**EXHIBIT 10.20**

 

**EXECUTION COPY**

 

THESECURITY REPRESENTED BY THIS INSTRUMENT WAS ORIGINALLY ISSUED ON MARCH 27,1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED.  THE TRANSFER OF SUCH SECURITYIS SUBJECT TO THE CONDITIONS SPECIFIED IN THE NOTE PURCHASE AGREEMENT DATED ASOF MARCH 27, 1998, AS IN EFFECT FROM TIME TO TIME (THE “NOTE PURCHASEAGREEMENT”), BETWEEN THE ISSUER (THE “COMPANY”) AND CERTAININVESTOR(S), AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCHSECURITY UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCHTRANSFER.  UPON WRITTEN REQUEST, A COPYOF SUCH CONDITIONS WILL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOFWITHOUT CHARGE.

 

THESECURITY REPRESENTED BY THIS INSTRUMENT AND THE INDEBTEDNESS EVIDENCED HEREBYARE SUBJECT TO THE SUBORDINATION PROVISIONS OF THE NOTE PURCHASE AGREEMENT,WHICH AMONG OTHER THINGS SUBORDINATES THE COMPANY’S OBLIGATIONS TO THEINVESTOR(S) TO THE COMPANY’S OBLIGATION TO THE HOLDERS OF SENIOR INDEBTEDNESSAS DEFINED IN THE NOTE PURCHASE AGREEMENT. EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BYTHE PROVISIONS OF SUCH NOTE PURCHASE AGREEMENT.

 

**GARDENBURGER,INC.**

 

**SECOND AMENDEDAND RESTATED**

**CONVERTIBLESENIOR SUBORDINATED NOTE**

 
| Original  Date of Issuance: March 27, 1998 |   |   |
|--------------------------------------------|--------|--------|
| New  Date of Issuance: September 2, 2004   |   | $      | 16,905,643 |

 

Gardenburger, Inc., anOregon corporation (the “Company”), for value received, hereby promisesto pay to the order of Annex Holdings I LP (“Annex”), or registeredassigns, the principal amount of Sixteen Million Nine Hundred Five Thousand SixHundred Forty-Three dollars ($16,905,643) on June 15, 2007 (the “MaturityDate”) together with interest thereon calculated from September 30, 2001in accordance with the provisions contained herein.  The Company will maintain a register in whichit will record the initial ownership of the Convertible Notes (as definedbelow) and changes in the ownership of Convertible Notes of which it receivesnotice.  The holder of this ConvertibleNote indicated at any time in such register will be the “Registered Holder”of this Convertible Note.

 

This Second Amended andRestated Convertible Senior Subordinated Note (the “Convertible Note”)is issued to Annex, as the transferee of the Convertible Note from DresdnerKleinwort Benson Private Equity Partners, LP, a Delaware limited partnership (“Dresdner”).  The Amended and Restated Convertible SeniorSubordinated Note was issued to Dresdner in exchange for the Convertible SeniorSubordinated Note issued to Dresdner on March 27, 1998 (as amended,the “Original Note”) pursuant to a Note Purchase Agreement, dated as ofMarch 27, 1998, as amended (as in effect from time to time, the “PurchaseAgreement”), among the Company and Dresdner, and this Convertible Note isone of the “Convertible Notes” referred to in the PurchaseAgreement.  The Purchase Agreementcontains terms governing the rights of the holder of this Convertible Note, andall provisions of the Purchase Agreement are hereby incorporated in thisConvertible Note in full by reference. Except as defined in Section 9 of this Convertible Note orotherwise indicated in this Convertible Note, each capitalized term used inthis Convertible Note has the meaning set forth in the Purchase Agreement.

 

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# **1.****            ****Payment of Principal**.

 

## **(a)****          ****Scheduled Payment**.  TheCompany will pay the entire unpaid principal amount of this Convertible Note onthe Maturity Date plus a premium equal to twenty percent (20%) of the sum of(i) the unpaid principal amount of this Convertible Note, plus (ii) all accruedand unpaid interest thereon as of the date of payment.

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## **(b)****          ****Optional Prepayment**. Subject to paragraph 2H of the Purchase Agreement, the Company mayprepay the principal amount of this Convertible Note, in whole or in any $1,000increment, at any time and from time to time; *provided,however,* if any such optional prepayment occurs (which shall notinclude any prepayment made under Section 1(d), and 1(e) and 1(f),then the Company shall pay a pre-payment premium to the then Registered Holderequal to twenty percent (20%) of the sum of (i) the principal amount of thisConvertible Note being prepaid, plus (ii) all accrued and unpaid interestthereon as of the date of prepayment. The holder of this Convertible Note may convert all or any portion ofthe outstanding principal amount of this Convertible Note pursuant to Section5 until such time as such amount has been paid.  The Company shall mail written notice byovernight delivery (with a copy sent by facsimile on the date mailed) of eachsuch optional prepayment (which shall not include any prepayment made under Section1(d), 1(e) and 1(f) of any Convertible Note to eachRegistered Holder of the Convertible Notes not more than 20 nor less than 5business days prior to the date on which such optional prepayment is to bemade.  Upon mailing any such notice ofoptional prepayment, the Company shall become obligated to prepay the principalamount of Convertible Notes specified in such notice, together with theapplicable pre-payment premium and all unpaid accrued interest thereon, at thetime of the optional prepayment specified therein.

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## **(c)****          ****Other Prepayments or Acquisitions**.  TheCompany shall not, nor shall it permit any Subsidiary to, prepay any principalamount of any Convertible Note or otherwise acquire any Convertible Notes,except as expressly authorized herein.

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## **(d)****          ****Special Prepayments for a Change of Control or SaleEvent**.  If a Change of Control has occurred, theCompany obtains knowledge that a Change of Control is proposed to occur or aSale Event is proposed to occur, the Company shall give written notice withinfive business days of such Change of Control or the date it obtains knowledgeof such proposed Change of Control or Sale Event describing in reasonabledetail the material terms and date of consummation or proposed consummationthereof to the Registered Holder of this Convertible Note, and the Companyshall give the Registered Holder of this Convertible Note prompt written noticeof any material change in the terms or timing of any such transaction.  The Registered Holder of this ConvertibleNote may require the Company to prepay all or any portion of the unpaidprincipal amount of this Convertible Note (along with a pre-payment premiumequal to 20% of the sum of (i) the principal amount of this Convertible Notethe Registered Holder has elected to have pre-paid and (ii) all accrued andunpaid interest thereon) by giving written notice to the Company of suchelection prior to the later of (a) the twenty-first day after receipt of theCompany’s notice and (b) the fifth day prior to the consummation of the Changeof Control or Sale Event, as the case may be.

