EXHIBIT 10.3


 


RETENTION AGREEMENT


 


THIS RETENTION AGREEMENT (the “Agreement”), is
made on this 27th day of January, 2005 (the “Effective Date”), by
and between GARDENBURGER, INC., an Oregon Corporation (the “Company”)
and Bob Trebing (the “Executive”).


 


WHEREAS, the Executive serves as a valued employee of
the Company; and


 


WHEREAS, the Company and
the Executive have entered into that certain Employment Agreement dated February 26,
2004 (the “Employment Agreement”); and


 


WHEREAS, the Company desires to establish an incentive
for the Executive to continue to be employed by the Company through and
following a Change in Control (as defined in Section 2.4) or a Going
Private Transaction (as defined in Section 2.6).


 


NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and promises contained herein, and intending to be legally
bound hereby, the parties agree as follows:


 


1.                                       Retention
Bonus.


 


1.1.  Bonus
Amount and Conditions.  Subject to
Sections 1.2, 3, 4 and 5.1, the Company shall pay to the Executive the
Retention Bonus (as defined in Section 2.8) to the Executive if:


 


(a)                                  the
Executive exercises all reasonable efforts to support the applicable Change in
Control or Going Private Transaction and to cooperate with the Company to
consummate the Change in Control (including, if so requested by the Company,
providing assistance to the prospective buyer in obtaining financing for the
Change in Control) or Going Private Transaction;


 


(b)                                 promptly,
upon request of the Company, executes and delivers a release of certain claims
against the Company and any of its Affiliates (as defined in Section 2.1)
in a form approved by the Company; and


 


(c)                                  either:


 


(i)                                     the
Executive has remained continuously employed by the Company through the earlier
of:  (A) the date of a Change in Control;
(B) the date of a Going Private Transaction; or (C) the second year anniversary
of the Effective Date; or


 


(ii)                                  the
Executive’s employment by the Company is terminated by the Company without
Cause (as defined in Section 2.3) other than in connection with Executive’s death or Disability (as defined in Section 2.5) at anytime after the one hundred
and eighty (180) day period immediately following the Effective Date.


 





















 


1.2.  Timing
and Form of Payment.  Subject to Section 1.1,
the Company shall pay the Retention Bonus to the Executive in a lump sum as
soon as administratively feasible following the earlier of:  (1) the date of the Change in Control, (2)
the date of a Going Private Transaction, or (3) the second anniversary of the Effective
Date.


 


2.                                       Certain
Definitions.  As used herein:


 


2.1.  “Affiliate”
means, with respect to a Person (as defined below), another Person that
directly or indirectly controls, or is controlled by, or is under common
control with such Person.


 


2.2.  “Base
Salary” means the annual amount equal to Two Hundred Four Thousand Dollars
($204,000), as adjusted by the Board of Directors of the Company from time to
time.


 


2.3.  “Cause”
shall have the meaning set forth in Article I of the Employment Agreement.


 


2.4.  “Change
in Control” shall have the meaning set forth in Article I of the
Employment Agreement.


 


2.5.  “Disability”
shall have the meaning set forth in Article I of the Employment Agreement.


 


2.6.  “Going
Private Transaction” shall have the meaning set forth in Section (a)(3)
of Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”).


 


2.7.  “Person”
means any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act.


 


2.8.  “Retention
Bonus” means the amount equal to:


 


(a)                                  if
the Executive has remained continuously employed by the Company through the
date of a Change in Control or Going Private Transaction that occurs during the
first eighteen (18) months immediately following the Effective Date, the
greater of:  (i) the amount equal to
twelve (12) months of Base Salary in effect at the time of the payment pursuant
to Section 1.2; or (ii) the amount equal to twelve (12) months of Base
Salary in effect as of the consummation of any Change in Control or Going
Private Transaction; or


 


