**EXHIBIT10.24**

** **

THIS WARRANT WAS ORIGINALLYISSUED ON SEPTEMBER 2, 2004, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIESACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT,THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT.  THIS WARRANT IS ALSO SUBJECT TO A WARRANT AGREEMENTDATED AS OF JANUARY 10, 2002 BY AND BETWEEN THE ISSUER HEREOF (THE “COMPANY”)AND THE ORIGINAL HOLDER HEREOF.  A COPYOF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDERHEREOF UPON REQUEST.

 

**STOCKPURCHASE WARRANT**

 
| Date of Issuance:  September 2, 2004 | Certificate  No. W-50 |
|--------------------------------------|----------------------------|

 

For value received, GARDENBURGER, INC., an Oregoncorporation (the “Company”), hereby grants to ANNEX HOLDINGS I LP (the “InitialPurchaser”), or its transferees and assigns, the right to purchase from theCompany a total of 557,981 Warrant Shares (as defined herein) at a price equalto $0.28 per share (such price per share, the “Initial Exercise Price”).  This Warrant is one of the warrants (includingany warrants issued in exchange or substitution therefor, collectively, the “Warrants”)issued pursuant to the terms of the Warrant Agreement, dated as of January 10,2002 (as amended, restated or modified from time to time, the “Warrant Agreement”),by and between the Company and the Initial Purchaser, as transferee of thisWarrant from DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP, a Delawarelimited liability partnership.  TheInitial Purchaser agrees to be bound by all of the terms and provisions of theWarrant Agreement under that certain Instrument of Adherence dated September 2,2004.  The exercise price and number ofWarrant Shares (and the amount and kind of other securities) for which thisWarrant is exercisable shall be subject to adjustment as provided herein.  Certain capitalized terms used herein aredefined in Section 5 hereof.

 

This Warrant is subject to the following provisions:

 

# SECTION 1.  Exerciseof Warrant.

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## A.            ExercisePeriod.  The purchase rightsrepresented by this Warrant may be exercised, in whole or in part, at any timeand from time to time after the date hereof to and including 5:00 p.m.,New York time, on January 10, 2012 or, if such day is not a business day,on the next preceding business day (the “Exercise Period”).

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## B.            ExerciseProcedure.

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### (i)            ThisWarrant shall be deemed to have been exercised when all of the following itemshave been delivered to the Company (the “Exercise Time”):

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#### (a)           acompleted Exercise Agreement, as described in Section 1C below,executed by the Person exercising all or part of the purchase rightsrepresented by this Warrant (the “Purchaser”);

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#### (b)           thisWarrant; and

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#### (c)           either (i) acheck payable to the Company in an amount equal to the product of the ExercisePrice (as defined in Section 2) multiplied by the number of WarrantShares being purchased upon such exercise (the “Aggregate Exercise Price”),(ii) the surrender to the Company of securities of the Company or itssubsidiaries having a value equal to the Aggregate Exercise Price of theWarrant Shares being purchased upon such exercise (which value in the case ofdebt securities shall be deemed to be equal to the aggregate outstanding

 

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#### principal amountthereof plus all accrued and unpaid interest thereon, and in the case of sharesof Common Stock shall be the Fair Market Value thereof), or (iii) thedelivery of a notice to the Company that the Purchaser is exercising theWarrant by authorizing the Company to reduce the number of Warrant Sharessubject to the Warrant by the number of shares having an aggregate Fair MarketValue equal to the Aggregate Exercise Price.

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### (ii)           Certificatesfor Warrant Shares purchased upon exercise of this Warrant shall be deliveredby the Company to the Purchaser within five days after the date of the ExerciseTime together with any cash payable in lieu of a fraction of a share pursuantto Section 13 hereof.  Unlessthis Warrant has expired or all of the purchase rights represented hereby havebeen exercised, the Company shall prepare a new Warrant, substantiallyidentical hereto, representing the rights formerly represented by this Warrantwhich have not expired or been exercised and shall, within such five-dayperiod, deliver such new Warrant to the Person designated for delivery in theExercise Agreement.

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### (iii)          TheWarrant Shares issuable upon the exercise of this Warrant shall be deemed tohave been issued to the Purchaser at the Exercise Time, and the Purchaser shallbe deemed for all purposes to have become the Registered Holder of such WarrantShares at the Exercise Time.

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### (iv)          Theissuance of certificates for Warrant Shares upon exercise of this Warrant shallbe made without charge to the Registered Holder or the Purchaser for anyissuance tax in respect thereof or other cost incurred by the Company inconnection with such exercise and the related issuance of Warrant Shares.

