EXHIBIT 10.5


 


AMENDED AND RESTATED RETENTION AGREEMENT


 


THIS AMENDED AND RESTATED RETENTION AGREEMENT (the “Agreement”),
is made on this 4th day of May, 2005 (the “Effective Date”),
by and between GARDENBURGER, INC., an Oregon Corporation (the “Company”)
and Lori Abert Luke (the “Executive”).


 


WHEREAS, the Executive serves as a valued employee of
the Company and along with other key members of management of the Company
(collectively, the “Executives”) provides essential services to the Company;
and


 


WHEREAS, the Company and the Executive have entered
into that certain Employment Agreement dated February 26, 2004, and an
Amendment to Employment Agreement dated March 24, 2005, pursuant to which the
Executive serves as the Vice President, Marketing and R&D of the Company
(collectively, the “Employment Agreement”); and


 


WHEREAS, in addition to the benefits that the
Executive may be entitled to receive under the Employment Agreement, the
Company and the Executive are parties to a Retention Agreement, dated January
27, 2005, and an Amendment to Retention Agreement, dated March 24, 2005,
pursuant to which the Company desires to establish an incentive for the
Executive to continue to be employed by the Company through and following the
execution of a definitive agreement relating to a Change in Control (as defined
in Section 2.4) or a Going Private Transaction (as defined in Section 2.7); and


 


WHEREAS, the Executive
has informed the Company that the Executive will be unable to devote
Executive’s complete unimpaired attention to continue providing services to the
Company to assist the Company in negotiating a transaction which contemplates a
Change in Control or Going Private Transaction and will be forced to consider
other employment opportunities, due to the personal financial risks that such a
Change in Control or Going Private Transaction imposes on the Executive, unless
the Company agrees to modify the terms of the Retention Agreement as provided
for in this Amended and Restated Retention Agreement; and


 


WHEREAS, the Company is
aware that the Executives are being recruited by other potential employers and
that certain of the Executives have already received offers regarding
alternative employment opportunities; and


 


WHEREAS, the Company has
determined that Executive’s continued services with the Company are important
to the Company’s efforts to maximize value pursuant to a Change in Control or
Going Private Transaction and that the Company would suffer adverse
consequences if Executive’s employment with the Company terminated.


 


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 2.9) to the Executive if: promptly, upon request of
the Company, the Executive executes and delivers a release of claims against
the Company, which release shall be in the same form as Paragraph 9 to the
Separation Agreement attached to the Employment Agreement between the Executive
and the Company; and the
earlier to occur of:


 


(a)                                  the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of a full and complete
execution of a definitive agreement (the “Definitive Agreement”), the
consummation of which would result in either: 
(A) a Change in Control; or (B) a Going Private Transaction; or (ii)
January 27, 2007; or


 


(b)                                 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 2.6).


 


1.2.  Timing and Form of Payment.


 


(a)                                  Subject
to Section 1.1, the Company shall pay to the Executive:  seventy-five percent (75%) of the Retention
Bonus in a lump sum as soon as administratively feasible following the earlier
of:  (i) the date of a full and complete
execution of a Definitive Agreement (the “Signing”); or (ii) January 27, 2007; provided, however,
that Executive shall not be entitled to the payment contemplated in this
Paragraph 1.2(a) unless the Executive exercises all reasonable efforts to
support a Signing which contemplates a Change in Control or Going Private
Transaction.


 


(b)                                 Subject to Section 1.1, the Company
shall pay the Executive the remaining twenty-five percent (25%) of the
Retention Bonus in a lump sum as soon as administratively feasible following
the earlier of:  (i) the date of the
consummation of the transactions contemplated by the Definitive Agreement; or
(ii) January 27, 2007,
provided, however, that Executive shall not be entitled to the payment
contemplated in this Paragraph 1.2(b) unless the Executive, after the
Signing,  exercises all reasonable
efforts to support the consummation of 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.


 


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.


 


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2.2.  “Base
Salary” means the annual amount equal to Two Hundred and Six Thousand
Dollars ($206,000), 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, as amended.”


 


2.5.  “Definitive
Agreement” shall have the meaning assigned to it in Section 1.1(a)(i) of
this Agreement.


 


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


 


2.7.  “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”).


 


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


 


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


 


(a)                                  if
the Executive has remained continuously employed by the Company through the
date of the Signing and the Signing occurs on or before July 27, 2006, an
amount equal to twelve (12) months of Base Salary in effect at the time of the
payment pursuant to Section 1.2; or


 


(b)                                 if
the Executive has remained continuously employed by the Company through the
earlier of:  (i) the date of the Signing
which Signing occurs after July 27, 2006, or (ii) January 27, 2007, an amount
equal to sixteen (16) months of Base Salary in effect at the time of the
payment pursuant to Section 1.2; or


 


(c)                                  if
payment to the Executive is due as a result of Section 1.1(b) and the
Executive’s termination of employment occurs on or before July 27, 2006, the
product of:  (i) the amount equal to
twelve (12) months of Base Salary in effect at the time of the Executive’s
termination of employment; multiplied by (ii) the quotient of:  (A) the number of days commencing on January
27, 2005 and ending on the date of the Executive’s termination of employment;
divided by (B) either:  (1) in the event
of a Signing, the number of days commencing on January 27, 2005 and ending on
the date of the Signing; or (2) in the event a Signing does not occur prior to
January 27, 2007, then 730; or


 


(d)                                 if
payment to the Executive is due as a result of Section 1.1(b) and the
Executive’s termination of employment occurs at anytime after July 27, 2006,
the product of:  (i) the amount equal to
sixteen (16) months of Base Salary in effect at the time of the Executive’s
termination of employment; multiplied by (ii) the quotient of:  (A) the number of days 


 


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commencing on
January 27, 2005 and ending on the date of the Executive’s termination of
employment; divided by (B) either:  (1)
in the event of a Signing, the number of days commencing on January 27, 2005,
and ending on the date of the Signing; or (2) in the event a Signing does not
occur prior to January 27,2007, then 730.


 


2.10.  “Signing”
shall have the meaning assigned to it in Section 1.2(a)(i) of this Agreement.


 


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).


 


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 


 


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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. 
Notwithstanding anything to the contrary in this Agreement, the
limitations contained in Sections 4.1 and 4.2 of this Agreement on the payment
of monies to which the Executive is entitled to receive under this Agreement
shall not apply if the triggering event that entitles the Executive to receive
monies under this Agreement is a Signing which contemplates a Sale Transaction,
as defined in the Employment Agreement between the Company and the Executive or
a consummation of a Sale Transaction.


 


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 


 


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(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 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:


 


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If to the Company, to:


 


Gardenburger, Inc.

15615 Alton Parkway, Suite 350

Irvine, California  92618

Attention:  Robert Trebing


With a copy to:


 


Pepper Hamilton LLP

5 Park Plaza, Suite 1700

Irvine, California  92614

Attention:  Michael A. Rule, Esquire


 


If to Executive, to:


 


Ms.
Lori Abert Luke


1111
Duffer Lane


North
Salt Lake City, UT 84054


 


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:

  	
    Chief Executive
  Officer and President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Lori Abert
  Luke

  
	
   

  	
  Lori Abert Luke

  



 


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