Document:

EXHIBIT 10.1

 

EIGHTH AMENDMENT TO

REVOLVING CREDIT AND TERM LOAN AGREEMENT

 

THIS EIGHTH AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT dated as of February 18, 2005
(the “Amendment”), is entered into by and between CAPITALSOURCE FINANCE
LLC, a Delaware limited liability company, in its capacity as administrative
agent and collateral agent for the Lenders under the Loan Agreement referenced
below (“Agent”), the Lenders party thereto, and GARDENBURGER, INC., an
Oregon corporation (“Borrower”). 
Capitalized terms used and not otherwise defined herein are used as
defined in the Loan Agreement (as defined below).

 

WHEREAS, the Agent,
Lenders and Borrower have entered into that certain Revolving Credit and Term
Loan Agreement dated as of January 10, 2002, as amended by a First
Amendment to Revolving Credit and Term Loan Agreement dated as of September 30,
2002, a Second Amendment to Revolving Credit and Term Loan Agreement dated as
of December 31, 2002, a Third Amendment to Revolving Credit and Term Loan
Agreement dated as of March 31, 2003, a Fourth Amendment to Revolving
Credit and Term Loan Agreement dated as of December 29, 2003, a Fifth
Amendment to Revolving Credit and Term Loan Agreement dated as of April 8,
2004, a Sixth Amendment to Revolving Credit and Term Loan Agreement dated as of
August 13, 2004 and a Seventh Amendment to Revolving Credit and Term Loan
Agreement dated as of November 29, 2004 (as amended, supplemented,
modified and/or restated from time to time, the “Loan Agreement”);

 

WHEREAS, Borrower has
requested that Agent and Lenders amend the Loan Agreement and waive certain
Events of Default, all as provided herein; and

 

WHEREAS, subject to
satisfaction of the conditions set forth herein, Agent and the Lenders are
willing to amend the Loan Agreement as provided herein.

 

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

 

SECTION 1.  Acknowledgement of Obligations.

 

(a)                                  Borrower hereby acknowledges and agrees that
based on the Specified Events of Default (as defined below), it is
unconditionally liable to the Agent and Lenders for the full and immediate
payment of all of the Obligations including, without limitation, those
Obligations set forth on Schedule A attached hereto and
incorporated herein by reference, plus all interest, charges, fees, costs, and
expenses that may arise under the Loan Agreement and other Loan Documents plus
all attorneys’ fees, disbursements and costs of collection incurred in
connection with such Obligations by Agent and Lenders and that Borrower has no
defenses,

 

 

counterclaims or set-offs
with respect to the full and immediate payment and performance of any or all
Obligations under the Loan Agreement and the other Loan Documents.

 

(b)                                 Borrower acknowledges and agrees that (i) the
Specified Events of Default constitute material defaults under the Loan
Agreement and the other Loan Documents, (ii) any notices that might be given
and any grace periods or cure periods which must expire, prior to Agent or
Lenders exercising any of their respective rights and remedies in connection
with the Loan Agreement or the other Loan Documents, have been given, complied
with and expired and, in any event, are hereby waived and relinquished by
Borrower, and (iii) as a consequence, Agent and Lenders are now entitled to
immediately exercise all of their respective rights and remedies under the Loan
Agreement and the other Loan Documents, at law or in equity, including, without
limitation, their rights to declare all Obligations to be immediately due,
payable, and performable, without notice, except that Agent and Lenders have
agreed to waive the Specified Events of Default as provided in this Amendment.

 

(c)                                  Borrower further acknowledges and agrees that
as a result of the Specified Events of Default, Agent and Lenders have no
commitments, obligations or agreements to make loans or advances or other
financial accommodations to Borrower, except that Agent and Lenders have agreed
to waive the Specified Events of Default as provided in this Amendment and to
continue to make loans, advances or other financial accommodations as provided
in this Amendment.

 

SECTION 2.  Amendments.  As of the Effective Date, the Loan Agreement
is amended as follows:

 

(a)                                  Section 2.1(a)
of the Loan Agreement shall be and hereby is amended and restated as follows:

 

“(a)                            Subject
to the provisions of this Agreement, each Lender agrees to make available its
Pro Rata Share of Advances to Borrower under the Revolving Facility from time
to time during the Revolving Facility Term; provided, that (i) the Pro
Rata Share of the Advances of any Lender shall not at any time exceed its
separate Commitment, and (ii) the aggregate amount of all Advances at any time
outstanding under the Revolving Facility shall not exceed the lesser  of
(A) the Facility Cap and (B) (1) the percentage of the Borrowing Base permitted
by the seventh sentence of this Section 2.1 plus (2) the Amortizing
Advance Amount (such amount calculated pursuant to subsection (B) being
referred to herein as the “Availability”).  The aggregate amount of Advances at any time
outstanding under the Revolving Facility shall not be less than
$1,000,000.  The obligations of Lenders
hereunder shall be several and not joint up to the amount of the
Commitments.  The Revolving Facility is a
revolving credit facility, which may be drawn, repaid and redrawn, from time to
time as permitted under this Agreement. 
Any determination as to whether there is availability within the
Borrowing Base for Advances shall be made by Agent in its Permitted Discretion
and is final and binding upon Borrower. 
Unless otherwise permitted by Agent, each Advance shall be in an amount
of at least $50,000.  Subject to the
provisions of this Agreement, Borrower may request Advances under the Revolving
Facility up to and including the value, in Dollars, of (i) eighty-five percent
(85%) of the Borrowing Base for Eligible Receivables, and (ii) sixty percent
(60%) of the Borrowing Base for

 

2

 

Eligible Inventory Costs, minus, if applicable,
amounts reserved pursuant to this Agreement. 
Advances under the Revolving Facility automatically shall be made for
the payment of interest on the Revolving Notes and other Obligations on the
date when due to the extent available and as provided for herein.”

 

(b)                                 The
first and second sentences of Section 2.2 of the Loan Agreement shall be
and are hereby amended and restated as follows:

 

“(a)                            All
Advances under the Revolving Facility shall be evidenced by the Amended and
Restated Revolving Notes in the form of Exhibit  1 to the Eighth
Amendment (individually and collectively, and as the same may be amended,
modified, split, divided, supplemented and/or restated from time to time, the “Revolving
Notes”), payable to the order of each Lender in the principal amount of the
Commitment of such Lender, duly executed and delivered by the Borrower, dated February 18,
2005 evidencing the aggregate indebtedness of the Borrower to the Lenders
resulting from Advances, from time to time under the Revolving Facility.”

