


    I, W.
John Short, do hereby certify that 1 am the acting President of NutraCea, a
California corporation and NutraPhoenix, LLC, a Delaware limited liability
company (each a "Borrower," and collectively, the "Borrowers"). I further
certify that the following is a true, complete and correct copy of resolutions
duly adopted at one or more meetings of the directors of each of the
above-referenced corporations held on the 24th day of July, 2009 or by
unanimous, written consent; and I further certify that said resolutions are now
in full force and effect:

    


    First
Resolution

    


    RESOLVED
that W. John Short, the President of Borrowers (the "Officer"), is
authorized:

    


    (i) To
enter into the Forbearance Agreement and Amendment to Credit and Security
Agreement, dated effective as of July 31, 2009 (the "Amendment"), with WELLS
FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit
operating division (herein, with its participants, successors and assigns called
the "Lender"), for and on behalf of and in the name of Borrowers;

    


    (ii) To
sign, execute and deliver agreements, acceptances or other evidences of
indebtedness therefor, or in renewal or amendment thereof, in such amounts and
for such time, at such rates of interest and upon such terms as such Officer may
approve, such approval to be conclusively evidenced by such Officer's signature
thereon;

    


    (iii) To
do such other acts and things, make such other agreements and execute and
deliver such other contracts or writings as such Officer may deem to be
appropriate in connection with any of the foregoing.

    


    Second
Resolution

    


    RESOLVED
FURTHER that the President of each of the Borrowers shall certify to the Lender
the name and signature of the person presently authorized as Officer; the Lender
shall be fully protected in relying on such certificates and on the obligation
of such Officer (set forth above) immediately to certify to the Lender any
change in any facts so certified; and the Lender shall be indemnified and saved
harmless by the Borrower for, from and against any claims, demands, expenses,
loss or damage resulting from or growing out of honoring or relying on the
signature or other authority (whether or not properly used) of the Officer whose
name and signature was so certified, or refusing to honor any signature or
authority not so certified.

    


    Third
Resolution

    


    RESOLVED
FURTHER that the foregoing resolutions arc in addition to, and do not limit and
shall not be limited by, any resolutions heretofore or hereafter adopted by the
Borrower for the conduct of business with the Lender; and the foregoing
resolutions shall continue in force until express written notice of their
prospective rescission or modification, as to future transactions not then
undertaken or committed for, has been received by the Lender.


    
      
         


      

      
        1

        
          

        

      

      
         


      

    


    Fourth
Resolution

    


    RESOLVED
FURTHER that any and all transactions by or on behalf of the Borrower with the
Lender prior to the adoption of these resolutions be and the same hereby arc in
all respects ratified, approved and confirmed.

    


    I further
certify that the directors of the Borrowers have, and at the time of adoption of
the foregoing resolutions had, full power and lawful authority to adopt the
foregoing resolutions and to confer the powers therein granted to the persons
named and that such persons have full power and authority to exercise
same.

    


    I further
certify that the foregoing resolutions are effective and binding on the
Borrowers without approval by their respective shareholders.

    


    I further
certify that the Amendment and any other writings identified in the Resolutions
set forth above, executed on behalf of the Borrowers by the authorized Officer,
have been executed and delivered to the Lender and are the agreements and
writings referred to in and approved by the Resolutions set forth
above.

    


    I further
certify that the articles of incorporation and bylaws of each Borrower
previously delivered to the Lender in connection with the Borrower's execution
and delivery of the certificates of authority, each dated December 18, 2008 are
in full force and effect and have not been altered, modified, terminated,
amended or revised.

    


    IN
WITNESS WHEREOF, I have hereunto subscribed my name this 31st day
of July, 2009.

    


    


    
      	 
      	
              /s/
      W. John
      Short

            	 
      
	 
      	
              W.
      John Short, President

            	 
      


    

     

     

    2