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Upon receipt of any suchelection, the Company shall be obligated to prepay the unpaid principal amountof this Convertible Note as specified therein, together with the applicablepre-payment premium and all unpaid accrued interest thereon, on the later of(a) the occurrence of the Change of Control or Sale Event, as the case may be,and (b) the fifth day after the Company’s receipt of such election.  If any proposed Change of Control or SaleEvent does not occur, all requests for prepayment in connection therewith shallbe automatically rescinded; *provided, that*,if there has been a material change in the terms or the timing of thetransaction, the Registered Holder of this Convertible Note may rescind suchRegistered Holder’s request for prepayment by giving written notice of suchrescission to the Company. Notwithstanding the foregoing, at any time prior to the date the Companymakes a pre-payment pursuant to this Section 1(d), the Registered Holdermay elect (by delivery of written notice to the Company) to receive suchpayment, in whole or in part, in shares of Common Stock with a Market Price asof the date of payment equal to the amount of principal, premium and/orinterest the Registered Holder has elected to receive in shares of Common Stockrather than cash.  Notwithstanding thatthe payment to the Registered Holders under this Section 1(d) isrestricted by the Senior Credit Agreement, failure to make such payment shallconstitute an Event of Default.  Inaddition, the provisions of this Section 1(d) shall in any event besubject to the subordination provisions set forth in the Purchase Agreement.

 

## **(e)****          ****Special Prepayments for a Management Change**.  If aManagement Change has occurred or the Company obtains knowledge that aManagement Change is about to occur, the Company shall give 

 

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## written notice within five business days of such Management Change tothe Registered Holder of this Convertible Note. The Registered Holder of this Convertible Note may require the Companyto prepay all or any portion of the unpaid principal amount of this ConvertibleNote (along with a pre-payment premium equal to 20% of the sum of (i) theprincipal amount of this Convertible Note the Registered Holder has elected tohave prepaid and (ii) all accrued and unpaid interest thereon) by givingwritten notice to the Company of such election prior to the twenty-first dayafter receipt of the Company’s notice of such Management Change.  Upon receipt of any such election, theCompany shall be obligated to prepay the unpaid principal amount of thisConvertible Note as specified therein, together with the applicable pre-paymentpremium and all unpaid accrued interest thereon, on the fifth day after theCompany’s receipt of such election. Notwithstanding the foregoing, at any time prior to the date the Companymakes a pre-payment pursuant to this Section 1(e), the Registered Holdermay elect (by delivery of written notice to the Company) to receive suchpayment, in whole or in part, in shares of Common Stock with a Market Price asof the date of payment equal to the amount of principal, premium and/orinterest the Registered Holder has elected to receive in shares of Common Stockrather than cash.  Notwithstanding thatthe payment to the Registered Holders under this Section 1(e) isrestricted by the Senior Credit Agreement, failure to make such payment shallconstitute an Event of Default.  Inaddition, the provisions of this Section (e) shall in any event besubject to the subordination provisions set forth in the Purchase Agreement.

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## **(f)****           ****Special Prepayments out of Excess Cash Flow; Asset Sales;Insurance Proceeds; Debt and Equity Offerings**.  Inaddition to and without limiting any provision of this Convertible Note or thePurchase Agreement, (i) after the Senior Indebtedness has been indefeasiblypaid in full in cash, if Company sells any of its assets or properties (otherthan sales of inventory in the ordinary course of business or sales of otherassets the proceeds of which are reinvested within 20 Business Days in similarassets constituting “Collateral” under the Senior Credit Agreement), sells orissues any securities (debt or equity), capital stock, or ownership interests,receives any property damage or insurance award which is not used to repair orreplace the property covered thereby, incurs any Indebtedness, except forPermitted Indebtedness or receives life insurance proceeds, then it shall,apply 100% of the proceeds thereof to the prepayment of this Convertible Note,to be applied in the manner set forth below, such payment to be made at suchtime as the Registered Holder shall decide in its sole discretion, and (ii)until such time as the principal of this Convertible Note, all accrued andunpaid interest thereon, and all other obligations of the Company hereunder andthereunder are indefeasibly paid in full in cash and fully performed, theApplicable ECF Percentage of the Company’s Excess Cash Flow for each fiscalyear shall be paid by the Company to the Registered Holder as a prepayment ofthis Convertible Note to be applied in the manner set forth below.  Such payments described in the foregoingclause (ii) shall be made no later than thirty (30) calendar days afterpreparation of the Company’s audited financial statements, but in any event notlater than one hundred and twenty (120) calendar days after the end of thefiscal year to which such Excess Cash Flow relates.  All prepayments of this Convertible Noterequired by this Section 1(f) shall first be applied to all unpaidaccrued interest thereon, with 83.33% of the remainder of such prepaymentamount to be applied to unpaid principal, and 16.67% of such remainder to bepaid as a prepayment premium (i.e., a 20% pre-payment premium on the principalamount so prepaid).

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# **2.****            ****Interest**.  Beginning on January 10, 2002,interest will accrue at the rate of ten percent (10%) per annum thereafter (ineach case, computed on the basis of a 360-day year, as appropriate, and theactual number of days elapsed in any year) on the unpaid principal amount ofthis Convertible Note outstanding from time to time, or (if less) at thehighest rate then permitted under applicable law.  Interest which accrued prior to January 10,2002 shall be payable as set forth in the Original Note.  Interest accruing hereunder, and any interestaccruing as provided in Section 4(b)(iii), will be payable to theRegistered Holder to the extent any Excess Availability (as defined in theSenior Credit Agreement) exists in cash (and any interest not so paid shallaccrue in accordance with the terms hereof), in arrears, on each March 31 andSeptember 30 (each an “Interest Payment Date”) and will be payable tothe Registered Holder in cash in any event on the Maturity Date in the mannerdescribed herein (including Section 1(a)).  Any accrued interest which is not paid incash on any March 31 or September 30 will bear interest at such rate asprovided herein until such interest is paid. Interest will accrue on any amount of principal or interest until suchtime as payment therefor is actually delivered to the Registered Holder of thisConvertible Note.

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Notwithstandingthe foregoing, on any Interest Payment Date, if, and to the extent that, thepayment of interest in cash would cause the Company to have no ExcessAvailability (as defined in the Senior Credit Agreement) or be in breach of Section7.1 of the Senior Credit Agreement, the Company may, at its election,

 

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pay the interest payable tothe Registered Holder on such Interest Payment Date by delivery to theRegistered Holder of a number of shares of Common Stock equal to (A) the amountof interest accrued as of such Interest Payment Date divided by (B) the lesserof (x) the Conversion Price and (y) the Market Price per share of the CommonStock, in each case, as of such Interest Payment Date; *provided*,that the Company may make such election only if the Liquidity Test (as hereindefined) has been met as of such Interest Payment Date.  If the Company makes such election, theCompany may pay the Registered Holder cash in lieu of issuing any fractionalshares of Common Stock.  As of anyInterest Payment Date, the “Liquidity Test” shall be met if theRegistered Holder receives shares of Common Stock which the Registered Holdercan immediately sell to any Person without violating the Securities Act andsuch shares are received by the Registered Holder no later than the fifth dayafter the applicable Interest Payment Date; *provided, however,*that, notwithstanding the foregoing, the Liquidity Test shall not be met ifeither (i) the Market Price per share of Common Stock has been below $5.00 pershare (such number to be appropriately adjusted for any stock split, reversestock split, stock dividend or other subdivision or combination of Common Stockafter the original date of issuance of this Convertible Note) for each of the90 days prior to such Interest Payment Date, (ii) the average daily tradingvolume of the Common Stock as quoted in the NASDAQ System for the 30 businessdays prior to such Interest Payment Date is less than 15,000 shares per day,(iii) at any time prior to such Interest Payment Date, the Company has receiveda notice from a Person with the requisite authority which states that theCommon Stock has been delisted from the NASDAQ System and the Common Stock isnot listed on the New York or American Stock Exchange, or (iv) an Event ofDefault (as herein defined) has occurred at or prior to and is continuing as ofsuch Interest Payment Date.