 

(c)                                  The
following Section 2.3 of the Loan Agreement shall be and is hereby amended
and restated as follows:

 

“2.3. Interest.  Interest on outstanding Advances under the
Revolving Notes shall be payable monthly in arrears on the first day of each
calendar month at an annual rate of Prime Rate plus 2.50%, except that during
the Amortizing Advance Period (and thereafter to the extent that all or any
portion of the Amortizing Advance Amount shall be outstanding), then interest
on outstanding Advances under the Revolving Notes shall be payable monthly in
arrears on the first day of each calendar month at an annual rate of Prime Rate
plus 4.50%; provided, however, that notwithstanding any provision
of any Loan Document, the interest on all outstanding Advances under the
Revolving Notes shall not be less than 8.00%, in each case calculated on the
basis of a 360-day year and for the actual number of calendar days elapsed in
each interest calculation period. 
Interest accrued on each Advance under the Revolving Notes shall be due
and payable on the first day of each calendar month, in accordance with the
procedures provided for in Section 2.5 and Section 2.9
until the later of the expiration of the Revolving Facility Term and the full
performance and irrevocable payment in full in cash of the Obligation and
termination of this Agreement.”

 

(d)                                 Section 2.11(c)
of the Loan Agreement shall be and hereby is amended and restated as follows:

 

“(c)                            in
addition to and notwithstanding any other provision of this Agreement or any
Loan Document, until such time as the Term Loan and Obligations relating to the
Term Loan are indefeasibly paid in full in cash and performed, commencing as of
Borrower’s fiscal year ending September 30, 2005, seventy-five percent
(75%) of Borrower’s Excess Cash Flow for each fiscal year of the Borrower shall
be paid by Borrower to Agent, for the benefit of the Lenders, and shall be
applied by Agent to reduce the Obligations relating to the Term Loan.  Such payments shall be made no later than
thirty (30) calendar days after preparation of Borrower’s audited financial
statements, but in any event not later than one hundred and twenty

 

3

 

(120) calendar
days after the end of the fiscal year to which such Excess Cash Flow
relates.  All amounts payable pursuant to
this Section 2.11(c) shall be applied to the Obligations at such time and
in such manner and order as Agent shall decide in its Permitted Discretion.”

 

(e)                                  The
following Section 3.1A shall be and is hereby added to the Loan Agreement:

 

“3.1A                 Amortizing
Advance Fee.  On or before February 18,
2005, Borrower shall pay to Agent, for the ratable benefit of the Lenders,
$25,000 in cash as a nonrefundable amortizing advance fee (the “Amortizing
Advance Fee”).”

 

(f)                                    The
following Section 3.7 shall be and is hereby added to the Loan Agreement:

 

“3.7                           Total
Debt Ratio Fee.  In addition to and
notwithstanding any other provision of this Agreement or any other Loan
Document, commencing with the Quarterly Test Period ending September 30,
2005 and continuing for each Quarterly Test Period thereafter, Borrower shall
pay to Agent, for the ratable benefit of the Lenders, the fees specified below
(each installment of such fees, individually and collectively, the “Total
Debt Ratio Fee”) if Borrower’s Total Debt Ratio for such Quarterly Test
Period exceeds the ratio corresponding to such Quarterly Test Period in the
table set forth below:

 

	
  Quarterly Test Period:

  	
   

  	
  If Total Debt Ratio Is

  Greater Than:

  	
   

  	
  Then the Total Debt

  Ratio Fee Installment 

  Amount Shall Be:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ending
  on September 30, 2005

  	
   

  	
  1.25:1.00

  	
   

  	
  $

  	
  500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ending
  on December 31, 2005 and ending on the final day of each Quarterly Test
  Period thereafter

  	
   

  	
  1.25:1.00

  	
   

  	
  $

  	
  250,000

  	
   

  

 

If an installment
of the Total Debt Ratio Fee is due in accordance with the foregoing table, such
installment shall be payable by Borrower to Agent, on the earlier to occur of
(a) the date five (5) calendar days after the date of delivery to Agent of
Borrower’s quarterly financial statements for the Quarterly Test Period to
which such installment of the Total Debt Ratio Fee corresponds, and (b) the
date fifty (50) calendar days after the end of such Quarterly Test Period to
which such installment of the Total Debt Ratio Fee corresponds.  In furtherance of the foregoing, if Borrower
fails to timely deliver to Agent any of Borrower’s financial reporting or
financial statements, or any other information that is requested by Agent in
its Permitted Discretion, to permit Agent to make a determination about whether
any installment of the Total Debt Ratio Fee shall be due and payable, then
Agent shall be entitled in its Permitted Discretion to make a good faith
determination regarding whether any installment of the Total Debt Ratio Fee is
in fact due and payable, and such determination(s) shall be binding on
Borrower.  Notwithstanding the foregoing
or anything herein to the contrary, if on the date an installment of the Total
Debt Ratio Fee becomes due and payable, Borrower shall have Availability of
less than $1,000,000 after

 

4

 

giving effect to
such installment, then to such extent and only to such extent, Borrower shall
not be required to pay immediately in cash the portion of such installment of
the Total Debt Ratio Fee comprising the difference between $1,000,000 and
Borrower’s Availability, but instead shall be permitted to cause such portion
of such installment of the Total Debt Ratio Fee to accrue and be paid in cash
on or before the earlier of the date upon which the Term Loan is repaid in full
in cash or is due and payable (whether by maturity, acceleration or otherwise),
provided, that such accrued portion shall constitute Obligations
secured by the Collateral.  Solely to
illustrate the foregoing, if Borrower’s Availability is $1,150,000 as of the
date upon which a $250,000 installment of the Total Debt Ratio Fee shall be due
and payable, then after giving effect to such $250,000 installment Borrower
would have Availability of $900,000 (i.e., less than $1,000,000), thereby
requiring that $150,000 shall be immediately paid by Borrower to Agent in cash
and $100,000 shall accrue and be paid by Borrower to Agent in cash on or before
the earlier of the date upon which the Term Loan is repaid in full in cash or
is due and payable (whether by maturity, acceleration or otherwise), provided,
that such accrued portion shall constitute Obligations secured by the
Collateral.”

 

(g)                                 Subsection (vi)
of Section 6.1(c) of the Loan Agreement shall be and hereby is amended and
restated as follows:

 

“(vi) any notice given by Borrower to any other
lender of Borrower and any notice given to Borrower by any other lender of
Borrower, if not otherwise received by Agent in writing, and Borrower shall
furnish to Agent a copy of any and all such notice(s),”

 

(h)                                 The
following Section 6.1(j) shall be and is hereby added to the Loan
Agreement:

 

“(j)                               Borrower
shall furnish to Agent and each Lender the following:

 

Rolling Thirteen-Week Cash Flow Forecast.  A weekly report, in form and substance
satisfactory to Agent in its sole discretion, to be provided no later than
Monday of each week, or if Monday is not a Business Day, then on the next
Business Day, which sets forth (a) an updated thirteen-week cash flow
projection whereby the first week shall be deleted and updated with the week
immediately succeeding the last week included in the previous report; (b) a
detailed reconciliation analysis of actual results compared to projected
results for the prior week; and (c) a written explanation of all material
variances.”

