EXHIBIT 10.1


 


FIRST AMENDMENT TO CREDIT AND
SECURITY AGREEMENT AND WAIVER


 


THIS FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
AND WAIVER (this “Amendment”), dated as of March 15, 2006, is
entered into between WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its
Wells Fargo Business Credit operating division, as successor by merger to Wells
Fargo Business Credit, Inc. (“Lender”), on the one hand, and
GARDENBURGER, INC., an Oregon corporation (“Borrower”), on the
other.


 


RECITALS


 


A.                                   The
Borrower and the Lender are parties to a Credit and Security Agreement dated as
of November 22, 2005 (as amended, supplemented, restated and modified from
time to time, the “Credit Agreement”). Capitalized terms used in these
recitals have the meanings given to them in the Credit Agreement unless
otherwise specified.


 


B.                                     The
following Events of Default have occurred and are continuing under the Credit
Agreement:  (a) an Event of Default
due to the resignation of James W. Linford from the position of Chief Operating
Officer of the Borrower, which resignation constitutes a Change of Control
under the Credit Agreement in violation of Section 7.1(d) thereof,
and (b) an Event of Default due to the Borrower’s failure to achieve, when
measured for the test period beginning December 31, 2005 through February 24,
2006, the minimum Net Cash Flow required by Section 6.2(b) of the
Credit Agreement in violation of Section 7.1(b) thereof
(collectively, the “Known Existing Defaults”).


 


C.                                     The
Borrower has requested that the Lender waive the Known Existing Defaults and
amend the Credit Agreement on the terms and conditions set forth herein.


 


D.                                    The
Borrower is entering into this Amendment with the understanding and agreement
that, except as specifically provided herein, none of the Lender’s rights or
remedies as set forth in the Credit Agreement is being waived or modified by
the terms of this Amendment.


 


AMENDMENT


 


NOW, THEREFORE, in consideration of the
foregoing and the mutual covenants herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:


 


1.                                       Defined
Terms. Capitalized terms used in this Amendment which are defined in the
Credit Agreement shall have the same meanings as defined therein, unless
otherwise defined herein.


 


2.                                       Amendment
to Credit Agreement.


 


(a)                                  Section 6.2(b) of
the Credit Agreement is hereby amended and restated in its entirety to read as
follows:


 

















 


“(b)                           Minimum Net Cash Flow. The Borrower
will achieve, for the test periods set forth below, Net Cash Flow in an amount
not less than the amount set forth below:


 


	
  Test Period

  	
   

  	
  Minimum Net Cash Flow

  	
   

  
	
  10/01/05 through 12/02/05

  	
   

  	
  $

  	
  (900,000

  	
  )

  
	
  10/29/05 through 12/30/05

  	
   

  	
  $

  	
  (600,000

  	
  )

  
	
  12/03/05 through 01/27/06

  	
   

  	
  $

  	
  (1,800,000

  	
  )

  
	
  12/31/05 through 02/24/06

  	
   

  	
  $

  	
  200,000

  	
   

  
	
  01/28/06 through 03/31/06

  	
   

  	
  $

  	
  (742,000

  	
  )

  
	
  02/25/06 through 04/28/06

  	
   

  	
  $

  	
  (1,356,000

  	
  )

  
	
  04/01/06 through 06/02/06

  	
   

  	
  $

  	
  (524,000

  	
  )

  
	
  04/29/06 through 06/30/06

  	
   

  	
  $

  	
  (408,000

  	
  )

  
	
  06/03/06 through 07/28/06

  	
   

  	
  $

  	
  65,000”

  	
   

  



 


(b)                                 Section 6.2(c) of
the Credit Agreement is hereby amended and restated in its entirety to read as
follows:


 


“(c)                            Minimum Gross Sales. The Borrower
will achieve, for each period described below, gross sales of not less than the
amount set forth for each such period:


 


	
  Period

  	
   

  	
  Minimum Gross Sales

  	
   

  
	
  10/01/05 through 10/31/05

  	
   

  	
  $

  	
  3,600,000

  	
   

  
	
  11/01/05 through 11/30/05

  	
   

  	
  $

  	
  3,000,000

  	
   