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### (v)           TheCompany shall not close its books against the transfer of this Warrant or ofany Warrant Shares issued or issuable upon the exercise of this Warrant in anymanner which interferes with the timely exercise of this Warrant.

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### (vi)          The Companyshall assist and cooperate with the Registered Holder or any Purchaser requiredto make any governmental filings or obtain any governmental approvals prior toor in connection with any exercise of this Warrant.

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### (vii)         Notwithstandingany other provision hereof, if an exercise of any portion of this Warrant is tobe made in connection with a public offering or a Sales Event, such exercisemay at the election of the Registered Holder be conditioned upon theconsummation of such transaction, in which case such exercise shall not bedeemed to be effective until immediately prior to the consummation of suchtransaction.

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### (viii)        TheCompany shall at all times reserve and keep available out of its authorized butunissued Common Stock solely for the purpose of issuance upon the exercise ofthe Warrants, the maximum number of Warrant Shares issuable upon exercise ofall outstanding Warrants.  All WarrantShares which are so issuable shall, when issued and upon the payment of theapplicable Exercise Price, be duly and validly issued, fully paid andnonassessable and free from all taxes, liens, adverse claims and charges.  The Company shall take all such actions asmay be necessary to ensure that all such Warrant Shares may be so issuedwithout violation by the Company of any applicable law or governmentalregulation or any requirements of any domestic or foreign securities exchangeupon which shares of Common Stock, or other securities constituting WarrantShares, may be listed (except for official notice of issuance which shall beimmediately delivered by the Company upon each such issuance).  The Company shall use its best efforts tocause the Warrant Shares, immediately upon such exercise, to be listed on anydomestic or foreign securities exchange upon which shares of Common Stock, orother securities constituting Warrant Shares, are listed at the time of suchexercise.  The Company shall not take anyaction which would cause the number of authorized but unissued shares of CommonStock to be less than the number of shares required to be reserved hereunderfor issuance upon exercise of the Warrants.

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### (ix)           If theWarrant Shares issuable by reason of exercise of this Warrant are convertibleinto or exchangeable for any other stock or securities of the Company, theCompany shall, at the Purchaser’s option and upon surrender of this Warrant bysuch Purchaser as provided above together with any notice, statement or paymentrequired to effect such conversion or exchange of Warrant Shares, deliver tosuch Purchaser (or as otherwise specified by such Purchaser) a certificate orcertificates representing the stock or 

 

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### securities intowhich the Warrant Shares issuable by reason of such conversion are convertibleor exchangeable, registered in such name or names and in such denomination ordenominations as such Purchaser has specified.

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### (x)            TheCompany shall not, and shall not permit its subsidiaries to, directly orindirectly, by any action (including, without limitation, reincorporating in ajurisdiction other than Oregon or Delaware, amending its Articles ofIncorporation or through any Organic Change (as defined in Section 2D),the issuance or sale of securities or any other voluntary action) avoid or seekto avoid the observance or performance of any of the terms of this Warrant(except for any action which ratably affects all Warrant Shares and shares ofCommon Stock), but shall at all times in good faith assist in the carrying outof all such terms of this Warrant.  Withoutlimiting the generality of the foregoing, the Company shall (a) obtain allsuch authorizations, exemptions or consents from any public regulatory bodyhaving jurisdiction thereof as may be necessary to enable the Company toperform its obligations under this Warrant and (b) not undertake anyreverse stock split, combination, reorganization or other reclassification ofits capital stock which would have the effect of making this Warrant exercisablefor less than one share of Common Stock. Notwithstanding the foregoing, the Registered Holders may waive any oftheir rights under this Warrant, including without limitation, the antidilutionrights set forth in Section 2 below.

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## C.            ExerciseAgreement.  Upon any exercise of thisWarrant, the Purchaser shall deliver to the Company an Exercise Agreement insubstantially the form set forth in Exhibit I hereto, except thatif the Warrant Shares are not to be issued in the name of the RegisteredHolder, the Exercise Agreement shall also state the name of the Person to whomthe certificates for the Warrant Shares are to be issued, and if the number ofWarrant Shares to be issued does not include all of the Warrant Sharespurchasable hereunder, it shall also state the name of the Person to whom a newWarrant for the unexercised portion of the rights hereunder is to be issued.

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## D.            AutomaticExercise.

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### (i)            ThisWarrant shall be deemed to have been exercised in full automatically in acashless exercise as described in Section 1B(i)(c)(iii) above uponthe closing of a transaction constituting a Sales Event.