 

(i)                                     Section 7.11
of the Loan Agreement shall be and is hereby amended and restated as follows:

 

“Borrower shall not (a) make any payment, prepayment
or distribution on, of or with respect to any part or all of the Subordinated
Debt (in cash, in kind, in properties or securities, by set-off or otherwise,
except that the holders of the Subordinated Debt may accrue payment-in-kind
interest), (b) repurchase, redeem or retire any instrument evidencing the
Subordinated Debt, or (c) enter into any agreement (oral or written) which
could in any way be

 

5

 

construed to amend, modify, alter or terminate any one or more
instruments or agreements evidencing or relating to the Subordinated Debt.”

 

(j)                                     Appendix
A to the Loan Agreement shall be and is hereby amended to add the following
definitions in proper alphabetical order:

 

“Amortizing Advance
Amount” shall mean (a) from February 18, 2005 through May 31, 2005,
$500,000.00, and (b) as of June 1, 2005 and thereafter, $-0-.  Upon June 1, 2005, the Borrower shall
immediately without notice or demand repay any outstanding Advances that exceed
the Availability (after taking into consideration the reduction to zero dollars
($-0-) of the Amortizing Advance Amount).

 

“Amortizing Advance
Fee” shall have the meaning set forth in Section 3.1A of this
Agreement.

 

“Amortizing Advance
Period” shall mean February 18, 2005 through and including May 31,
2005.

 

“Eighth
Amendment” shall mean that certain Eighth Amendment to Revolving Credit and
Term Loan Agreement dated as of February 18, 2005 among Borrower, Agent
and Lenders.

 

(k)                                  Appendix
A to the Loan Agreement shall be and is hereby amended to amend and restate the
following definition in its entirety:

 

“Notes” shall
mean, collectively and each individually, the Revolving Notes and the Term
Note, as the same may be amended, modified, divided, split, supplemented and/or
restated from time to time.

 

(l)                                     Appendix
A to the Loan Agreement shall be and is hereby amended to delete the definition
of “Applicable ECF Percentage” set forth therein in its entirety.

 

(m)                               Annex
I (Financial Covenants) to the Loan Agreement shall be and hereby is amended
and restated in its entirety as set forth on Annex I (Financial
Covenants) attached hereto.

 

(n)                                 On
or before February 18, 2005, Borrower shall pay to Agent, for the ratable
benefit of the Lenders, $110,000 in cash as a nonrefundable amendment fee (the “Eighth
Amendment Fee”).”

 

SECTION 3.  Conditions Precedent.  This Amendment shall be effective upon the
satisfaction of the following conditions precedent (the “Effective Date”):  (a) the representations and warranties
contained herein, in the Loan Agreement and in all other Loan Documents shall
be true and correct in all material respects as of the date hereof, except for
such representations and warranties limited by their terms to a specific date,
and all covenants and other agreements herein, in the Loan Agreement and in all
other Loan Documents shall be and are hereby confirmed and ratified in all
respects; (b) after giving effect to the waiver of the Specified Events

 

6

 

of Default pursuant to Section 7
of this Amendment, no Default or Event of Default shall be in existence as of
the date hereof; (c) Borrower shall have delivered to the Agent an executed
original copy of this Amendment and each other agreement, document or
instrument reasonably requested by the Agent in connection with this Amendment,
including, without limitation the Amended and Restated Revolving Notes
described in subsection (d) below; (d) Borrower shall have delivered to
the Lenders the executed Amended and Restated Revolving Notes attached hereto
as Exhibit 3(d); (e)(i) the holders of the Subordinated Debt and
Borrower shall have executed a Seventh Amendment to Note Purchase Agreement (the “Seventh
Note Purchase Agreement Amendment” in the form attached hereto as Exhibit
3(e), which shall be in form and substance satisfactory to Agent, and which
shall provide that until the date upon which the Obligations owed to the Agent
and Lenders have been irrevocably repaid in full in cash (1) the Borrower may not make and the holder of the
Subordinated Debt may not receive or retain any payment or distribution (in
cash, in kind, in properties or securities, by set-off or otherwise, except
that the holders of the Subordinated Debt may accrue payment-in-kind interest)
in respect of the Subordinated Debt, and (2) the
holders of the Subordinated Debt may not exercise any remedies or commence any
action or proceeding to collect or recover any amounts due or to become due
with respect to the Subordinated Debt (including, without limitation by setoff
or otherwise) at any time prior to August 15, 2005; provided, however,
that upon and after August 16, 2005, the holders of the Subordinated Debt
shall be entitled to exercise the collection or enforcement rights and remedies
they may have (if any) under Section 6P(iv) of the Note Purchase
Agreement, subject in all respects to the prohibitions on payments and
distributions described in the foregoing clause (1), which shall remain in
place as set forth therein, and subject to any other applicable restrictions
set forth in the Note Purchase Agreement; and provided, further
that in no event shall the holders of the Subordinated Debt be entitled to
issue to Agent any written notice of their intent to exercise any rights or
remedies under the Note Purchase Agreement, applicable law or otherwise at any
time prior to August 16, 2005 (in furtherance and not in limitation of the
foregoing, the holders of the Subordinated Debt shall acknowledge and agree
that nothing in this Amendment, the Seventh Amendment to Note Purchase
Agreement or any instrument, agreement or document executed in connection
herewith or therewith shall or shall be deemed to (x) limit or impair the Agent’s
right to issue a Blockage Notice (as defined in the Note Purchase Agreement)
and/or (y) commence the counting of the 179 day standstill period referenced in
subsection 6P(iv) of the Note Purchase Agreement); and (ii) the holders of
the Subordinated Debt shall have consented in writing to this Amendment, in form
and substance satisfactory to Agent, acknowledged that the Amortizing Advance
Amount shall constitute Senior Indebtedness (as defined in the Note Purchase
Agreement) under the Note Purchase Agreement and otherwise confirmed that none
of the provisions of this Amendment shall constitute a breach or event of default under the Note
Purchase Agreement or with respect to the Subordinated Debt; (f) Borrower shall
have delivered to Agent updated copies of any and all Premium Finance
Arrangements, together with a written summary of such arrangements, which
written summary shall be satisfactory to Agent in its Permitted Discretion; (g)
Borrower shall have paid to Agent all fees, costs and expenses owed to and/or
incurred by the Agent and Lenders arising in connection with the Loan Documents
and/or this Amendment; (h) Borrower shall have delivered to Agent a certificate
of the corporate secretary or assistant secretary of Borrower dated as of the
date of this Amendment on behalf of Borrower, in form and substance satisfactory
to Agent; (i) Borrower shall have delivered to Agent a written opinion of
counsel for

 

7

 

the Borrower in form and content
satisfactory to the Agent in its sole discretion, addressed to the Agent and
its counsel, and covering such matters related to the transactions contemplated
hereby as the Agent may request (including, without limitation, as to
enforceability); and (j) all
proceedings taken in connection with the transactions contemplated by this
Amendment and all documentation and other legal matters incident thereto shall
be satisfactory to the Agent.