 

# **3.****            ****Application of Payments; Pro Rata Payments**. Subject to Section 1(f), all payments (whether schedules,optional or special) shall include payment of accrued interest and pre-paymentpremium with respect to all pre-payments on the principal amount so paid, andshall be applied to payment of interest before application to principal.  Except as otherwise permitted by Sections1(d), 1(e) or 1(f) hereof, all payments to the holders of the Convertible Notes(whether for principal, interest, premium or otherwise) will be made pro rataamong such holders based upon the aggregate unpaid principal amount of theConvertible Notes held by each such holder. By its acceptance of this Convertible Note, the holder of thisConvertible Note agrees that if any holder of a Convertible Note obtains anypayment (whether voluntary, involuntary, by application of offset or otherwise)of principal, interest or any other amount with respect to any Convertible Notein excess of such holder’s pro rata share of such payments obtained by allholders of the Convertible Notes (unless permitted by Sections 1(d), 1(e)or 1(f) hereof)), such holder will purchase from the other holders ofthe Convertible Notes such participation in the Convertible Notes held by themas is necessary to cause such holders to share the excess payment ratably amongeach of them as provided in this Section 3.

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# **4.****            ****Events of Default**.

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## **(a)****          ****Definition**.  An “Event of Default”will be deemed to have occurred if:

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### **(i)****           **theCompany fails to pay any amount of the principal of any Convertible Note as andwhen required pursuant to the terms of such Convertible Note or the PurchaseAgreement;

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### **(ii)****          **theCompany fails to pay any amount of the interest on any Convertible Note withinfive (5) days of when such payment is required pursuant to the terms of suchConvertible Note or the Purchase Agreement; provided however, that noEvent of Default will be deemed to have occurred pursuant to this section byreason of the Company’s failure to pay all or any portion of (i) the payment ofinterest due December 31, 2003, under a letter agreement dated September 25,2003, between Dresdner and the Company (the “December 2003 Interest Payment”),or any interest accrued thereon or (ii) any interest due and payable on anyInterest Payment Date occurring after December 31, 2003, up to but notincluding the Maturity Date, or any interest accrued thereon; providedthat the Company pays to the Registered Holder in cash on each Interest PaymentDate occurring on or after September 30, 2004, the amount of interest that hasaccrued and become payable through such date pursuant to Section 2hereof to the extent and only if permitted under Section 7.11 of the RevolvingCredit and Term Loan Agreement dated as of January 10, 2002, betweenCapitalSource Finance LLC and the Company, as amended by the Fourth Amendmentthereto dated as of December 29, 2003; and provided further that, beginningOctober 1, 2003, and continuing until the Company has paid in full the December2003 Interest Payment and all interest due and payable on any Interest PaymentDate occurring after December 31, 2003, through the date on which the Company 

 

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### is no longer in arrears with respect to any interest that became dueand payable on or before the Interest Payment Date immediately preceding suchdate (at which time the interest rate on this Convertible Note will revert toten percent (10%)), interest will accrue on the unpaid principal amount of theConvertible Note outstanding from time to time, together with all accrued andunpaid interest as of the Interest Payment Date immediately preceding thedetermination of the amount of interest thus accrued, at the rate of thirteenpercent (13%) per annum (in each case, computed on the basis of a 360-day year,as appropriate, and the actual number of days elapsed in any year), or (ifless) at the highest rate then permitted under applicable law;

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### **(iii)****        **the Company fails to perform or observe anycovenant or agreement contained in paragraphs 2C or 2G of the PurchaseAgreement;

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### **(iv)****         **the Company fails to perform or observe anyother covenant or agreement contained in the Convertible Notes, the PurchaseAgreement or any of the other Investment Documents, and such failure is notcured within ten (10) days after the occurrence of such failure;

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### **(v)****           **any representation, warranty, statement orinformation contained in the Purchase Agreement or any other InvestmentDocument or required to be furnished to any holder of the Convertible Notespursuant to the Purchase Agreement or any other Investment Document is false ormisleading in any material respect on the date made or furnished;

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### **(vi)****         **the Company or any Subsidiary makes anassignment for the benefit of creditors or admits in writing its inability topay its debts generally as they become due; or an order, judgment or decree isentered adjudicating the Company or any Subsidiary bankrupt or insolvent; orany order for relief with respect to the Company or any Subsidiary is enteredunder the Federal Bankruptcy Code; or the Company or any Subsidiary petitionsor applies to any tribunal for the appointment of a custodian, trustee, receiveror liquidator of the Company or any Subsidiary, or of any substantial part ofthe assets of the Company or any Subsidiary, or commences any proceeding (otherthan a proceeding for the voluntary liquidation and dissolution of anySubsidiary) relating to the Company or any Subsidiary under any bankruptcyreorganization, arrangement, insolvency, readjustment of debt, dissolution orliquidation law of any jurisdiction; or any such petition or application isfiled, or any such proceeding is commenced, against the Company or anySubsidiary and either (A) the Company or any such Subsidiary by any actindicates its approval thereof, consent thereto or acquiescence therein or (B)such petition, application or proceeding is not dismissed within 30 days;

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### **(vii)****        **a judgment in excess of $250,000 (exclusiveof insurance) is rendered against the Company or any Subsidiary and, within 30days after entry thereof, such judgment is not discharged in full or executionthereof stayed pending appeal, or within 30 days after the expiration of anysuch stay, such judgment is not discharged in full; or

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### **(viii)****       **the Company or any Subsidiary defaults in theperformance of any obligation or agreement, including with respect to anyIndebtedness, if the effect of such default is to cause an amount exceeding$250,000 to become due prior to its stated maturity or to permit the holder orholders of any obligation or agreement to cause an amount exceeding $250,000 tobecome due prior to its stated maturity.

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The foregoing willconstitute Events of Default whatever the reason or cause for any such Event ofDefault and whether it is voluntary or involuntary or is effected by operationof law or pursuant to any judgment, decree or order of any court or any order,rule or regulation of any administrative or governmental body.

 

## **(b)****          ****Consequences of Events of Default**.

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### **(i)****           **If any Event of Default (other than an Eventof Default of a type described in Sections 4(a)(iii) and 4(a)(vi))has occurred and is continuing, then the holder or holders of a majority of theunpaid principal amount of the Convertible Notes then outstanding may declare(by written notice delivered to the Company) all or any portion of theoutstanding principal amount of the Convertible Notes (together with allaccrued interest thereon) to be immediately due and payable and may demandimmediate payment of all or any portion of the 

 

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### outstanding principal amount of the Convertible Notes and interestthereon in accordance with paragraph 2H of the Purchase Agreement.

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### **(ii)****          **If an Event of Default of the type describedin Sections 4(a)(iii) or 4(a)(vi) has occurred, then theaggregate principal amount of the Convertible Notes (together with all accruedinterest thereon and all other amounts due and payable with respect thereto)will become immediately due and payable without any action on the part of theholders of the Convertible Notes. Subject to paragraph 2H of the Purchase Agreement, the Company willimmediately pay to the holders of the Convertible Notes all amounts due andpayable with respect to the Convertible Notes upon the occurrence of such Eventof Default.  If an Event of Default ofthe type described in Section 4(a)(iii) or 4(a)(vi) has occurredand has not been waived by the Registered Holder in writing, then this Section4(b)(ii) will also apply to all amounts of unpaid interest as to which anEvent of Default had not otherwise occurred.