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### (ii)           If a SalesEvent occurs in which the proceeds to the holder of this Warrant exceed theaggregate Exercise Price for the Warrant Shares, the exercise of this Warrantwill be deemed to occur, and the Exercise Time will be deemed to be,immediately prior to the closing of such Sales Event; provided, that thisWarrant shall be cancelled in the event that the proceeds to the holder of thisWarrant would be less than or equal to the aggregate Exercise Price for theWarrant Shares.  The provisions of Section 1B(ii)through (x) will apply to such exercise.

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# SECTION 2.  Adjustmentof Exercise Price and Number of Shares. In order to prevent dilution of the rights granted under this Warrant,the Initial Exercise Price shall be subject to adjustment from time to time asprovided in this Section 2 (as so adjusted, the “Exercise Price”),and the number of Warrant Shares obtainable upon exercise of this Warrant shallbe subject to adjustment from time to time, each as provided in this Section 2.

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## A.            Adjustmentof Exercise Price and Number of Shares upon Issuance of Common Stock.

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### (i)            If andwhenever, on or after the Date of Issuance, the Company issues or sells, or inaccordance with Section 2B is deemed to have issued or sold (otherthan pursuant to a Permitted Issuance) any shares of Common Stock for aconsideration per share less than the per share Exercise Price immediatelyprior to such issuance or sale, then immediately upon such issuance or sale,the Exercise Price shall be reduced to a price (calculated to the nearest cent)determined by multiplying the Exercise Price in effect immediately prior tosuch issuance or sale by a fraction, (a) the numerator of which shall bethe number of shares of Common Stock Deemed Outstanding immediately prior tosuch issuance or sale plus the number of shares of Common Stock which theaggregate consideration received by the Company for the total number ofadditional shares of Common Stock actually so issued would purchase at theExercise Price in effect immediately prior to such issuance or sale, and (b) thedenominator of which will be the number of shares of Common Stock DeemedOutstanding immediately prior to such issuance or sale plus the number ofadditional shares of Common Stock actually so issued.

 

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### (ii)           Upon eachsuch adjustment of the Exercise Price hereunder, the number of Warrant Sharesacquirable upon exercise of this Warrant shall be adjusted to equal the numberof shares determined by multiplying the Exercise Price in effect immediatelyprior to such adjustment by the number of Warrant Shares acquirable uponexercise of this Warrant immediately prior to such adjustment and dividing theproduct thereof by the Exercise Price resulting from such adjustment.

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## B.            Effecton Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Section 2A,the following shall be applicable:

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### (i)            Issuanceof Rights or Options.  If after theDate of Issuance the Company in any manner grants any rights or options (otherthan pursuant to a Permitted Issuance) to subscribe for or to purchase CommonStock or any stock or other securities convertible into or exchangeable forCommon Stock (including without limitation convertible common stock) (suchrights or options being herein called “Options” and such convertible orexchangeable stock or securities being herein called “Convertible Securities”)and the price per share for which Common Stock is issuable upon the exercise ofsuch Options or upon conversion or exchange of such Convertible Securities isless than the Exercise Price then in effect, then the total maximum number ofshares of Common Stock issuable upon the exercise of such Options or uponconversion or exchange of the total maximum amount of such ConvertibleSecurities issuable upon the exercise of such Options shall be deemed to beoutstanding and to have been issued and sold by the Company for such price pershare.  For purposes of this paragraph,the “price per share for which Common Stock is issuable upon exercise of suchOptions or upon conversion or exchange of such Convertible Securities” isdetermined by dividing (A) the total amount, if any, received orreceivable by the Company as consideration for the granting of such Options,plus the minimum aggregate amount of additional consideration payable to theCompany upon the exercise of all such Options, plus in the case of such Optionswhich relate to Convertible Securities, the minimum aggregate amount ofadditional consideration, if any, payable to the Company upon the issuance orsale of such Convertible Securities and the conversion or exchange thereof, by(B) the total maximum number of shares of Common Stock issuable uponexercise of such Options or upon the conversion or exchange of all suchConvertible Securities issuable upon the exercise of such Options.  No further adjustment of the Exercise Priceshall be made upon the actual issuance of such Common Stock or of suchConvertible Securities upon the exercise of such Options or upon the actualissuance of such Common Stock upon conversion or exchange of such ConvertibleSecurities.