  
	
  12/01/05 through 12/31/05

  	
   

  	
  $

  	
  3,600,000

  	
   

  
	
  01/01/06 through 01/31/06

  	
   

  	
  $

  	
  4,300,000

  	
   

  
	
  02/01/06 through 02/28/06

  	
   

  	
  $

  	
  3,900,000

  	
   

  
	
  03/01/06 through 03/31/06

  	
   

  	
  $

  	
  4,300,000

  	
   

  
	
  04/01/06 through 04/30/06

  	
   

  	
  $

  	
  4,350,000

  	
   

  
	
  05/01/06 through 05/31/06

  	
   

  	
  $

  	
  5,650,000

  	
   

  
	
  06/01/06 through 06/30/06

  	
   

  	
  $

  	
  5,100,000

  	
   

  
	
  07/01/06 through 07/31/06

  	
   

  	
  $

  	
  5,100,000”

  	
   

  



 


(c)                                  Section 6.2(d) of
the Credit Agreement is hereby amended and restated in its entirety to read as
follows:


 


“(d)                           Minimum Net Sales. In the event that
the Borrower fails to achieve the minimum gross sales required by Section 6.2(c) for
any period set forth above, the Borrower will achieve, for the period set forth
below ending on the same end date as the period for which the Borrower failed
such minimum gross sales covenant, cumulative Net Sales of not less than the
amount set forth for the period ending on such date set forth below:


 


	
  Period

  	
   

  	
  Minimum Net Sales

  	
   

  
	
  10/01/05 through 10/31/05

  	
   

  	
  $

  	
  3,100,000

  	
   

  
	
  10/01/05 through 11/30/05

  	
   

  	
  $

  	
  5,700,000

  	
   

  
	
  10/01/05 through 12/31/05

  	
   

  	
  $

  	
  8,600,000

  	
   

  
	
  10/01/05 through 01/31/06

  	
   

  	
  $

  	
  12,100,000

  	
   

  
	
  10/01/05 through 02/28/06

  	
   

  	
  $

  	
  15,500,000

  	
   

  
	
  10/01/05 through 03/31/06

  	
   

  	
  $

  	
  18,200,000

  	
   

  
	
  10/01/05 through 04/30/06

  	
   

  	
  $

  	
  21,500,000

  	
   

  
	
  10/01/05 through 05/31/06

  	
   

  	
  $

  	
  25,800,000

  	
   

  
	
  10/01/05 through 06/30/06

  	
   

  	
  $

  	
  29,900,000

  	
   

  
	
  10/01/05 through 07/31/06

  	
   

  	
  $

  	
  34,400,000”

  	
   

  



 


2

















 


3.                                       Waiver
of Known Existing Defaults. The Lender hereby waives enforcement of its
rights against the Borrower arising from the Known Existing Defaults. This
waiver shall be effective only for the specific defaults comprising the Known
Existing Defaults, and in no event shall this waiver be deemed to be a waiver
of enforcement of the Lender’s rights with respect to any other Defaults or
Events of Default now existing or hereafter arising. Nothing contained in this
Amendment nor any communications between the Borrower and the Lender shall be a
waiver of any rights or remedies the Lender has or may have against the
Borrower, except as specifically provided herein. Except as specifically
provided herein, the Lender hereby reserves and preserves all of its rights and
remedies against the Borrower under the Credit Agreement and the other Loan
Documents.


 


4.                                       Release; Covenant Not to Sue.


 


(a)                                                          The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing (each a “Released Party”), from any and all claims,
demands or causes of action of any kind, nature or description, whether arising
in law or equity or upon contract or tort or under any state or federal law or
otherwise, which the Borrower has had, now has or has made claim to have
against any such person for or by reason of any act, omission, matter, cause or
thing whatsoever arising from the beginning of time to and including the date
of this Amendment, whether such claims, demands and causes of action are
matured or unmatured or known or unknown. It is the intention of the Borrower
in providing this release that the same shall be effective as a bar to each and
every claim, demand and cause of action specified, and in furtherance of this
intention it waives and relinquishes all rights and benefits under Section 1542
of the Civil Code of the State of California, which provides:


 


“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 MIGHT HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.”