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### **(iii)****        **If any Event of Default of a type describedin Sections 4(a)(i) or 4(a)(ii) has occurred and is continuing,the interest rate on the Convertible Notes will increase immediately by anincrement of 3 percentage points (i.e., 300 basis points), to the extentpermitted by applicable law.  Any suchincrease of the interest rate resulting from the operation of this Section4(b)(iii) will terminate as of the close of business on the next date onwhich no Event of Default exists (subject to subsequent increases pursuant tothis Section).

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### **(iv)****         **Each holder of the Convertible Notes willalso have any other rights which such holder may have been afforded under anycontract or agreement at any time and any other rights which such holder mayhave pursuant to applicable law.  TheCompany hereby waives diligence, presentment, protest and demand and notice ofprotest and demand, dishonor and nonpayment of the Convertible Notes, andexpressly agrees that the Convertible Notes, or any payment thereunder, may beextended from time to time and that the holders thereof may accept security forthe Convertible Notes or release security for the Convertible Notes, allwithout in any way affecting the liability of the Company thereunder.

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# **5.****            ****Conversion**.

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## **(a)****          ****Conversion Procedure**.

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### **(i)****           ****Voluntary Conversion**.  Atany time and from time to time prior to the payment of this Convertible Note infull, the holder of this Convertible Note may convert all or any portion of theunpaid principal amount of this Convertible Note plus any unpaid accruedinterest thereon into a number of shares of the Conversion Stock determined bydividing (A) the unpaid principal and interest amount designated by such holderto be converted, by (B) the Conversion Price then in effect.

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### **(ii)****          ****Effectiveness of Conversion**. Except as otherwise provided herein, each conversion of this ConvertibleNote will be deemed to have been effected as of the close of business on thedate on which this Convertible Note has been surrendered for conversion at theoffice of the Company specified for delivery of notices pursuant to thePurchase Agreement.  At such time as suchconversion has been effected, the rights of the holder of this Convertible Noteas such holder to the extent of the conversion will cease, and the Person orPersons in whose name or names any certificate or certificates for shares ofConversion Stock are to be issued upon such conversion will be deemed to havebecome the holder or holders of record of the shares of Conversion Stockrepresented thereby.

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### **(iii)****        ****Contingent Conversion**. Notwithstanding any other provision hereof, if a conversion of all or anyportion of this Convertible Note is to be made in connection with a registeredpublic offering, a Change of Control, a Sale Event, a Management Change, aproposed sale of the underlying Conversion Stock or any other transaction orevent, then such conversion may, at the election of the holder of thisConvertible Note, be conditioned upon the consummation of such transaction orthe occurrence of such event, in which case such conversion will not be deemedto be effective until such consummation or occurrence.

 

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### **(iv)****         ****Actions by the Company**.  Assoon as possible after a conversion has been effected (but in any event withinfive business days thereafter), the Company will deliver to the convertingholder a certificate or certificates representing the number of shares ofConversion Stock issuable by reason of such conversion, in such name or namesand such denomination or denominations as the converting holder has specified,and a new Convertible Note representing any portion of the principal amountwhich was represented by this Convertible Note but which was not converted.

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### **(v)****           ****Charges, etc**.  The issuance of certificatesfor shares of Conversion Stock upon conversion of any principal amount of thisConvertible Note will be made without charge to the holder of this ConvertibleNote or the Conversion Stock to be issued for any issuance tax in respectthereof or other cost incurred by the Company in connection with suchconversion and the related issuance of shares of Conversion Stock.  Upon conversion of this Convertible Note, theCompany will take all such actions as are necessary in order to insure that theConversion Stock issuable with respect to such conversion will be validlyissued, fully paid and nonassessable, free and clear of all taxes, liens,charges and encumbrances with respect to the issuance thereof.  The Company will not close its books againstthe transfer of this Convertible Note or of Conversion Stock issued or issuableupon conversion of this Convertible Note in any manner which interferes withthe timely conversion of this Convertible Note. The Company will assist and cooperate with any holder of thisConvertible Note or Conversion Stock issuable upon any such conversion which isrequired to make any governmental filings or obtain any governmental approvalprior to or in connection with the conversion of this Convertible Note(including making any filings required to be made by the Company).

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### **(vi)****         ****Reservation**.  The Company will at all timesreserve and keep available out of its authorized but unissued shares ofConversion Stock, solely for the purpose of issuance upon the conversion of theConvertible Notes, such number of shares of Conversion Stock issuable upon theconversion of all outstanding Convertible Notes.  All shares of Conversion Stock which are soissuable will, when issued, be duly and validly issued, fully paid andnonassessable and free from all taxes, liens and charges.  The Company will take all such actions as maybe necessary to assure that all such shares of Conversion Stock may be soissued without violation of any applicable law or governmental regulation orany requirements of any domestic securities exchange upon which shares ofConversion Stock may be listed (except for official notice of issuance whichwill be immediately delivered by the Company upon each such issuance).  The Company will not take any action whichwould cause the number of authorized but unissued shares of Conversion Stock tobe less than the number of such shares issuable upon conversion in full of theConvertible Notes and the conversion, exercise or exchange in full of all otherEquity Securities of the Company then outstanding.

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### **(vii)****        ****Related Conversion**.  Ifany Conversion Stock issuable by reason of conversion of this Convertible Noteis immediately convertible into or immediately exchangeable for any other stockor securities of the Company, then the Company will, at the converting holder’soption and upon surrender of this Convertible Note by such holder as providedherein together with any notice, statement or payment required to effect suchconversion or exchange of such Conversion Stock, deliver to such holder (or asotherwise specified by such holder) a certificate or certificates representingthe stock or securities into which the shares of Conversion Stock issuable byreason of such conversion are so convertible or exchangeable, registered insuch name or names and in such denomination or denominations as such holder hasspecified.

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## **(b)****          ****Conversion Price**.

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### **(i)****           **Theinitial Conversion Price as of the original issuance date was $12.90.  In order to prevent dilution of theconversion rights granted under the Convertible Notes, the Conversion Pricewill be subject to adjustment from time to time as provided in this Section5(b), it being acknowledged and agreed that since such date, the ConversionPrice has been adjusted from time to time as is reflected on the Company’sbooks and records.

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### **(ii)****          **Ifand whenever on or after the original date of issuance of this Convertible Notethe Company issues or sells, or in accordance with Section 5(c) isdeemed to have issued or sold, any Conversion Stock for a consideration pershare which is less than the Conversion Price in effect immediately prior tosuch issuance or sale, then immediately upon such issue or sale or deemed issueor sale the Conversion Price will be 

 

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### reduced to the Conversion Price determined by dividing (A) an amountequal to the sum of (x) the product derived by multiplying the Conversion Pricein effect immediately prior to such issue or sale or deemed issue or sale bythe number of shares of Conversion Stock Deemed Outstanding immediately priorto such issue or sale or deemed issue or sale, plus (y) the consideration, ifany, received by the Company upon such issue or sale or deemed issue or sale,by (B) the number of shares of Conversion Stock Deemed Outstanding immediatelyafter such issue or sale or deemed issue or sale; provided that no adjustmentin the Conversion Price will be made pursuant to this Section 5(b) inconnection with any Exempt Issuance.