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### (ii)           Issuanceof Convertible Securities.  If afterthe Date of Issuance the Company in any manner issues or sells any ConvertibleSecurities (other than pursuant to a Permitted Issuance) and the price pershare for which Common Stock is issuable upon such conversion or exchangethereof is less than the Exercise Price then in effect, then the maximum numberof shares of Common Stock issuable upon conversion or exchange of suchConvertible Securities shall be deemed to be outstanding and to have beenissued and sold by the Company for such price per share.  For the purposes of this paragraph, the “priceper share for which Common Stock is issuable upon such conversion or exchangethereof” is determined by dividing (A) the total amount received orreceivable by the Company as consideration for the issuance or sale of suchConvertible Securities, plus the minimum aggregate amount of additionalconsideration, if any, payable to the Company upon the conversion or exchangethereof, by (B) the total maximum number of shares of Common Stockissuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment of the Exercise Priceshall be made upon the actual issue of such Common Stock upon conversion orexchange of such Convertible Securities, and if any such issuance or sale ofsuch Convertible Securities is made upon exercise of any Options for whichadjustments of the Exercise Price have been or are to be made pursuant to otherprovisions of this Section 2B, no further adjustment of theExercise Price shall be made by reason of such issuance or sale.

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### (iii)          Changein Option Price or Conversion Rate.  Ifthe purchase price provided for in any Options, the additional consideration,if any, payable upon the issue, conversion or exchange of any ConvertibleSecurities, or the rate at which any Convertible Securities are convertibleinto or exchangeable for Common Stock shall change at any time, the ExercisePrice in effect at the time of such change shall be adjusted to the ExercisePrice which would have been in effect at such time had such Options orConvertible Securities still outstanding provided for such changed purchaseprice, additional consideration or changed conversion rate, as the case may be,at the time initially granted, issued or sold and the number of Warrant Sharesshall be correspondingly readjusted.

 

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### (iv)          Treatmentof Expired Options and Unexercised Convertible Securities.  Upon the expiration of any Option or thetermination of any right to convert or exchange any Convertible Securities, ineither case without the exercise of such Option or right, the Exercise Pricethen in effect and the number of Warrant Shares acquirable hereunder shall beadjusted to the Exercise Price and the number of shares which would have beenin effect at the time of such expiration or termination had such Option orConvertible Securities, to the extent outstanding immediately prior to suchexpiration or termination, never been issued; provided, that in no event shallthe Exercise Price be adjusted to an amount greater than the Initial ExercisePrice.

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### (v)           Calculationof Consideration Received.  If anyCommon Stock, Options or Convertible Securities are issued or sold or deemed tohave been issued or sold for cash, the consideration received therefor shall bedeemed to be the net amount received by the Company therefor.  In case any Common Stock, Options orConvertible Securities are issued or sold for a consideration other than cash,the amount of the consideration other than cash received by the Company shallbe the fair value of such consideration, except where such considerationconsists of marketable securities, in which case the amount of considerationreceived by the Company shall be the market price thereof as of the date ofreceipt.  In case any Common Stock,Options or Convertible Securities are issued to the owners of the non-survivingentity in connection with any merger, amalgamation or other businesscombination or re-organization in which the Company is the surviving entity,the amount of consideration therefor shall be deemed to be the fair value ofsuch portion of the net assets and business of the non-surviving entity as isattributable to such Common Stock, Options or Convertible Securities, as thecase may be.  The fair value of anyconsideration other than cash or marketable securities shall be determinedjointly by the Company and the Required Holders through good faith negotiations.  If such parties are unable to reach agreementwithin a reasonable period of time, such fair value shall be determined by anappraiser jointly selected by the Company and the Required Holders, whosedetermination shall be final and binding on the Company, and the fees andexpenses of such appraiser shall be paid one-half by the Company and one-halfby the Required Holders on a pro rata basis.

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### (vi)          IntegratedTransactions.  In case any Option isissued in connection with the issue or sale of other securities of the Company,together comprising one integrated transaction in which no specificconsideration is allocated to such Options by the parties thereto, the Optionshall be deemed to have been issued for no consideration.

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### (vii)         TreasuryShares.  The number of shares ofCommon Stock outstanding at any given time does not include shares owned orheld by or for the account of the Company or any subsidiary of the Company andthe disposition of any shares so owned or held shall be considered an issue orsale of Common Stock.

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### (viii)        RecordDate.  If the Company takes a recordof the holders of Common Stock for the purpose of entitling them (A) toreceive a dividend or other distribution payable in Common Stock, Options orConvertible Securities or (B) to subscribe for or purchase Common Stock,Options or Convertible Securities, then such record date shall be deemed to bethe date of the issue or sale of the shares of Common Stock deemed to have beenissued 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.