 

SECTION 4.  Conditions Subsequent. In addition to the foregoing, the Borrower
hereby agrees to satisfy all of the following conditions contained in this Section 4
in a manner satisfactory to Agent in its sole discretion.  A failure to satisfy any of the conditions
contained in this Section 4 in a manner satisfactory to Agent in its sole
discretion on or before the dates set forth below shall immediately constitute
an Event of Default under the Loan Agreement and other Loan Documents (without
notice, demand or grace):  (a) on or
before February 28, 2005, Borrower shall have delivered each of the
following items to Agent in writing, each in form and substance satisfactory to
Agent in its sole discretion: (i) a written opinion of counsel for the Borrower
in form and content satisfactory to the Agent in its sole discretion, addressed
to the Agent and its counsel, and covering such matters related to the
transactions contemplated hereby as the Agent may request (including, without
limitation, as to authority and existence); (ii) updated, true, accurate and complete amended and restated
Disclosure Schedules to the Loan Agreement, which shall be in form and content
satisfactory to Agent in its sole and absolute discretion (collectively, the “Amended
and Restated Disclosure Schedules”), together with information regarding
the status of any and all rent and/or other payments owed by Borrower to any
and all landlords, warehouseman and/or bailees; (ii) an updated true, accurate
and complete amended and restated list of Borrower’s recipes and procedures,
together with copies of any and all such items, all in form and substance
satisfactory to Agent in its sole and absolute discretion; (iii) an updated
true, accurate and complete amended and restated list of any and all of
Borrower’s deposit accounts and investment accounts; (b) on or before March 20,
2005, Borrower
shall (i) cause to be duly filed all UCC-3 termination statements with respect
to the financing statements set forth on Exhibit 4(b)(i) attached hereto
and (ii) represent and warrant to Agent in writing that the exceptions set forth on that certain
Endorsement to Title Policy No. C100333-2-A dated February 16, 2005,
issued by First American Title Insurance Company in favor of the Agent, for the
benefit of the Lenders, and attached as Exhibit 4(b)(ii) hereto, do not
impair or otherwise adversely effect the Liens granted to Agent, for the
benefit of the Lenders, under and pursuant to the Mortgage, or in the
alternative, if Borrower is unable to do so, then Borrower shall cause such
exceptions to be terminated on or before such date; (c) on or before the
date that is five (5) Business Days after Agent’s delivery of proposed filings,
Borrower shall execute and/or permit Agent to execute, at Borrower’s expense,
updated patent, trademark and copyright office filings and/or other lien
filings, as applicable, with respect to the Collateral, which filings shall be
in form and substance satisfactory to Agent in its sole discretion; (d) on or
before the date that is ten (10) Business Days after the Borrower’s delivery to
Agent of the Amended and Restated Disclosure Schedules, Borrower shall take any
and all action(s) necessary to cause Borrower’s compliance with the Loan
Agreement and other Loan Documents to the extent that any noncompliance arises
based on the information set forth on such Amended and Restated Disclosure
Schedules; and (e) on or before the date that is thirty (30) days after Agent’s
request, fully executed Landlord Waivers and Consents, as required by and in
accordance with Section 6.1(d) of the Loan Agreement, except for any
location as to which a fully executed Landlord Waiver and Consent has already been
provided to Agent.

 

8

 

SECTION 5.  Additional Events of Default.  In addition to and without in any way
limiting or substituting for the Events of
Default outlined in the Loan Agreement and the other Loan Documents, Borrower’s
failure to timely and fully comply with any covenant or agreement set forth in
this Amendment, without any notice and grace and/or cure periods
(notwithstanding any such notice and grace and/or cure periods in the Loan
Agreement or the other Loan Documents, all of which are expressly waived with
respect to provisions of this Amendment and the provisions of the Loan
Agreement that are amended hereby, other than with respect to Section 6.1(j)
to the Loan Agreement, as added by this Amendment, for which there shall be a
five (5) day grace period), shall constitute an Event of Default.  Nothing contained in this Section 5
shall be deemed to constitute an amendment or modification of the grace and/or
cure periods set forth in the other Loan Documents insofar as such grace and/or
cure periods relate solely to provisions set forth in the other Loan Documents
(as opposed to provisions set forth in this Amendment and the provisions of the
Loan Agreement that are amended hereby).

 

SECTION 6.  Consent to Modifications of Agreements
With Subordinated Lender.  As of the
Effective Date, Agent and Lenders hereby consent to Borrower’s execution and
delivery of the Seventh Note Purchase Agreement Amendment.

 

SECTION 7.  Waivers.  Agent and Lenders (a) hereby acknowledge that
Defaults and Events of Default exist because of Borrower’s failure to comply
with (i) the Leverage Ratio for the Quarterly Test Periods ending September 30,
2004 and December 31, 2004 based on Borrower’s actual Leverage Ratio of 16.41 and (21.96) for those periods, respectively, (ii)
the Minimum Adjusted EBITDA for the Quarterly Test Periods ending September 30,
2004 and December 31, 2004 based on Borrower’s actual Minimum Adjusted
EBITDA of $588,000 and ($394,000) for
those periods, respectively; and (iii) the Senior Fixed Charge Coverage Ratio
for the Quarterly Test Periods ending September 30, 2004 and December 31,
2004 based on Borrower’s actual Senior Fixed Charge Coverage Ratio of 0.15 and
(0.10) for those periods, respectively (the foregoing Defaults and Events of
Default, collectively, the “Specified Events of Default”); and (b) as of
the Effective Date waive all such Specified Events of Default.