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## **(c)****          ****Effect on Conversion Price of Certain Events**.  Forpurposes of determining the adjusted Conversion Price under Section 5(b)and only if an adjustment to the Conversion Price is required under Section5(b), the following will be applicable:

##  

### **(i)****           ****Issuance of Rights or Options**.  Ifthe Company in any manner grants or sells any Options and the price per sharefor which Conversion Stock is issuable upon the exercise of such Options, orupon conversion or exchange of any Convertible Securities issuable uponexercise of such Options, is less than the Conversion Price in effectimmediately prior to the time of the granting or sale of such Options, then themaximum number of shares of Conversion Stock issuable upon the exercise of suchOptions, or upon conversion or exchange of the maximum amount of suchConvertible Securities issuable upon the exercise of such Options, will bedeemed to be outstanding and to have been issued and sold by the Company at thetime of the granting or sale of such Options for such price per share.  For purposes of this Section 5(c)(i),the “price per share for which Conversion Stock is issuable upon exercise ofsuch Options, or upon conversion or exchange of any Convertible Securitiesissuable upon exercise of such Options” will be determined by dividing (A) thetotal amount, if any, received or receivable by the Company as considerationfor the granting or sale of such Options, plus the minimum aggregate amount ofadditional consideration payable to the Company upon the exercise of all suchOptions, plus in the case of such Options which relate to ConvertibleSecurities, the minimum aggregate amount of additional consideration, if any,payable to the Company upon the issuance or sale of such Convertible Securitiesand the conversion or exchange thereof, by (B) the maximum number of shares ofConversion Stock issuable upon the exercise of such Options or upon theconversion or exchange of all such Convertible Securities issuable upon theexercise of such Options.  No adjustmentof the Conversion Price will be made upon the actual issuance of suchConversion Stock or of such Convertible Securities upon the exercise of suchOptions or upon the actual issuance of such Conversion Stock upon conversion orexchange of such Convertible Securities.

###  

### **(ii)****          ****Issuance of Convertible Securities**.  Ifthe Company in any manner issues or sells any Convertible Securities and theprice per share for which Conversion Stock is issuable upon conversion orexchange thereof is less than the Conversion Price in effect immediately priorto the time of such issue or sale, then the maximum number of shares ofConversion Stock issuable upon conversion or exchange of all such ConvertibleSecurities will be deemed to be outstanding and to have been issued and sold bythe Company at the time of the issuance or sale of such Convertible Securitiesfor such price per share.  For thepurposes of this Section 5(b)(ii), the “price per share for whichConversion Stock is issuable upon conversion or exchange thereof’ will bedetermined by dividing (A) the total amount received or receivable by theCompany as consideration for the issue or sale of such Convertible Securities,plus the minimum aggregate amount of additional consideration, if any, payableto the Company upon the conversion or exchange thereof, by (B) the maximumnumber of shares of Conversion Stock issuable upon the conversion or exchangeof all such Convertible Securities.  Noadjustment of the Conversion Price will be made upon the actual issue of suchConversion Stock upon conversion or exchange of such Convertible Securities,and if any such issue or sale of such Convertible Securities is made uponexercise of any Options for which adjustments of the Conversion Price had beenor are to be made pursuant to other provisions of this Section 5(c), nofurther adjustment of the Conversion Price will be made by reason of such issueor sale.

###  

### **(iii)****        ****Change in Option Price or Conversion Rate**.  Ifthe purchase price provided for in any Option, the additional consideration (ifany) payable upon the issue, conversion or exchange of any ConvertibleSecurity, the quantity of Conversion Stock issuable directly or indirectly uponthe exercise, conversion or exchange of any Option or Convertible Security, orthe rate at which any Convertible Security is convertible into or exchangeablefor Conversion Stock changes at any time, then the Conversion Price in effectimmediately prior to the time of such change will be adjusted immediately tothe Conversion Price which would have been in effect at such time had suchOption or Convertible Security originally provided for such changed purchaseprice, additional 

 

8

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### consideration, changed quantity or changed conversion rate, as the casemay be, at the time initially granted, issued or sold; provided that in noevent will the Conversion Price be increased pursuant to this Section5(c)(iii).  For purposes of this Section5(c), if the terms of any Option or Convertible Security which wasoutstanding as of the date of the original issuance of this Convertible Noteare changed in the manner described in the immediately preceding sentence, thensuch Option or Convertible Security and the Conversion Stock deemed issuableupon exercise, conversion or exchange thereof will be deemed to have beenissued as of the date of such change; provided that in no event will theConversion Price be increased pursuant to this Section 5(c)(iii).

###  

### **(iv)****         ****Calculation of Consideration Received**.  Ifany Conversion Stock, Options or Convertible Securities are issued or sold ordeemed to have been issued or sold for cash, then the consideration receivedtherefor will be deemed to be the net amount received by the Companytherefor.  If any Conversion Stock,Options or Convertible Securities are issued or sold for a consideration otherthan cash, then the amount of the consideration other than cash received by theCompany will be the fair value of such consideration, except where suchconsideration consists of securities, in which case the amount of considerationreceived by the Company will be the Market Price thereof as of the date ofreceipt.  If any Conversion Stock, Optionsor Convertible Securities are issued to the owners of the non-surviving entityin connection with any merger in which the Company is the surviving entity,then the amount of consideration therefor will be deemed to be the fair valueof such portion of the net assets and business of the non-surviving entity asis attributable to such Conversion Stock, Options or Convertible Securities, asthe case may be.  The fair value of anyconsideration other than cash and securities will be determined jointly by theCompany and the holder or holders of a majority of the outstanding unpaidprincipal amount of the Convertible Notes. If such parties are unable to reach agreement within a reasonable periodof time, then such fair value will be determined by an appraiser jointlyselected by the Company and the holder or holders of a majority of theoutstanding unpaid principal amount of the Convertible Notes.  The determination of such appraiser will befinal and binding upon the Company and all holders of Convertible Notes, andthe fees and expenses of such appraiser will be borne by the Company.

###  

### **(v)****           ****Integrated Transactions**.  Ifany Option is issued in connection with the issue or sale of other securitiesof the Company, together comprising one integrated transaction in which nospecific consideration is allocated to such Options by the parties thereto, theOptions will be deemed to have been issued without consideration.

###  

### **(vi)****         ****Treasury Shares**.  The disposition of anyConversion Stock owned or held by the Company or any Subsidiary (including intreasury) will be considered an issue or sale of Conversion Stock.

###  

### **(vii)****        ****Record Date**.  If the Company takes a recordof the holders of Conversion Stock for the purpose of entitling them (A) toreceive a dividend or other distribution payable in Conversion Stock, Optionsor Convertible Securities or (B) to subscribe for or purchase Conversion Stock,Options or Convertible Securities, then such record date will be deemed to bethe date of the issue or sale of the shares of Conversion Stock deemed to havebeen issued or sold upon the declaration of such dividend or the making of suchother distribution or the date of the granting of such right of subscription orpurchase, as the case may be.