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## C.            Subdivisionor Combination of Common Stock.  Ifthe Company at any time subdivides (by any stock split, stock dividend,recapitalization or otherwise) the Common Stock into a greater number of sharesor pays a dividend or makes a distribution to holders of the Common Stock inthe form of shares of Common Stock, the Exercise Price in effect immediatelyprior to such subdivision shall be proportionately reduced and the number ofWarrant Shares obtainable upon exercise of this Warrant shall be proportionatelyincreased.  Subject to clause (b) ofSection 1B(x), if the Company at any time combines (by reversestock split or otherwise) the Common Stock into a smaller number of shares, theExercise Price in effect immediately prior to such combination shall beproportionately increased and the number of Warrant Shares obtainable uponexercise of this Warrant shall be proportionately decreased.

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## D.            OrganicChange.  Any recapitalization,reorganization, reclassification or other transaction which does not constitutea Sales Event and is effected in such a way that holders of Common Stock areentitled to receive (either directly or upon subsequent liquidation) stock,securities or assets with respect to or in 

 

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## exchange forCommon Stock is referred to herein as an “Organic Change”.  Prior to the consummation of any OrganicChange, the Company shall make appropriate provision to ensure that eachRegistered Holder of Warrants shall thereafter have the right to acquire andreceive upon exercise thereof, in lieu of or addition to (as the case may be)the Warrant Shares immediately theretofore acquirable and receivable uponexercise of such Registered Holder’s Warrants, such shares of stock, securitiesor assets as may be issued or payable with respect to or in exchange for thenumber of Warrant Shares immediately theretofore acquirable and receivable uponexercise of such Registered Holder’s Warrants had such Organic Change not takenplace.  In any such case, the Companyshall make appropriate provision (in form and substance satisfactory to theRequired Holders) with respect to such Registered Holder’s rights and intereststo insure that the provisions hereof (including Sections 2, 3and 4 hereof) shall thereafter be applicable to the Warrants (including,in the case of any such Organic Change in which the successor entity orpurchasing entity is other than the Company, an immediate adjustment of theExercise Price to the value for the Common Stock reflected by the terms of suchOrganic Change and a corresponding immediate adjustment in the number of WarrantShares acquirable and receivable upon exercise of the Warrants, if the value soreflected is less than the Exercise Price in effect immediately prior to such OrganicChange).  The Company shall not effectany such Organic Change unless, prior to the consummation thereof, thesuccessor entity (if other than the Company) resulting from such Organic Change(including a purchaser of all or substantially all the Company’s assets)assumes by written instrument (in form and substance satisfactory to theRequired Holders) the obligation to deliver to each Registered Holder of theWarrants such shares of stock, securities or assets as, in accordance with theforegoing provisions, such Registered Holder may be entitled to acquire.

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## E.             CertainEvents.  If any event occurs of thetype contemplated by the provisions of this Section 2 but notexpressly provided for by such provisions (including, without limitation, thegranting of stock appreciation rights, phantom stock rights or other rightswith equity features but excluding any Permitted Issuance), then the Company’sBoard of Directors and the Required Holders shall negotiate in good faith andagree on an appropriate adjustment in the Exercise Price and the number ofWarrant Shares obtainable upon exercise of this Warrant so as to protect therights of the Registered Holder of this Warrant.

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## F.             Notices.

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### (i)            Promptlyupon any adjustment of the Exercise Price, the Company shall give writtennotice thereof to the Registered Holder, setting forth in reasonable detail andcertifying the calculation of such adjustment.

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### (ii)           TheCompany shall give written notice to the Registered Holder at least 30 daysprior to the date on which the Company closes its books or takes a record (A) withrespect to any dividend or distribution upon the Common Stock, (B) withrespect to any pro rata subscription offer to holders of Common Stock, or (C) fordetermining rights to vote with respect to any Organic Change, dissolution orliquidation.

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### (iii)          TheCompany shall also give written notice to the Registered Holder at least 30 daysprior to the date on which any Organic Change, dissolution or liquidation shalltake place.

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# SECTION 3.  Dividends;Shareholders Rights.  If the Companypays a dividend or distribution upon the Common Stock, other than dividends ordistributions described in Section 2C, then the Company shall payto the holder of this Warrant, at the time of payment thereof, such dividend ordistribution which would have been paid to such holder had this Warrant beenfully exercised immediately prior to the date on which a record is taken forsuch dividend or distribution or, if no record is taken, the date as of whichthe record holders of Common Stock entitled to said dividends or distributionsare to be determined.  Except as setforth herein, this Warrant does not entitle the holder of this Warrant to anyof the rights of a stockholder of the Company until such holder has exercisedor is deemed to have exercised this Warrant in accordance with the termshereof.