 

SECTION 8.  Loan Agreement in Full Force and Effect as
Amended.  Except as specifically
amended hereby or by any agreement or document executed by Borrower in favor of
Agent or Lenders in connection herewith, the Loan Agreement and other Loan Documents
shall remain in full force and effect and are hereby ratified and confirmed as
so amended.  Neither this Amendment nor
any agreement or document executed by Borrower in favor of Agent or Lenders in
connection herewith shall constitute a novation, satisfaction and accords,
cure, release or satisfaction of the Loan Agreement and/or Loan Documents, but
shall constitute amendments and waivers of certain provisions thereof.  Except as expressly set forth herein, neither
this Amendment nor any agreement or document executed by Borrower on behalf of
Agent or Lenders in connection herewith shall be deemed to be a waiver, amendment or modification of any
provisions of the Loan Agreement or any other Loan Document or any right, power
or remedy of Agent or Lenders, or constitute a waiver of any provision of the
Loan Agreement or any other Loan Document, or any other document, instrument
and/or agreement executed or delivered in connection therewith or of any
Default or Event of Default under any of the foregoing, in each case whether
arising before or after the date hereof or as a result of performance hereunder
or thereunder.  This Amendment also shall
not preclude the future

 

9

 

exercise of any right, remedy,
power, or privilege available to Agent and/or Lenders whether under the Loan
Agreement, the other Loan Documents, at law or otherwise.  All references to the Loan Agreement shall be
deemed to mean the Loan Agreement as modified hereby.  The parties hereto agree to be bound by the
terms and conditions of the Loan Agreement and Loan Documents as amended by
this Amendment, as though such terms and conditions were set forth herein.  Each reference in the Loan Agreement to “this
Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall
mean and be a reference to the Loan Agreement as amended by this Amendment, and
each reference herein or in any other Loan Documents to the “Agreement”, “Loan
Agreement” or “Credit Agreement” shall mean and be a reference to the Loan
Agreement as amended and modified by this Amendment.

 

SECTION 9.  Representations.  Borrower hereby represents and warrants to
Agent and Lenders as follows:  (i) it is
duly incorporated or organized, validly existing and in good standing under the
laws of its jurisdiction of organization; (ii) the execution, delivery and
performance by it of this Amendment and all other Loan Documents executed
and/or delivered in connection herewith are within its powers, have been duly
authorized, and do not contravene (A) its articles of organization, operating
agreement, or other organizational documents, or (B) any applicable law; (iii)
except as provided under the Seventh Amendment to Note Purchase Agreement, no
consent, license, permit, approval or authorization of, or registration, filing
or declaration with any Governmental Authority or other Person, is required in
connection with the execution, delivery, performance, validity or
enforceability of this Amendment or any other Loan Documents executed and/or
delivered in connection herewith by or against it; (iv) this Amendment and all
other Loan Documents executed and/or delivered in connection herewith have been
duly executed and delivered by it; (v) this Amendment and all other Loan
Documents executed and/or delivered in connection herewith constitute its
legal, valid and binding obligation enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally or by general principles of equity;
(vi) after giving effect to this Amendment, no Default or Event of Default
exists, has occurred and is continuing or would result by the execution,
delivery or performance of this Amendment; and (vii) except as updated pursuant
to the Amended and Restated Disclosure Schedules, which shall be in form and
substance satisfactory to Agent in its sole and absolute discretion in
accordance with Section 4 above, the representations and warranties
contained in the Loan Documents are true and correct in all material respects
as of the date hereof as if made on the date hereof, except for such
representations and warranties limited by their terms to a specific date.

 

SECTION 10.  Miscellaneous.

 

(a)                                  This
Amendment may be executed in any number of counterparts (including by
facsimile), and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed to be an original instrument but
all of which together shall constitute one and the same agreement.  Each party agrees that it will be bound by
its own facsimile signature and that it accepts the facsimile signature of each
other party.  The descriptive headings of
the various sections of this Amendment are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of
the provisions hereof or thereof. 
Whenever the context and construction so require, all words herein

 

10

 

in the singular number herein shall be deemed to have
been used in the plural, and vice versa, and the masculine gender shall include
the feminine and neuter and the neuter shall include the masculine and
feminine.

 

(b)                                 This
Amendment may not be changed, amended, restated, waived, supplemented,
discharged, canceled, terminated or otherwise modified orally or by any course
of dealing or in any manner other than as provided in the Loan Agreement.  This Amendment shall be considered part of
the Loan Agreement and shall be a Loan Document for all purposes under the Loan
Agreement and other Loan Documents.

 

(c)                                  This
Amendment, the Loan Agreement and the Loan Documents constitute the final,
entire agreement and understanding between the parties with respect to the
subject matter hereof and thereof and may not be contradicted by evidence of
prior, contemporaneous or subsequent oral agreements between the parties, and
shall be binding upon and inure to the benefit of the successors and assigns of
the parties hereto and thereto.  There
are no unwritten oral agreements between the parties with respect to the
subject matter hereof and thereof.

 

(d)                                 THIS
AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
CHOICE OF LAW PROVISIONS SET FORTH IN THE LOAN AGREEMENT AND SHALL BE SUBJECT
TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE LOAN AGREEMENT.

 

(e)                                  Borrower
may not assign, delegate or transfer this Amendment or any of its rights or
obligations hereunder.  No rights are intended
to be created under this Amendment for the benefit of any third party donee,
creditor or incidental beneficiary of Borrower or any Guarantor.  Nothing contained in this Amendment shall be
construed as a delegation to Agent or Lenders of Borrower’s or any Guarantor’s
duty of performance, including, without limitation, any duties under any
account or contract in which Agent has or Lenders have a security interest or
Lien.  This Amendment shall be binding
upon the Borrower and its respective successors and assigns.

 

(f)                                    The
Borrower shall pay all costs and expenses incurred by Agent and Lenders or any
of their affiliates, including, without limitation, documentation and diligence
fees and expenses, all search, audit, appraisal, recording, and filing fees and
expenses and all other out-of-pocket charges and expenses (including, without
limitation, UCC and judgment and tax lien searches and UCC filings and fees for
post-Closing UCC and judgment and tax lien searches) and reasonable fees and
expenses of outside counsel and in-house counsel, in connection with entering
into, negotiating, preparing, reviewing and executing this Amendment and the
documents, agreements and instruments contemplated hereby and all related
agreements, documents and instruments, and all of the same shall be part of the
Obligations.

 

(g)                                 Borrower
hereby (i) agrees that this Amendment shall not limit or diminish the
obligations of Borrower under the Loan Documents, (ii) reaffirms its
obligations

 

11

 

under each of the Loan Documents to which it is a
party, and (iii) agrees that each of such Loan Documents remains in full force
and effect and is hereby ratified and confirmed.

 

(h)                                 All
representations and warranties made in this Amendment shall survive the
execution and delivery of this Amendment and no investigation by Agent or
Lenders shall affect such representations or warranties or the right of Agent
or Lenders to rely upon them.