###  

## **(d)****          ****Subdivision or Combination of Conversion Stock**.  Ifthe Company at any time subdivides (by any stock split, stock dividend orotherwise) one or more classes of its outstanding shares of Conversion Stockinto a greater number of shares, then the Conversion Price in effectimmediately prior to such subdivision will be proportionately reduced.  If the Company at any time combines (byreverse stock split or otherwise) one or more classes of its outstanding sharesof Conversion Stock into a smaller number of shares, then the Conversion Pricein effect immediately prior to such combination will be proportionatelyincreased.

##  

## **(e)****          ****Reorganization,Reclassification, Consolidation, Merger or Sale**.

##  

### **(i)****           ****Organic Change Defined**.  Anyrecapitalization, reorganization, reclassification, consolidation, merger, saleof all or substantially all of the Company’s assets or other transaction, whichin each case is effected in such a manner that holders of Conversion Stock areentitled to receive (either directly or upon subsequent liquidation) stock,securities or cash or other assets with respect to or in exchange forConversion Stock is referred to herein as an “Organic Change.”

 

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### **(ii)****          ****Provisions for Organic Change**. Prior to the consummation of any Organic Change, the Company will makelawful and adequate provision (in form and substance satisfactory to the holderor holders of a majority of the outstanding unpaid principal amount of theConvertible Notes then outstanding) to insure that each holder of anyConvertible Note will thereafter have the right to acquire and receive, in lieuof or addition to (as the case may be) shares of Conversion Stock immediatelytheretofore acquirable and receivable upon the conversion of such holder’sConvertible Note, such shares of stock, securities, cash or other assets as maybe issued or payable with respect to or in exchange for the number of shares ofConversion Stock immediately theretofore acquirable and receivable uponconversion of such holder’s Convertible Note had such Organic Change not takenplace.  In any such case, appropriateprovision (in form and substance satisfactory to the holder or holders of amajority of the outstanding unpaid principal amount of the Convertible Notesthen outstanding) will be made with respect to such holder’s rights andinterests to insure that the provisions of this Section 5 and Sections6 and 7 hereof will thereafter be applicable in relation to anyshares of stock, securities, cash or other assets thereafter deliverable uponthe conversion of the Convertible Notes (including, in the case of any suchconsolidation, merger or sale in which the successor entity or purchasingentity is other than the Company, an immediate adjustment of the ConversionPrice to the value for the Conversion Stock reflected by the terms of suchconsolidation, merger or sale, and a corresponding immediate adjustment in thenumber of shares of Conversion Stock acquirable and receivable upon conversionof the Convertible Notes; *provided* thatno such adjustment will increase the Conversion Price as otherwise determinedpursuant to this Section 5 or decrease the number of shares ofConversion Stock issuable upon conversion of the Convertible Notes thenoutstanding).  The Company will noteffect any such consolidation, merger or sale, unless prior to the consummationthereof, the successor entity (if other than the Company) resulting fromconsolidation or merger or the entity purchasing such assets assumes by writteninstrument (in form satisfactory to the holder or holders of a majority of theoutstanding unpaid principal amount of the Convertible Notes then outstanding),the obligation to deliver to each such holder such shares of stock, securities,cash or other assets as, in accordance with the foregoing provisions, such holdermay be entitled to acquire.

###  

## **(f)****           ****Certain Events**.  If any event occurs of thetype contemplated by the provisions of this Section 5 but not expressly *provided* for by such provisions(including, without limitation, the granting of stock appreciation rights,phantom stock rights or other rights or securities with equity or profitparticipation features), then the Company’s board of directors in good faithwill make an appropriate adjustment in the Conversion Price so as to protectthe rights of the holders of the Convertible Notes; *provided* that no such adjustment will increase theConversion Price as otherwise determined pursuant to this Section 5 ordecrease the number of shares of Conversion Stock issuable upon conversion ofthe Convertible Notes then outstanding.

##  

## **(g)****          ****Notices**.  Immediately upon anyadjustment of the Conversion Price, the Company will send written noticethereof to the holder of this Convertible Note, setting forth in reasonabledetail and certifying the calculation of such adjustment.  The Company will send written notice to theholder of this Convertible Note at least 20 days prior to the date on which theCompany closes its books or takes a record (A) with respect to any dividend ordistribution upon the Conversion Stock, (B) with respect to any pro ratasubscription offer to holders of Conversion Stock or (C) for determining rightsto vote with respect to or to participate in any Organic Change, dissolution orliquidation.  The Company will also giveat least 20 days prior written notice to the holder of this Convertible Note ofthe date on which any Organic Change, dissolution or liquidation will takeplace.

##  

# **6.****            ****Liquidating Dividends**.  Ifthe Company declares a dividend upon the Conversion Stock payable otherwisethan in cash out of earnings or earned surplus (determined in accordance withgenerally accepted accounting principles, consistently applied) except for astock dividend payable in shares of Conversion Stock (a “LiquidatingDividend”), then the Company will pay to the holder of this ConvertibleNote at the time of payment thereof the Liquidating Dividend which would havebeen paid to the holder of this Convertible Note on the Conversion Stock hadthis Convertible Note been fully converted immediately prior to the date onwhich a record is taken for such Liquidating Dividend (or, if no record istaken, the date as of which the record holders of Conversion Stock entitled tosuch dividends are to be determined).

#  

# **7.****            ****Purchase Rights**.  If at any time the Companygrants, issues or sells any Equity Securities or other property pro rata to theholders of any class of Conversion Stock, then each holder of the ConvertibleNotes will be entitled to acquire, upon the terms applicable to such holders ofConversion Stock, the aggregate Equity Securities or other property which suchholder could have acquired if such holder had held the number of shares ofConversion 

 

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# Stock acquirable upon conversion of such holder’s Convertible Noteimmediately before the date on which a record is taken for the grant, issuanceor sale of such Equity Securities or other property (or, if no such record istaken, the date as of which the record holders of Conversion Stock are to bedetermined for the grant, issue or sale of such Equity Securities or otherproperty).

#  

# **8.****            ****Amendment and Waiver**.  Theprovisions of the Convertible Notes may be amended and the Company may take anyaction herein prohibited, or omit to perform any act herein required to beperformed by it, only if the Company has obtained the written consent of theholder or holders of a majority of the unpaid principal amount of theoutstanding Convertible Notes at the time such action is taken, and any matteras to which such written consent has been obtained will be effective as againstall holders of Convertible Notes; *provided* thatno such action will (a) decrease the rate at which or the manner in whichinterest accrues on the Convertible Notes or the times at which such interestbecomes payable, (b) change any provision relating to the scheduled payments ofprincipal on the Convertible Notes, (c) increase the Conversion Price ordecrease the number of shares or the class of stock into which the ConvertibleNotes are convertible, or (d) the percentage required to approve any changedescribed in clauses (a), (b) and (c) above and this clause (d), without thewritten consent of the holders at least 90% of the unpaid principal amount ofthe Convertible Notes then outstanding.

#  

# **9.****            ****Definitions**.  For purposes of theConvertible Notes, the following capitalized terms have the following meaning.