#  

# SECTION 4.  PurchaseRights.  If at any time the Companygrants, issues or sells any Options, Convertible Securities or rights topurchase stock, warrants, securities or other property pro rata to the recordholders of the Common Stock (the “Purchase Rights”), then the Companyshall grant, issue or sell (as the case may be) to the Registered Holder theaggregate Purchase Rights which such Registered Holder would have acquired ifsuch Registered Holder had held the maximum number of Warrant Shares acquirableupon complete exercise of this 

 

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# Warrantimmediately before the date on which a record is taken for the grant, issuanceor sale of such Purchase Rights or, if no such record is taken, the date as ofwhich the record holders of Common Stock are to be determined for the grant,issue or sale of such Purchase Rights.

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# SECTION 5.  Definitions.  The following terms have the meanings set forthbelow:

#  

“Common Stock” means, collectively, the Company’sCommon Stock, no par value, and any capital stock of any class of the Companyhereafter authorized which is not limited to a fixed sum or percentage of paror stated value in respect of rights of the holders thereof to participate individends or in the distribution of assets upon any liquidation, dissolution orwinding up of the Company.

 

“Common Stock Deemed Outstanding” means, at anygiven time, the number of shares of all classes of the Common Stock outstandingat such time, calculated on a fully diluted basis to give effect to theconversion of all outstanding Preferred Stock into Common Stock and any othersecurities convertible or exchangeable into Common Stock, and the exercise ofall outstanding rights, options and warrants to subscribe for or purchaseCommon Stock, regardless, in each case, of whether such securities are actuallyconvertible, exchangeable or exercisable at such time, but excluding anyWarrant Shares.

 

“Date of Issuance” means September 2, 2004.

 

“Fair Market Value” means (i) the averageof the closing sales prices of the Common Stock on all domestic securitiesexchanges on which the Common Stock is listed, or (ii) if there have beenno sales, the average of the high bid and low ask prices on all such exchangesat the end of such day, or (iii) if on any day the Common Stock is not solisted on an exchange, the sales price for the Common Stock as of 4:00 P.M.,Eastern time as reported on the Nasdaq National Market, or (iv) if theCommon Stock is not listed on an exchange or reported on the Nasdaq NationalMarket, the average of the representative bid and ask quotations for the CommonStock as of 4:00 P.M., Eastern time, as reported on the Nasdaq interdealerquotation system or any similar successor organization, in each such caseaveraged over a period of ten consecutive trading days, including the day as ofwhich “Fair Market Value” is being determined.  Notwithstanding the foregoing, if at any timeof determination either (x) the Common Stock is not registered pursuant toSection 12 of the Securities Exchange Act of 1934, as amended, and eitherlisted on a national securities exchange or authorized for quotation in theNasdaq system, or (y) less than 25% of the outstanding Common Stock isheld by the public free of transfer restrictions under the Securities Act of1933, as amended, then Fair Market Value shall mean the price that would bepaid per share for the entire common equity interest in the Company in anorderly sale transaction between a willing buyer and a willing seller, usingvaluation techniques then prevailing in the securities industry and assumingfull disclosure of all relevant information and a reasonable period of time foreffectuating such sale, as determined pursuant to good faith negotiationsbetween the Board and the Warrant holders. In the event the parties cannot agree on Fair Market Value, the RequiredHolders shall have the right to require that an independent investment bankingfirm mutually acceptable to the Company and the Required Holders determine FairMarket Value, which firm shall submit to the Company and the Warrant holders awritten report setting forth such determination.  The expenses of such firm will be borneone-half by the Company and one-half by such holders on a pro rata basis, andthe determination of such firm will be final and binding upon all parties.

 

“Independent Third Party” means any Person who,immediately prior to the contemplated transaction, does not own in excess of 5%of the Company’s Common Stock on a fully-diluted basis (a “5% Owner”),who is not controlling, controlled by or under common control with any such 5%Owner and who is not the spouse or descendent (by birth or adoption) of anysuch 5% Owner or a trust for the benefit of such 5% Owner and/or such otherPersons.

