EXHIBIT
10.1


 


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 Scott Wallace (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 President and Chief Executive Officer 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 Eighty Six Thousand Dollars
($286,000), 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:


 


Mr. Scott Wallace


32551 Seven Seas Drive


Dana Point, CA 92629


 


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/ Robert T. Trebing, Jr.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
    Senior Vice President and Chief
  Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Scott Wallace

  	
   

  
	
   

  	
  Scott Wallace

  
					



 


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