 

(i)                                     BORROWER
HEREBY ACKNOWLEDGES AND AGREES THAT IT KNOWS OF NO DEFENSE, COUNTERCLAIM,
OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER
ORIGINATING ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED THAT CAN BE
ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE OBLIGATIONS
OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM AGENT AND
THE LENDERS.  BORROWER HEREBY VOLUNTARILY
AND KNOWINGLY RELEASES AND FOREVER DISCHARGES AGENT, THE LENDERS AND EACH OF
THEIR RESPECTIVE PREDECESSORS, AGENTS, EMPLOYEES, AFFILIATES, COUNSEL,
SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”) FROM ALL
POSSIBLE KNOWN CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS,
EXPENSES AND LIABILITIES WHATSOEVER, FIXED, CONTINGENT OR CONDITIONAL, OR AT
LAW OR IN EQUITY, IN ANY CASE ORIGINATING ON OR BEFORE THE DATE THIS AMENDMENT
IS EXECUTED THAT BORROWER MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED
PARTIES, IF ANY, IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT,
TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND THAT ARISE FROM ANY OF
THE LOANS, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, AND/OR THE NEGOTIATION FOR AND EXECUTION OF
THIS AMENDMENT, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING,
TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST
LAWFUL RATE APPLICABLE.  NOTWITHSTANDING
THE FOREGOING, NOTHING CONTAINED IN THIS SECTION 10(i) SHALL APPLY WITH
RESPECT TO ANY WILLFUL MISCONDUCT OR BAD FAITH BY THE RELEASED PARTIES.

 

[Signature Page Follows]

 

12

 

IN WITNESS WHEREOF, the
parties have caused this Eighth Amendment to Revolving Credit and Term Loan
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.

 

	
   

  	
  LENDER/AGENT:

  
	
   

  	
   

  
	
   

  	
  CAPITALSOURCE FINANCE LLC

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
  /s/
  Joseph Turitz

  
	
   

  	
  Name:
  

  	
   

  	
  Joseph
  Turitz

  
	
   

  	
  Title:
  

  	
   

  	
  General
  Counsel, Corporate Finance Group

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BORROWER:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GARDENBURGER, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
   

  	
  /s/
  Robert T. Trebing, Jr.

  
	
   

  	
  Name:
  

  	
   

  	
  Robert
  T. Trebing, Jr.

  
	
   

  	
  Title:
  

  	
   

  	
  Senior
  Vice President and Chief Financial Officer

  
								

 

 

SCHEDULE A

 

(Schedule of Obligations)

(Unpaid principal as of February 16, 2005)*

 

 

	
  Revolving Credit Loans:

  	
   

  	
  $

  	
  4,281,739.56

  	
   

  
	
  Term Loan:

  	
   

  	
  $

  	
  4,028,161.00

  	
   

  

 

 

*plus accrued and accruing interest, costs, fees, attorneys’ fees and
disbursements and other charges as well as adjustments, credits, and charges as provided as
provided under the Loan Documents.

 

 

 

EXHIBIT 1

 

 

(Form of Amended and
Restated Revolving Note)

 

 

 

EXHIBIT 3(d)

 

 

(Executed Amended and
Restated Notes)

 

 

EXHIBIT 3(e)

 

 

(Seventh Amendment to
Note Purchase Agreement)

 

 

EXHIBIT 4(b)(i)

(Liens to be Terminated)

 

1.                                       Banc of America Commercial Finance filed a
UCC-1 with the County of Multnomah, Oregon covering substantially all of the
assets of Borrower, including property at lots 1 and 2, Block 172, Hawthorne
Park, Multnomah County, Oregon (UCC-1; Filed: 2/15/00; File Number: 2000-021809),
which UCC-1 was subsequently assigned to Wells Fargo Business Credit, Inc.
(UCC-3; Filed: 5/14/01; File Number: 2001-070460).

 

2.                                       BA Leasing & Capital Corporation filed a
UCC-1 with the County of                         Multnomah, Oregon covering specific leased
equipment and fixtures consisting of wrappers, conveyor systems, freezers and
other items with a stated value of $3,300,779.50 (UCC-1; Filed: 6/22/98; File
Number: 98107624).

 

3.                                       Banc of America Commercial Finance filed a
UCC-1 with Davis County, Utah covering substantially all of the assets of
Borrower, including property at the Freeport Center #A-16H (UCC-1; Filed:
2/16/00; File Number: 1575401, Bk. 2616/Pg. 36), which UCC-1 was subsequently
assigned to Wells Fargo Business Credit, Inc. (UCC-3; Filed: 5/17/01; File Number:
2001-1661484, Bk. 2810/Pg. 20).

 

 

EXHIBIT 4(b)(ii)

(Endorsement to Title
Policy)

 

 

ANNEX 1

 

Attached.

 

 

ANNEX I

 

FINANCIAL COVENANTS

 

1)                                     Leverage
Ratio

 

The Leverage Ratio for each for each Quarterly Test
Period shall not exceed the ratios specified below:

 

	
  Quarterly Test Period

  	
   

  	
  Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  September 30, 2005

  	
   

  	
  1.50:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31, 2005 and as of each Quarterly Test
  Period thereafter

  	
   

  	
  1.25:1.00

  	
   

  

 

2)                                     Minimum
EBITDA

 

EBITDA shall not be less than -$1,000,000 for the
fiscal quarter ending March 31, 2005 and $1,600,000 for the fiscal quarter
ending June 30, 2005.  Commencing
with the Quarterly Test Period ending September 30, 2005 and continuing on
and as of each Quarterly Test Period thereafter, EBITDA shall not be less than
$3,500,000.

 

3)                                     Fixed
Charge Coverage Ratio

 

The Fixed Charge Coverage Ratio for each Quarterly
Test Period shall not be less than the ratios specified below:

 

	
  Quarterly Test Period

  	
   

  	
  Ratio

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  September 30, 2005

  	
   

  	
  1.10:1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  December 31, 2005 and as of each Quarterly Test
  Period thereafter

  	
   

  	
  1.15:1.00

  	
   

  

 

4)                                     Capital
Expenditures

 

Capital Expenditures shall not be more than $150,000
for the fiscal quarter ending March 31, 2005, $100,000 for fiscal quarter
ending June 30, 2005, $100,000 for the fiscal quarter ending September 30,
2005, and $600,000 for each fiscal year ending on or after September 30,
2005.

 

For purposes of the covenants set forth in this Annex
I, the terms listed below shall have the following meanings:

 

 

“Capital Expenditures” shall mean, for any
fiscal year or fiscal quarter, as applicable, the sum (without duplication) of
all expenditures (whether paid in cash or accrued as liabilities) during such
fiscal year that are or should be treated as capital expenditures under GAAP.

 

“EBITDA” shall mean, for any fiscal quarter or
Quarterly Test Period, as applicable, the sum, without duplication, of the
following for Borrower, on a consolidated and consolidating basis:  Net Income determined in accordance with GAAP,
plus, (a) Interest Expense, (b) taxes on income, whether paid,
payable or accrued, (c) depreciation expense, (d) amortization expense,
(e) non-cash dividends on preferred stock, and (f) all other non-cash, non-recurring
charges and expenses, excluding accruals for cash expenses made in the ordinary
course of business, all of the foregoing determined in accordance with GAAP, less
(g) all non-cash income.

 

“Fixed Charge Coverage Ratio” shall mean, at
any date of determination, for Borrower individually and collectively on a
consolidated and consolidating basis, the ratio of (a) EBITDA for the
Quarterly Test Period most recently ended before such date, to (b) Fixed
Charges for the Quarterly Test Period most recently ended before such date, in
each case taken as one accounting period.