 

“Permitted Issuance” means any issuance by theCompany of shares of Common Stock or other securities (i) upon theexercise or conversion of Options or other securities granted pursuant toemployee benefit plans or option agreements existing on the Date of Issuance;provided, that the aggregate number of Options and other securities so grantedshall not exceed 4,651,000, (ii) upon conversion of outstanding shares ofthe Preferred Stock, in each case to the extent issued and outstanding on theDate of Issuance, (iii) which are restricted securities subject to asubstantial risk of forfeiture issued pursuant to benefit plans adopted by theBoard; provided, that the aggregate 

 

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number of restricted securities plus shares subject toOptions shall not exceed 4,651,000, (iv) pursuant to employee benefitplans qualified under Section 401(k) or 423 of the Internal Revenue Code;provided, that the aggregate number of such securities shall not exceed250,000, (v) upon conversion of the Second Amended and RestatedConvertible Senior Subordinated Note issued to Annex Holdings I LP, dated September2, 2004 (the “Annex Notes”) pursuant to their terms as in effect on theDate of Issuance or to satisfy semi-annual interest obligations to holders ofthe Annex Notes outstanding on the Date of Issuance, (vi) upon exercise ofwarrants to purchase an aggregate of up to 1,115,962 shares of Common Stockissued or to be issued to holders of the Annex Notes, the Preferred Stock ortheir permitted transferees or assigns, or (vii) pursuant to the Company’sRights Agreement as in effect on the Date of Issuance, including the Rights asdefined therein and contemplated thereby.

 

“Person” means any individual, partnership,limited liability company, fund, joint venture, corporation, trust,unincorporated organization or government or department or agency thereof.

 

“Preferred Stock” means, collectively, (i) theCompany’s Series A Convertible Preferred Stock, no par value and (ii) theCompany’s Series B Convertible Preferred Stock, no par value and (iii) ineach case, any capital stock (other than Common Stock) issued in exchange,substitution, or replacement therefor, including without limitation the Company’sSeries C Convertible Preferred Stock, no par value, and the Company’sSeries D Convertible Preferred Stock, no par value.

 

“Registered Holder” means the holder of thisWarrant as reflected in the records of the Company maintained pursuant to Section 12.

 

“Required Holders” means the holders of amajority of the purchase rights represented by all Warrants as originallyissued which remain outstanding and unexercised at the time of determination.

 

“Sales Event” means the sale of the Company toan Independent Third Party or group of Independent Third Parties pursuant towhich such party or parties acquire (i) capital stock of the Companypossessing the voting power under normal circumstances to elect a majority ofthe Company’s board of directors (whether by merger, consolidation or sale ortransfer of the Company’s capital stock) or (ii) all or substantially allof the Company’s assets determined on a consolidated basis.

 

“Securities Act” means the Securities Act of1933, as amended, and the rules and regulations promulgated thereunder.

 

“Warrant Shares” means shares of Common Stockissuable upon exercise of the Warrant; provided, that if the securitiesissuable upon exercise of the Warrants are issued by an entity other than theCompany or there is a change in the class of securities so issuable, then theterm “Warrant Shares” shall mean shares of the security issuable uponexercise of the Warrants if such security is issuable in shares, or shall meanthe equivalent units in which such security is issuable if such security is notissuable in shares.

 

# SECTION 6.  Restrictionon Transferability.  This Warrantshall not be sold, assigned, transferred or pledged except upon the conditionsspecified in this Warrant, which conditions are intended to ensure compliancewith the provisions of the Securities Act. Each holder of this Warrant will cause any proposed purchaser, assignee,transferee, or pledgee of this Warrant to agree to take and hold suchsecurities subject to the provisions and upon the conditions specified in thisWarrant.

#  

# SECTION 7.  Restrictionson Transfer.

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### (i)            Consentto Restriction.  Each holder consentsto the Company making a notation on its records and giving instructions to anytransfer agent of its Warrants in order to implement the restrictions ontransfer established in this Agreement.

###  

### (ii)           Conditionsof Transfer.  The holder of thisWarrant, by acceptance thereof, agrees not to make any disposition of all orany portion of this Warrant unless and until such holder shall have notifiedthe Company in writing of the proposed disposition and furnished the Companywith (i) a detailed statement 

 

8

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### of thecircumstances surrounding the proposed disposition, (ii) a properlyexecuted Assignment (in substantially the form of Exhibit IIhereto), (iii) this Warrant, and (iv) if reasonably requested by theCompany, an opinion of counsel, reasonably satisfactory to the Company, thatsuch disposition shall not require registration under the Securities Act orqualification or registration under state securities laws.  Notwithstanding the foregoing, no suchopinion of counsel shall be necessary for a transfer by a holder of thisWarrant to an Affiliate (as defined in the Securities Act) of such holder.

###  

# SECTION 8.  WarrantExchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by theRegistered Holder at the principal executive offices of the Company, for newWarrants of like tenor representing in the aggregate the purchase rightshereunder, and each of such new Warrants shall represent such portion of suchrights as is designated by the Registered Holder at the time of such surrender.  At the request of the Registered Holder(pursuant to a transfer of Warrants or otherwise), this Warrant may beexchanged for one or more Warrants to purchase Common Stock.  The date of issuance shall be deemed to bethe Date of Issuance regardless of the number of times new certificatesrepresenting the unexpired and unexercised rights formerly represented by thisWarrant shall be issued.