#  

“Applicable ECFPercentage” shall mean the applicable percentage indicated below based onthe applicable fiscal year end and the amount of Excess Cash Flow for such period:

 
| **Fiscal Year End**     | ** ** | **Excess Cash Flow** | ** ** | **Applicable ECF Percentage**   |
|-------------------------|------------|----------------------|------------|---------------------------------|
| ** **              | ** ** | ** **           | ** ** | ** **                      |
| September  30, 2002     |       | $0  $2,000,000  |       | 37.5%                           |
|                    |       | >  $2,000,000     |       | 25.0%  of Excess Cash Flow over |
|                    |       |                 |       | $2,000,000  and 37.5% of Excess |
|                    |       |                 |       | Cash  Flow up to $2,000,000     |
|                    |       |                 |       |                            |
| September  30, 2003     |       | $0  $6,000,000  |       | 37.5%                           |
|                    |       | >  $6,000,000     |       | 25.0%  of Excess Cash Flow over |
|                    |       |                 |       | $6,000,000  and 37.5% of Excess |
|                    |       |                 |       | Cash  Flow up to $6,000,000     |
|                    |       |                 |       |                            |
| September  30, 2004 and |       | $0  $8,000,000  |       | 37.5%                           |
| each year thereafter    |       | >  $8,000,000     |       | 25.0%  of Excess Cash Flow over |
|                    |       |                 |       | $8,000,000  and 37.5% of Excess |
|                    |       |                 |       | Cash  Flow up to $8,000,000     |

 

“Capital Expenditures”shall mean, for any Quarterly Test Period, the sum (without duplication) of allexpenditures (whether paid in cash or accrued as liabilities) during the QuarterlyTest Period that are or should be treated as capital expenditures under GAAP.

 

“Common Stock” meansthe Company’s Common Stock, no par value, and any capital stock of any class ofthe Company hereafter authorized which is not limited to a fixed sum orpercentage of par or stated value in respect to the rights of the holdersthereof to participate in dividends or in the distribution of assets upon anyliquidation, dissolution or winding up of the Company.

 

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“Conversion Stock”means Common Stock; *provided* thatif there is a change such that the securities issuable upon conversion of theConvertible Notes are issued by an entity other than the Company or there is achange in the type or class of securities so issuable, then the term “ConversionStock” will mean shares of the security issuable upon conversion of thisConvertible Note if such security is issuable in shares, or the smallest unitin which such security is issuable if such security is not issuable in shares.

 

“Conversion Stock DeemedOutstanding” means, at any given time, the number of shares of ConversionStock actually outstanding at such time, plus the number of shares ofConversion Stock deemed to be outstanding pursuant to Sections 5(c) (i)and 5(c)(ii) hereof, regardless of whether or not the applicable Optionsand Convertible Securities are actually exercisable at such time, but excludingany shares of Conversion Stock issuable upon conversion of the ConvertibleNotes.

 

“Convertible Securities”means any Equity Securities directly or indirectly convertible into orexchangeable for Conversion Stock.

 

“Excess Cash Flow”shall mean, for any fiscal year, without duplication, an amount equal to thesum of (i) consolidated net income or loss of the Company for such period, plus(ii) an amount equal to the amount of depreciation expenses, amortizationexpense (including the amortization of goodwill), accrued non-cash interestexpense and all other noncash charges deducted in arriving at such consolidatednet income or loss, plus (iii) an amount equal to the aggregate net cashproceeds of the sale, lease, transfer or other disposition of assets by theCompany during such period to the extent not (a) reinvested in other assetsconstituting “Collateral” pursuant to and as defined in the Senior CreditAgreement upon which Agent has a first and prior Lien pursuant to and asdefined in the Senior Credit Agreement, or (b) required to be applied tospecial prepayments or payments on the Senior Indebtedness or this ConvertibleNote, plus (iv) an amount equal to the net loss on the sale, lease,transfer or other disposition of assets by the Company during such period tothe extent deducted in arriving at such consolidated net income or loss, plus(v) the other amount of any tax refunds or credits received by the Companyduring such period, less (vi) an amount equal to the non-financedCapital Expenditures of the Company for such period less (vii) an amountequal to the sum of payments required by and actually paid pursuant to Section2.8(a) of the Senior Credit Agreement, k~ (viii) all voluntary prepaymentson the Convertible Note in excess of required payments actually made duringsuch period to the extent permitted under the Senior Credit Agreement, less(ix) an amount equal to the net gain on the sale, lease, transfer or otherdisposition of assets, other than sales in the ordinary course of business, bythe Company during such period to the extent included in arriving at suchconsolidated net income or loss less (x) an amount equal to the increasein the Company’s working capital during such period.

 

“Exempt Issuance”means the issuance of any Common Stock or other securities upon the exercise ofany ID Warrant, any Management Options or the Wenner Stock Option, in eachcase, in accordance with its terms, or upon the conversion of any ConvertibleNotes or any issuance of any ID Warrant, any Permitted ESO Issuances, thewarrants issued to the Registered Holder on the New Date of Issuance or anyissuance of shares of the Company’s Preferred Stock, no par value, in exchangefor shares of the Company’s Preferred Stock outstanding on January 10, 2002(and warrants issued to holders thereof on January 10, 2002).

 

“GAAP” meansgenerally accepted accounting principles in the United States of America ineffect from time to time as applied by nationally recognized accounting firms.

 

“Market Price” of anysecurity means the average of the closing prices of such security’s sales onall securities exchanges on which such security may at the time be listed, or,if there has been no sale on any such exchange on any day, then the average ofthe highest bid prices of such security on all such exchanges at the end ofsuch day, or, if on any day such security is not so listed, then therepresentative bid price of such security quoted in the NASDAQ System as of4:00 P.M., New York time, on such day, or, if on any day such security is notquoted in the NASDAQ System, then the highest bid price of such security onsuch day in the domestic over-the-counter market as reported by the NationalQuotation Bureau, Incorporated, or any similar successor organization, in eachsuch case, averaged over a period of 5 days consisting of the day as of which “MarketPrice” is being determined and the 4 consecutive business days prior tosuch day.  If at any time such securityis not listed on any securities exchange or quoted in the NASDAQ System or theover-the-counter market, then the “Market Price” will be the fair valuethereof determined jointly by the Company and the Registered Holder or Holdersof a majority of the unpaid principal amount of the Convertible Notesoutstanding at the time of such determination. If such parties are unable 

 

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to reach agreement within areasonable period of time, then such fair value will be determined by anappraiser jointly selected by the Company and the Registered Holder or Holdersof a majority of the unpaid principal amount of the Convertible Notesoutstanding at the time of such determination. The determination of such appraiser will be final and binding upon theparties, and the fees and expenses of such appraiser will be borne by theCompany.

 

“New Date of Issuance”means September 2, 2004.

 

“Options” means anyEquity Securities directly or indirectly to subscribe for or purchaseConversion Stock or Convertible Securities.

 

“Permitted Indebtedness”has the meaning set forth in the Senior Credit Agreement.

 

“Person” means anindividual, a partnership, a corporation, a limited liability company, anassociation, a joint stock company, a trust, a joint venture, an unincorporatedorganization and a governmental entity or any department, agency or politicalsubdivision thereof.

 

“Quarterly Test Period”means the twelve month period ending on the last day of each March, June,September and December of each year.

 

# **10.****         ****Note Transferable**. Subject to the transfer conditions referred to in the legend endorsed onthis Convertible Note, this Convertible Note and all rights hereunder aretransferable, in whole or in part, without charge to the Registered Holder,upon surrender of this Convertible Note, properly endorsed for transfer, at theoffice of the Company specified for delivery of notices pursuant to thePurchase Agreement.