 


(b)                                                         The
Borrower acknowledges that it may hereafter discover facts different from
or in addition to those now known or believed to be true with respect to such claims, demands,
or causes of action and agree that this instrument shall be and remain
effective in all respects notwithstanding any such differences or additional
facts. The Borrower understands, acknowledges and agrees that the release set
forth above may be pleaded as a full and complete defense and may be
used as a basis for an injunction against any action, suit or other proceeding
which may be instituted, prosecuted or attempted in breach of the
provisions of such release.


 


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(c)                                                          The
Borrower, on behalf of itself and its successors, assigns, and other legal
representatives, hereby absolutely, unconditionally and irrevocably, covenants
and agrees with and in favor of each Released Party above that it will not sue
(at law, in equity, in any regulatory proceeding or otherwise) any Released
Party on the basis of any claim released, remised and discharged by Borrower
pursuant to the above release. If the Borrower or any of its successors,
assigns or other legal representations violates the foregoing covenant, the
Borrower, for itself and its successors, assigns and legal representatives,
agrees to pay, in addition to such other damages as any Released Party may sustain
as a result of such violation, all attorneys’ fees and costs incurred by such
Released Party as a result of such violation.


 


(d)                                                         Notwithstanding the foregoing, the
Lender agrees that this Amendment does not release or otherwise affect any of
the Lender’s obligations or commitments under the Exit Financing Commitment
Letter attached to the Credit Agreement as Exhibit E.


 


5.                                       No
Other Changes. Except as explicitly amended by this Amendment, all of the
terms and conditions of the Credit Agreement shall remain in full force and
effect and shall apply to any Advance or Letter of Credit thereunder.


 


6.                                       Effectiveness
of this Amendment. The Lender must have received the following items, in form and
content acceptable to the Lender, before this Amendment is effective and before
the Lender is required to extend any credit to the Borrower as provided for by
this Amendment:


 


(a)                                  Amendment.
This Amendment fully executed in a sufficient number of counterparts for
distribution to the Lender and the Borrower.


 


(b)                                 Waiver
Fee. A non-refundable waiver fee in the amount of Ten Thousand Dollars ($10,000),
which fee is fully earned as of and due and payable on the date hereof.


 


(c)                                  Court
Approval. Evidence, in form and substance satisfactory to the Lender,
that this Amendment has been approved by the Bankruptcy Court.


 


(d)                                 Representations
and Warranties. The representations and warranties set forth herein and in
the Credit Agreement must be true and correct.


 


(e)                                  Other
Required Documentation. All other documents and legal matters in connection
with the transaction contemplated by this Amendment shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Lender.


 


7.                                       Representations
and Warranties. The Borrower represents and warrants as follows:


 


(a)                                  Authority.
The Borrower has the requisite corporate power and authority to execute and
deliver this Amendment, and to perform its obligations hereunder and under
the Loan Documents (as amended or modified hereby) to which it is a party. The
execution, delivery and performance by the Borrower of this Amendment have been
duly approved by all necessary corporate action, have received all necessary
governmental


 


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approval, if any, and do
not contravene any law or any contractual restrictions binding on Borrower. No
other corporate proceedings are necessary to consummate such transactions.


 


(b)                                 Enforceability.
This Amendment has been duly executed and delivered by Borrower. This Amendment
and each Loan Document (as amended or modified hereby) is the legal, valid and
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms, and is in full force and effect.


 


(c)                                  Representations
and Warranties. The representations and warranties contained in each Loan
Document (other than any such representations or warranties that, by their
terms, are specifically made as of a date other than the date hereof) are
correct on and as of the date hereof as though made on and as of the date
hereof.


 


(d)                                 No
Default. After giving effect to this Amendment, no event has occurred and
is continuing that constitutes an Event of Default, and by entering into this
Amendment, other than as expressly set forth herein, Lender is not waiving and
shall not be deemed to have waived any Event of Default that may exist.


 


8.                                       Choice
of Law. The validity of this Amendment, its construction, interpretation
and enforcement, and the rights of the parties hereunder, shall be determined
under, governed by, and construed in accordance with the internal laws of the
State of California governing contracts entered into and wholly performed in
that State.