#  

# SECTION 9.  Replacement.  Upon receipt of evidence reasonablysatisfactory to the Company (an affidavit of the Registered Holder shall besatisfactory) of the ownership and the loss, theft, destruction or mutilationof any certificate evidencing this Warrant, and in the case of any such loss,theft or destruction, upon receipt of indemnity reasonably satisfactory to theCompany (provided that if the Registered Holder is a financial institution orother institutional investor its own agreement shall be satisfactory), or, inthe case of any such mutilation upon surrender of such certificate, the Companyshall (at its expense) execute and deliver in lieu of such certificate a newcertificate of like kind representing the same rights represented by such lost,stolen, destroyed or mutilated certificate and dated the date of such lost,stolen, destroyed or mutilated certificate.

#  

# SECTION 10.  Notices.  Except as otherwise expressly providedherein, all notices and deliveries referred to in this Warrant shall be inwriting, shall be delivered personally, sent by registered or certified mail,return receipt requested and postage prepaid or sent via nationally recognizedovernight courier or via facsimile, and shall be deemed to have been given whenso delivered (or when received, if delivered by any other method) if sent (i) tothe Company, at its principal executive offices and (ii) to a RegisteredHolder, at such Registered Holder’s address as it appears in the records of theCompany (unless otherwise indicated by any such Registered Holder).

#  

# SECTION 11.  Amendmentand Waiver.  Except as otherwiseprovided herein, the provisions of the Warrants may be amended and the Companymay take any action herein prohibited, or omit to perform any act hereinrequired to be performed by it, only if the Company has obtained the priorwritten consent of the Required Holders.

#  

# SECTION 12.  WarrantRegister.  The Company shall maintainat its principal executive offices books for the registration and theregistration of transfer of Warrants.  TheCompany may deem and treat the Registered Holder as the absolute owner hereof(notwithstanding any notation of ownership or other writing thereon made byanyone) for all purposes and shall not be affected by any notice to thecontrary.

#  

# SECTION 13.  Fractionsof Shares.  The Company may, butshall not be required to, issue a fraction of a Warrant Share upon the exerciseof this Warrant in whole or in part.  Asto any fraction of a share which the Company elects not to issue, the Companyshall make a cash payment in respect of such fraction in an amount equal to thesame fraction of the Fair Market Value of a Warrant Share on the date of suchexercise.

#  

# SECTION 14.  DescriptiveHeadings; Governing Law.  Thedescriptive headings of the several Sections and paragraphs of this Warrant areinserted for convenience only and do not constitute a part of this Warrant.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUEDIN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF OREGON, WITHOUT GIVINGEFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OFTHE STATE OF OREGON OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATIONOF THE LAWS OF ANY JURISDICTION OTHER THAN THOSE OF THE STATE OF OREGON.

#  

* * * * *

 

9

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IN WITNESS WHEREOF, the Company has caused thisWarrant to be signed by its duly authorized officer and to be dated as of thedate hereof.

 

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

 

10

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EXHIBIT I

 

**EXERCISEAGREEMENT**

 
| To: | Dated: |
|-----|--------|

 

 

The undersigned, pursuant to the provisions set forthin the attached Warrant (Certificate No. W-       ),hereby agrees to subscribe for the purchase of       Warrant Shares (in the form of Common Stock covered by such Warrant) and makespayment herewith in full therefor at the price per share provided by such Warrant.

 

 
|   | Signature |   |
|--------|-----------|--------|
|   |      |
|   | Address   |   |
|        |           |        |  |

 

I-1

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EXHIBIT II

 

**ASSIGNMENT**

 

FOR VALUE RECEIVED,                         hereby sells, assigns and transfers all of the rights of the undersigned underthe attached Warrant (Certificate No. W-      )with respect to the number of the Warrant Shares covered thereby set forthbelow, unto:

 
| **Names of Assignee** | ** ** | **Address** | ** ** | **No. of Shares** |
|-----------------------|------------|-------------|------------|-------------------|
|                  |       |        |       |              |
|                  |       |        |       |              |
|                  |       |        |       |              |

 

 
| Dated: | Signature |   |   |
|--------|-----------|--------|--------|
|   |      |   |   |
|   |      |   |   |
|   |      |   |   |
|   | Witness   |   |   |

 

II-1

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