 

“Fixed Charges” shall mean, on any calculation
date, for any Quarterly Test Period, the sum of the following for Borrower,
individually and collectively, on a consolidated and consolidating basis:  (a) Total Debt Service for such period,
(b) Capital Expenditures during such period, (c) income taxes paid in cash
or accrued during such period, and (d) dividends paid or declared during such
period.

 

“Interest Expense” shall mean, for any fiscal
quarter or Quarterly Test Period, as applicable, total interest expense (including
attributable to Capital Leases in accordance with GAAP) of Borrower
individually and collectively, on a consolidated and consolidating basis with
respect to all outstanding Indebtedness including capitalized interest but
excluding commissions, discounts and other fees owed with respect to letters of
credit and bankers’ acceptance financing and net costs under Interest Rate
Agreements.

 

“Interest Rate Agreement” shall mean any
interest rate swap, cap or collar agreement or other similar agreement or arrangement
designed to hedge the position with respect to interest rates.

 

“Leverage Ratio” shall mean, at any date of
determination, for Borrower, the ratio of (i) the aggregate unpaid
principal amount of all Loans on such date, plus the aggregate liability
of Borrower pursuant to any letter of credit or surety bond to (ii) 
EBITDA for the Quarterly Test Period.

 

“Net Income” shall mean, for any fiscal quarter
or Quarterly Test Period, as applicable, the net income (or loss) of Borrower
individually and collectively on a consolidated and consolidating basis for such period taken as a single accounting period
determined in conformity with GAAP; provided, that there shall be
excluded (i) the income (or loss) of any Person in which any other Person
(other than Borrower) has a joint interest, except to the extent

 

 

of the amount of dividends or other distributions actually paid to a
Borrower by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Borrower or is merged into or
consolidated with a Borrower or that Person’s assets are acquired by a
Borrower, (iii) the income of any Subsidiary of Borrower to the extent that the
declaration or payment of dividends or similar distributions of that income by
that Subsidiary is not at the time permitted by operation of the terms of the
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, (iv) compensation
expense resulting from the issuance of capital stock, stock options or stock
appreciation rights issued to former or current employees, including officers,
of a Borrower, or the exercise of such options or rights, in each case to the
extent the obligation (if any) associated therewith is not expected to be
settled by the payment of cash by a Borrower or any affiliate thereof, and
(v) compensation expense resulting from the repurchase of capital stock,
options and rights described in clause (iv) of this definition of Net Income.

 

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

 

 “Total Debt”
shall mean, the aggregate unpaid principal amount of all Loans on such date, plus the aggregate unpaid principal
amount of all Convertible Notes (as defined under the Note Purchase Agreement)
owed to the holders of the Subordinated Debt on such date.

 

“Total Debt Ratio” shall mean, at any date of
determination, for Borrower individually and collectively on a consolidated and
consolidating basis, the ratio of (a) Total Debt for the Quarterly Test Period
most recently ended before such date to (b) EBITDA for the Quarterly Test
Period.

 

“Total Debt Service” shall mean for any period,
for Borrower individually and collectively on a consolidated and consolidating
basis, the sum of (i) scheduled or other required payments of principal on
Indebtedness, (ii) any other cash fees due or payable in connection with
any Indebtedness, and (iii) Interest Expense (excluding any non-cash interest
or non-cash charges accrued for such period with respect to the Exit Fee, the
fees and expenses paid by Borrower in connection with the Closing and the
Eighth Amendment, the closing fees and expenses paid by Borrower in connection
with the Subordinated Debt, and the premium payable on the Subordinated Debt).EXHIBIT 10.2

 

SEVENTH AMENDMENT TO

NOTE PURCHASE AGREEMENT AND CONVERTIBLE SENIOR SUBORDINATED

NOTE

 

THIS SEVENTH AMENDMENT (this “Amendment”),
dated as of February 18, 2005, to the Note Purchase Agreement, dated as of
March 27, 1998, by and among DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS
LP, a Delaware limited partnership (the “Purchaser”), and GARDENBURGER,
INC., an Oregon corporation (the “Company”).

 

WHEREAS, the parties hereto have entered into the Note
Purchase Agreement, dated as of March 27, 1998 (as amended, modified or
restated from time to time, the “Agreement”), a First Amendment to Note
Purchase Agreement dated as of December 23, 1999 (the “First Amendment”),
a Second Amendment to Note Purchase Agreement dated as of January 10, 2002
(the “Second Amendment”), a Third Amendment to Note Purchase Agreement
dated as of September 20, 2002 (the “Third Amendment”), a Fourth
Amendment to Note Purchase Agreement dated as of December 31, 2002 (the “Fourth
Amendment”), a Fifth Amendment to Note Purchase Agreement dated as of
December 29, 2003 (the “Fifth  Amendment”) and a Sixth
Amendment dated as of August 13, 2004 (the “Sixth Amendment”); unless
otherwise defined herein, all capitalized terms used herein (including the
recitals) shall have the meanings assigned to such terms in the Agreement, as
amended by the First Amendment, Second Amendment Third Amendment, Fourth
Amendment, Fifth Amendment and Sixth Amendment and hereby;

 

WHEREAS, Annex Holdings I L.P. (“Annex”) is the
assignee of Purchaser and the term “Purchaser” shall be deemed to refer to
Annex, where applicable ;

 

WHEREAS, the Company executed and delivered to
Purchaser a Second Amended and Restated Convertible Senior Subordinated Note
dated September 2, 2004 in the original principal amount of $16,905,643 (the “Second
Amended Note”);

 

WHEREAS, the Company is party to a Revolving Credit
and Term Loan Agreement dated as of January 10, 2002, as amended, with
CapitalSource Finance LLC as a lender and as agent (“CapitalSource”);

 

WHEREAS, the Company and CapitalSource are
contemporaneously entering into an Eighth Amendment to Revolving Credit and
Term Loan Agreement dated as of February 18, 2005, in substantially the
form attached hereto as Exhibit A (the “CapitalSource Eighth
Amendment”); and

 

WHEREAS, the Company has requested the Purchaser to
amend the Agreement on the terms and conditions set forth in this Amendment;

 

NOW, THEREFORE, in consideration of the premises and
the agreements, provisions, and covenants contained herein, the parties hereto
agree as follows:

 

 

1.             Amendments
to Financial Covenants.  Effective as
of February 18, 2005, subject to the conditions herein, the financial covenants
and related definitions
contained in subparagraph 2D of the Agreement shall be amended and restated in
their entirety in the manner set forth on Annex I hereto.