#  

# **11.****         ****Note Exchangeable for Different Denominations**.  ThisConvertible Note is exchangeable, upon the surrender of this Convertible Noteby the holder at the office of the Company specified for delivery of noticespursuant to the Purchase Agreement, for new Convertible Notes of like tenorrepresenting in the aggregate the rights under this Convertible Note, and eachof such new Convertible Notes will represent such portion of such rights as isdesignated by the holder at the time of such surrender.

#  

# **12.****         ****Replacement**.  Upon receipt of evidencereasonably satisfactory to the Company (it being agreed that an affidavit ofthe Registered Holder will be satisfactory) of the ownership and the loss,theft, destruction or mutilation of any certificate evidencing this ConvertibleNote, and in the case of any such loss, theft or destruction, upon receipt ofindemnity reasonably satisfactory to the Company (it being agreed that if theholder is a financial institution or other institutional investor its ownagreement will be satisfactory), or, in the case of any such mutilation uponsurrender of such certificate, the Company will (at its expense) execute anddeliver in lieu of such certificate a new certificate of like kind representingthe same rights represented by such lost, stolen, destroyed or mutilatedcertificate and dated the date of such lost, stolen, destroyed or mutilatedcertificate.

#  

# **13.****         ****Cancellation**.  After all principal andaccrued interest at any time owed on this Convertible Note have been paid infull, this Convertible Note will be surrendered to the Company for cancellationand will not be reissued.

#  

# **14.****         ****Payments and Notices**.  Allcash payments to be made to the holders of the Convertible Notes will be madein the lawful money of the United States of America in immediately availablefunds.  Payments of principal andinterest in respect of this Convertible Note will be delivered to theRegistered Holder at such Registered Holder’s address as it appears in therecords of the Company, or at such other address as the Registered Holder mayspecify by written notice to the Company. Notices to be given pursuant to this Convertible Note will be given inthe manner provided in the Purchase Agreement.

#  

# **15.****         ****Descriptive Headings; Governing Law**.  Thedescriptive headings of the several Sections of this Convertible Note areinserted for convenience only and do not constitute a part of this ConvertibleNote.  The corporate law of the State ofOregon (as in effect from time to time) will govern all issues concerning the relativerights of the Company and its securityholders to the extent of mattersaddressed therein.  All other questionsconcerning the construction, validity, enforcement and interpretation of thisConvertible Note will be governed by 

 

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# the internal law of the State of New York, without giving effect to anychoice of law or conflict of law provision or rule (whether of the State of NewYork or any other jurisdiction) that would cause the application of law of anyjurisdiction other than the State of New York. As used in this Convertible Note, the term “including” is used by way ofexample or illustration, and not as a limitation.

#  

# **16.****         ****Business Days**.  If any payment is due, or anytime period for giving notice or taking action expires, on a day which is aSaturday, Sunday or legal holiday in the State of New York or the State ofOregon, then the payment will be due and payable on, and the time period willautomatically be extended to, the next business day immediately following suchSaturday, Sunday or legal holiday, and interest will continue to accrue at therequired rate under this Convertible Note until any such payment is made.

#  

# **17.****         ****Usury Laws**.  It is the intention of theCompany and the holder of this Convertible Note to conform strictly to allapplicable usury laws now or hereafter in force, and any interest payable underthis Convertible Note will be subject to reduction to the amount not in excessof the maximum legal amount allowed under the applicable usury laws as now orhereafter construed by the courts having jurisdiction over such matters.  If the maturity of this Convertible Note isaccelerated by reason of an election by the holder hereof resulting from anEvent of Default, voluntary prepayment by the Company or otherwise, then earnedinterest may never include more than the maximum amount permitted by law,computed from the date hereof until payment, and any interest in excess of themaximum amount permitted by law will be canceled automatically and, iftheretofore paid, will at the option of the holder hereof either be rebated tothe Company or credited on the principal amount of this Convertible Note, or ifthis Convertible Note has been paid, then the excess will be rebated to theCompany.  The aggregate of all interest(whether designated as interest, service charges, points or otherwise)contracted for, chargeable, or receivable under this Convertible Note willunder no circumstances exceed the maximum legal rate upon the unpaid principal balanceof this Convertible Note remaining unpaid from time to time.  If such interest does exceed the maximumlegal rate, it will be deemed a mistake and such excess will be canceledautomatically and, if theretofore paid, rebated to the Company or credited onthe principal amount of this Convertible Note, or if this Convertible Note hasbeen repaid, then such excess will be rebated to the Company.

#  

# **18.****         ****Severability**.  If any provision of thisConvertible Note is held by any court of competent jurisdiction to be illegal,void or unenforceable, such provision will be of no force and effect, but suchholding shall have no effect upon the enforceability of any other provision.

#  

# **19.****         ****General**.  This Convertible Note:

#  

## **(a)****          **constitutes,together with the Purchase Agreement and the Ancillary Agreements, the entireagreement among the parties with respect to the subject matter hereof;

##  

## **(b)****          **supersedesany and all prior understandings relating to such subject matter; and

##  

## **(c)****          **willbe binding upon and inure to the benefit of the parties and their respectiveheirs, executors, administrators, successors and assigns.

##  

# **20.****         ****Waiver of Jury Trial**.  THECOMPANY (AND, BY ITS ACCEPTANCE OF THIS CONVERTIBLE NOTE, THE HOLDER HEREOF)HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANYLITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OFTHIS CONVERTIBLE NOTE OR ANY OTHER INVESTMENT DOCUMENT OR THE VALIDITY,PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.

#  

# **21.****         ****No Strict Construction**.  TheCompany and the initial holder of this Convertible Note have participatedjointly in the negotiation and drafting of this Convertible Note.  In the event an ambiguity or question ofintent or interpretation arises, this Convertible Note will be construed as ifdrafted jointly by the Company and the holder hereof, and no presumption orburden of proof will arise favoring or disfavoring any Person by virtue of theauthorship of any of the provisions of this Convertible Note.

 

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# **22.****         ****U.S. Withholding Tax**.  It is intended that interest paid on theobligation qualify for the exemption from U.S. withholding tax as a portfolio debt instrument under Section 871(h) or881(c) of the IRC.

#  

# **23.****         ****Subordination**.  The indebtedness evidenced bythis Convertible Note (i) is and shall be senior to any and all Indebtedness ofthe Corporation other than the Senior Indebtedness (to the extent provided inthe Purchase Agreement) and all other Convertible Notes, (ii) shall rank *pari-passu* with all other Convertible Notes, and (iii) isnot and shall not be *pari-passu* withor subordinated to claims of any trade or similar creditors of the Companyexcept as may be required by bankruptcy or other laws affecting the rights ofcreditors generally.

#  

* * * * *

 

IN WITNESS WHEREOF, theCompany has executed and delivered this Second Amended and Restated ConvertibleSenior Subordinated Note on the date specified above.

 

 
|   | GARDENBURGER,  INC. |
|--------|---------------------|
|   |                |
|   |                |
|   | By:                 | /s/  Scott C. Wallace |   |
|   | Name:               | Scott  C. Wallace |
|   | Title:              | President  & CEO |
|        |                     |  |  |  |

 

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