(b)                                 if
the Executive has remained continuously employed by the Company through the
earlier of:  (i) the date of a Change in
Control or Going Private Transaction that occurs after the eighteen (18) month
anniversary of the Effective Date; or (ii) the second year anniversary of the
Effective Date, the greater of:  (A) the
amount equal to sixteen (16) months of Base Salary in effect at the time of the
payment pursuant to Section 1.2; or (B) the amount equal to sixteen (16)
months of Base Salary in effect as of the consummation of any Change in Control
or Going Private Transaction; or


 


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(c)                                  if
payment to the Executive is due as a result Section 1.1(c)(ii) and the
Executive’s termination of employment occurs during the first eighteen (18)
months immediately following the Effective Date, the product of:  (i) the greater of:  (A) the amount equal to twelve (12) months of
Base Salary in effect at the time of the payment pursuant to Section 1.2;
or (B) the amount equal to twelve (12) months of Base Salary in effect as of
the consummation of any Change in Control or Going Private Transaction;
multiplied by (ii) the quotient of:  (1)
the number of days commencing on the Effective Date and ending on the date of
the Executive’s termination of employment; divided by (2) either:  (y) in the event of a Change in Control or
Going Private Transaction, the number of days commencing on the Effective Date
and ending on the date of the Change in Control or Going Private Transaction,
respectively; or (z) in the event a Change in Control or Going Private
Transaction does not occur prior to the second anniversary of the Effective
Date, then 730; or


 


(d)                                 if
payment to the Executive is due as a result Section 1.1(c)(ii) and the
Executive’s termination of employment occurs at anytime after the eighteen (18)
month anniversary of the Effective Date and before the two year anniversary of
the Effective Date, the product of:  (i)
the greater of:  (A) the amount equal to
sixteen (16) months of Base Salary in effect at the time of the payment
pursuant to Section 1.2; or (B) the amount equal to sixteen (16) months of
Base Salary in effect as of the consummation of any Change in Control or Going
Private Transaction; multiplied by (ii) the quotient of:  (1) the number of days commencing on the
Effective Date and ending on the date of the Executive’s termination of
employment; divided by (2) either:  (y)
in the event of a Change in Control or Going Private Transaction, the number of
days commencing on the Effective Date and ending on the date of the Change in
Control or Going Private Transaction, respectively; or (z) in the event a
Change in Control or Going Private Transaction does not occur prior to the
second anniversary of the Effective Date, then 730.


 


3.                                       Parachute
Payments.  Payments under this
Agreement shall be made without regard to whether the deductibility of such
payments (or any other payments) would be limited or precluded by Section 280G
of the Internal Revenue Code of 1986 (the “Code”) and without regard to whether
such payments would subject the Executive to the federal excise tax levied on
certain “excess parachute payments” under Section 4999 of the Code;
provided, however, that if the Total After-Tax Payments (as defined below)
would be increased by the limitation or elimination of any amount payable under
this Agreement, then amounts payable under this Agreement will be reduced to
the extent necessary to maximize the Total After-Tax Payments.  The determination of whether and to what
extent payments under this Agreement are required to be reduced in accordance
with the preceding sentence will be made at the Company’s expense by an
independent, certified public accountant selected by the Executive and
reasonably acceptable to the Company.  In
the event of any underpayment or overpayment under this Agreement (as
determined after the application of this Section 3), the amount of such
underpayment or overpayment will be immediately paid by the Company to the
Executive or refunded by the Executive to the Company, as the case may be, with
interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.  For purposes of this
Agreement, “Total After-Tax Payments” means the total of all “parachute
payments” (as that term is defined in Section 280G(b)(2) of the Code) made
to or for the benefit of the Executive (whether made hereunder or otherwise),
after reduction for all applicable federal taxes (including, without
limitation, the tax described in Section 4999 of the Code).


 


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4.                                       Certain
Limitations.