 


9.                                       Counterparts.
This Amendment may be executed in any number of counterparts and by
different parties and separate counterparts, each of which when so executed and
delivered, shall be deemed an original, and all of which, when taken together,
shall constitute one and the same instrument. Delivery of an executed counterpart of
a signature page to this Amendment by telefacsimile shall be effective as
delivery of a manually executed counterpart of this Amendment.


 


10.                                 Reference
to and Effect on the Loan Documents.


 


(a)                                  Upon
and after the effectiveness of this Amendment, each reference in the Credit
Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to “the Credit Agreement”, “thereof” or words of like import
referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as modified and amended hereby.


 


(b)                                 Except
as specifically amended above, the Credit Agreement and all other Loan
Documents, remain unchanged, each is and shall continue to be in full force and
effect, and each is hereby in all respects ratified and confirmed and
constitutes the legal, valid, binding and enforceable obligations of Borrower
to Lender without defense, offset, claim or contribution.


 


(c)                                  Except
as provided herein, the execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Lender under any
of the Loan Documents or constitute a waiver of any provision of any of the
Loan


 


5

















 


Documents.


 


(d)                                 To
the extent that any terms and conditions in any of the Loan Documents shall
contradict or be in conflict with any terms or conditions of the Credit
Agreement after giving effect to this Amendment, such terms and conditions are
hereby deemed modified or amended accordingly to reflect the terms and
conditions of the Credit Agreement as modified or amended hereby.


 


11.                                 No
Waiver. Except as expressly provided herein, the execution of this
Amendment and acceptance of any documents related hereto shall not be deemed to
be a waiver of any under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Amendment.


 


12.                                 Ratification.
Borrower hereby restates, ratifies and reaffirms each and every term and
condition set forth in the Credit Agreement as amended hereby and in the Loan
Documents effective as of the date hereof.


 


13.                                 Estoppel.
To induce Lender to enter into this Amendment and to continue to make advances
to Borrower under the Credit Agreement, Borrower hereby acknowledges and agrees
that, after giving effect to this Amendment, as of the date hereof, there
exists no Event of Default and no right of offset, defense, counterclaim or
objection in favor of Borrower as against Lender with respect to the Obligations.


 


14.                                 Costs
and Expenses. The Borrower hereby reaffirms its agreement under the Credit
Agreement to pay or reimburse the Lender on demand for all costs and expenses
incurred by the Lender in connection with the Credit Agreement, the Loan
Documents and all other documents contemplated thereby, including without
limitation all reasonable fees and disbursements of legal counsel. Without
limiting the generality of the foregoing, the Borrower specifically agrees to
pay all reasonable fees and disbursements of counsel to the Lender for the
services performed by such counsel in connection with the preparation of this
Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to
the Borrower under the Credit Agreement, or apply the proceeds of any loan, for
the purpose of paying any such fees, disbursements, costs and expenses.


 


[Remainder of page intentionally blank.]


 


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IN WITNESS WHEREOF, the parties have entered into this
Amendment as of the date first above written.


 


	
  “BORROWER”

  	
  “LENDER”

  
	
   

  	
   

  
	
  GARDENBURGER, INC.,

  	
  WELLS FARGO BANK,
  NATIONAL

  
	
  an Oregon corporation

  	
  ASSOCIATION, acting
  through its Wells

  
	
   

  	
  Fargo Business Credit
  operating division

  
	
  By:

  	
  /s/ Scott C. Wallace

  	
   

  	
   

  
	
  Name: Scott C. Wallace

  	
  By:

  	
  /s/ Harry L. Joe

  	
   

  
	
  Title: President and CEO

  	
  Name: Harry L. Joe

  
	
   

  	
  Title: Vice President

  
						



 


 


Acknowledged and consented to as of the date first written above.


 


	
  GB RETAIL FUNDING, LLC, as the Term
  Facility

  
	
  Lender under the Intercreditor Agreement

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Lawrence E. Klaff

  	
   

  
	
  Name: Lawrence E. Klaff

  
	
  Title: Principal and Managing Director

  



 


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