 


4.1.  Cash
Flow Limitation.  Notwithstanding any
other provision of this Agreement to the contrary, the aggregate amount of any
payments due under this Agreement or any similar retention agreements executed
now or in the future with any other employee of the Company or any of its
Affiliates (each a, “Key Employee”) to the Executive and one or more Key
Employees in a single fiscal year shall be limited so that in no event shall
the aggregate amount to be paid in cash cause the Company’s Available Credit
plus Cash to fall below $1,500,000 (“Cash Flow Ceiling”); and in the event the
Available Credit plus Cash would fall below such amount, the Company shall
deliver to the Executive to the extent required by this Agreement a payment in
an amount equal to the product of (i) the Cash Flow Ceiling multiplied by (ii)
a fraction, the numerator of which is the aggregate amount of such Executive’s
full payment hereunder for the fiscal year and the denominator of which is the
aggregate amount of all payments due to the Executive and all other Key
Employees in such fiscal year (“Cash Flow Permitted Amount”).  To the extent that payments under this
Agreement to the Executive in a single fiscal year would exceed the Cash Flow
Ceiling (“Cash Flow Shortfall”), the Company shall pay the Cash Flow Permitted
Amount to the Executive and shall pay the Cash Flow Shortfall (in whole or in
part) as rapidly as permitted by the terms of this Section 4.1.  The obligation to pay the Cash Flow Shortfall
shall constitute subordinated debt of the Company until paid.  The Company may, in the sole discretion of
the Board, elect to waive the annual cash flow limitation set forth above, and
absent such a waiver, the limitation shall apply to payments due under this
Agreement.  For purposes of this Section 4.1,
“Available Credit plus Cash” means credit available to the Company as
calculated by the Chief Financial Officer or an acceptable designee using the
borrowing worksheet supplied by the Company’s Senior Lender plus the total
amount of cash in the Company’s bank account(s).


 


4.2.  Debt
Limitations.  Notwithstanding any
other provision of this Agreement to the contrary, if a payment of any amount
to the Executive under this Agreement would, if made, be prohibited pursuant to
any agreement to which the Company (as defined below) is or from time to time
becomes a party, evidencing or governing indebtedness for borrowed money (each,
a “Debt Agreement”), the Company shall identify to the Executive the part, if
any, of the amount that the Company is permitted to pay in cash under the Debt
Agreement (the “Permitted Cash Amount”). 
If any amount is payable under this Agreement in excess of the Permitted
Cash Amount (the “Debt Covenant Shortfall”) on the applicable payment date, the
Company shall pay the Permitted Cash Amount and shall pay the Debt Covenant
Shortfall (in whole or in part) as rapidly as permitted by and in accordance
with the terms of the Debt Agreement. 
The obligation to pay the Debt Covenant Shortfall shall constitute
subordinated debt of the Company until paid. 
The Company shall use commercially reasonable efforts to obtain a waiver
of any such prohibition as may be contained in any applicable Debt Agreement,
but the Company shall not be obligated to post additional collateral or to
accelerate or increase its debt payments to obtain such waiver.


 


4.3.  Bankruptcy
Limitation.  The Executive agrees and
acknowledges that any payments pursuant to this Agreement that have not accrued
and become due and payable prior to the Company or any of its Affiliates filing
a petition for relief under the United States Bankruptcy Code in any state or
Federal court shall be null and void.


 


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5.                                       Miscellaneous.


 


5.1.  No
Liability of Officers and Directors for Severance Upon Insolvency.  Notwithstanding any other provision of this
Agreement and intending to be bound by this provision, the Executive hereby (a)
waives any right to claim payment of amounts owed to him, now or in the future,
pursuant to this Agreement from directors or officers of the Company if the
Company becomes insolvent and/or files a petition for relief under the United
States Bankruptcy Code in any state or Federal court (as determined in good
faith by the Board), and (b) fully and forever releases and discharges the
Company’s officers and directors from any and all claims, demands, liens,
actions, suits, causes of action or judgments arising out of any present or
future claim for such amounts.


 


5.2.  Waiver
of Civil Code Section 1542.  The
Company and the Executive each understand and agree that the releases provided
herein extend to all claims of every nature and kind, whether known or unknown,
suspected or unsuspected.  It is
expressly understood and agreed that the parties hereby waive the provisions of
Section 1542 of the California Civil Code (and any statute or law of
similar construction in any other jurisdiction), which provides as follows:


 


A general release does not extend to claims which the
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 the debtor.


 


5.3.  Successors
and Assigns. The Company may assign this Agreement to any successor to all
or substantially all of its assets and business by means of liquidation,
dissolution, merger, consolidation, transfer of assets, or otherwise.  The rights of the Executive hereunder are
personal to the Executive and may not be assigned by him.


 


5.4.  Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of
California without regard to the principles of conflicts of laws.


 


5.5.  Enforcement.  Any legal proceeding arising out of or
relating to this Agreement will be instituted in the United States District
Court, Central District of California, Santa Ana Division, or if that court
does not have or will not accept jurisdiction, in any court of general
jurisdiction in the State of California, County of Orange, and the Executive
and the Company hereby consent to the personal and exclusive jurisdiction of
such court(s) and hereby waive any objection(s) that they may have to personal
jurisdiction, the laying of venue of any such proceeding and any claim or
defense of inconvenient forum.


 


5.6.  Waivers;
Separability.  The waiver by either
party hereto of any right hereunder or any failure to perform or breach by the
other party hereto will not be deemed a waiver of any other right hereunder or
any other failure or breach by the other party hereto, whether of the same or a
similar nature or otherwise.  No waiver
will be deemed to have occurred unless set forth in a writing executed by or on
behalf of the waiving party.  No such
written waiver will be deemed a continuing waiver unless specifically stated
therein, and each


 


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such waiver will operate only as to the specific term or condition
waived.  If any provision of this
Agreement is declared to be invalid or unenforceable, in whole or in part, such
invalidity or unenforceability shall not affect the remaining provisions hereof
which shall remain in full force and effect.


 


5.7.  Notices.  All notices and communications that are
required or permitted to be given hereunder must be in writing and will be
deemed to have been duly given when delivered personally or upon mailing by
registered or certified mail, postage prepaid, return receipt requested, as
follows:


 


If to
the Company, to:


 


Gardenburger,
Inc.

15615 Alton Parkway, Suite 350

Irvine, California 92618

Attention:  Scott Wallace


 


With a
copy to:


 


Mike
Rule

Pepper Hamilton
895 Dove Street, Suite 300

Newport Beach, California 92660-6422


 


If to
Executive, to:


 


Bob
Trebing


28682 Vista Ladera


Laguna Niguel, CA  92677


 


or to such other address as may be specified in a
notice given by one party to the other party hereunder.


 


5.8.  Entire
Agreement; Amendments.  This Agreement
contains the entire agreement and understanding of the parties relating to the
provision of a retention bonus and merges and supersedes all prior and
contemporaneous discussions, agreements and understandings of every nature
relating to that subject.  This Agreement
may not be changed or modified, except by an Agreement in writing signed by
each of the parties hereto.


 


5.9.  Withholding.  The Company will withhold from any payments
due to Executive hereunder, all taxes, FICA or other amounts required to be
withheld pursuant to any applicable law.


 


5.10.  Headings
Descriptive.  The headings of
sections and paragraphs of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of
this Agreement.


 


5.11.  Counterparts.  This Agreement may be executed in multiple
counterparts, each of which will be deemed to be an original, but all of which
together will constitute but one and the same instrument.


 


[Signature page follows]


 


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IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date and year first above written.


 


	
   

  	
  GARDENBURGER,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Scott C. Wallace

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chairman,
  President and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Bob Trebing

  	
   

  



 


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