 

2.             Conditions.  This Amendment shall be subject to
satisfaction of the following conditions precedent, after giving effect to this
Amendment, including the waivers contained in Section 3 below:  (a) the Company shall have delivered to the
Purchaser an executed original copy of this Amendment and each other agreement,
document or instrument reasonably requested by the Purchaser in connection with
this Amendment; and (b) CapitalSource and the Company shall have executed the
CapitalSource Eighth Amendment.

 

3.             Waivers.  The Purchaser hereby acknowledges that the
Company is in breach of one or more financial covenants contained in
subparagraph 2(D)(b) of the Agreement for the
fiscal periods ended September 30, 2004 and December 31, 2004.  The Purchaser hereby waives all Events of
Default resulting from breaches and noncompliance by the Company with
subparagraph 2(D)(b) for the fiscal periods
ending September 30, 2004 and December 31, 2004.  This waiver does not apply to any breach or
Event of Default under the Agreement or the Convertible Notes to the extent it
relates to any other fiscal period.

 

4.             Ratification
of Agreement.

 

(a)           To
induce the Purchaser to enter into this Amendment, the Company represents and
warrants that, after giving effect to this Amendment, no violation of the terms
of the Agreement exist and all representations and warranties contained in the
Agreement are true, correct, and complete in all material respects on and as of
the date hereof except as (i) reflected in any schedule to the Senior Credit
Agreement, as updated under the terms of Section 4(a)(ii) of the Eighth
Amendment (ii) disclosed in the Company’s reports filed with the Securities and
Exchange Commission, or (iii) disclosed to Purchaser’s representative on the
Board during a meeting of the Board, and except to the extent such
representations and warranties specifically relate to an earlier date in which
case they were true, correct, and complete in all material respects on and as
of such earlier date.

 

(b)           To
further induce Purchaser to enter into this Amendment, the Company acknowledges
and agrees that, as of January 31, 2005, the amount outstanding under this
Agreement and Convertible Note (including accrued interest and fees) is:  (i) 
$16, 905,643 of principal, (ii) $4,088,770 of accrued interest, (iii)
$3,381,129 of exit fee on principal, and (iv) the exit fee to be calculated at
an amount equal to twenty percent (20%) of the accrued and unpaid
interest.  The Company hereby
acknowledges and agrees it has no defense, counterclaim, offset,
cross-complaint, claim or demand of any kind or nature whatsoever originating
on or before the date this Amendment is executed that can be asserted to reduce
or eliminate all or any part of its liability to repay the Indebtedness
evidenced by the Agreement and Convertible Note.

 

Except as expressly set forth in this Amendment, the
terms, provisions and conditions of the Agreement and the Investment Documents
as previously amended are unchanged, and said agreements, as amended, shall
remain in full force and effect and are hereby confirmed and ratified.

 

2

 

5.             Total
Debt Ratio Fee.  In addition to and
notwithstanding any other provision of the Agreement, commencing with the
Quarterly Test Period ending September 30, 2005 and continuing for each
Quarterly Test Period thereafter, Company shall pay to Purchaser the fees
specified below (each installment of such fees, individually and collectively,
the “Total Debt Ratio Fee”) if Company’s Total Debt Ratio for such
Quarterly Test Period exceeds the ratio corresponding to such Quarterly Test
Period in the table set forth below:

 

	
  Quarterly Test Period:

  	
   

  	
  If the Total Debt

  Ratio is Greater Than:

  	
   

  	
  Then the Total Debt

  Ratio Fee Installment

  Amount Shall Be:

  	
   

  
	
  Ending on
  September 30, 2005

  	
   

  	
  1.25:1.00

  	
   

  	
  $

  	
  1,000,000

  	
   

  
	
  Ending on
  December 31, 2005 and ending on the final day of each Quarterly Test Period
  thereafter

  	
   

  	
  1.25:1.00

  	
   

  	
  $

  	
  500,000

  	
   

  

 

If an
installment of the Total Debt Ratio Fee is due in accordance with the foregoing
table, such installment shall be added to the principal amount due to Purchaser
under this Agreement and Convertible Note subject to the terms of Section 6P of
the Agreement as amended hereby.

 

6.             Amendment Fee.  The Company shall pay to Purchaser $250,000
for the nonrefundable amendment fee (the “Seventh Amendment Fee”), which
shall be added to the principal amount due to Purchaser under the Agreement and
Convertible Note subject to the terms of Section 6P of the Agreement as amended hereby.

 

7.             Consent
to CapitalSource Eighth Amendment. 
The Purchaser consents to the execution and delivery by the Company of
the CapitalSource Eighth Amendment and affirms that the provisions of the
CapitalSource Eighth Amendment do not constitute a breach or Event of Default
under the Agreement or the Convertible Notes and that the Amortizing Advance
Amount constitutes Senior Indebtedness.

 

8.             Blockage.  Notwithstanding any provision set forth in
Section 6P of the Agreement or any other provision of the Agreement or any
other Investment Document:

 

(a)           until
the date upon which the Obligations (as defined in the Senior Credit Agreement)
owed to the Agent and Lenders under the Senior Credit Agreement have been
irrevocably repaid in full in cash, the Company may not make and the Purchaser
or any successor in interest may not receive or retain any payment or
distribution (in cash, in kind, in properties or securities, by set-off or
otherwise, except that the holders of the Subordinated Debt may accrue
payment-in-kind interest and fees) in respect of the Subordinated Debt;
provided, however, that if: (i) the Agent and Lenders under the Senior Credit
Agreement extend the last day of the Term Loan Term (as defined in the Senior
Credit Agreement as in effect on the date hereof) or the Revolving Facility
Term (as defined in the Senior Credit Agreement as in effect on the date
hereof) beyond the Maturity Date (as defined in the Second Amended Note) and
(ii) no Event of Default has occurred and is continuing under Section VIII(a)
of the Senior Credit Agreement as in effect on the date hereof, then, as of the
Maturity Date, this Section 8(a) shall no

 

3

 

longer
have any effect and the provisions of Section 6P as in effect as of the date of
the Sixth Amendment shall govern the rights of the Purchaser.

 

(b)           from the date hereof through August 15, 2005, provided that
Obligations under the Senior Credit Agreement remain outstanding, the Purchaser
or any successor in interest may not exercise any remedies or commence any
action or proceeding to recover any amounts due or to become due with respect
to the Subordinated Debt.  On and after
August 16, 2005, the Purchaser shall be entitled to exercise the collection or
enforcement rights and remedies it may have (if any) under Section 6P(iv) of
the Agreement, subject in all respects to the prohibitions on payments and
distributions described in the foregoing subsection (a), which shall remain in
place as set forth therein, and subject to any other applicable restrictions
set forth in the Agreement; provided, that in no event shall the Purchaser be
entitled to issue to the Agent under the Senior Credit Agreement any written
notice of its intent to exercise any rights or remedies under the Agreement,
applicable law or otherwise at any time prior to August 16, 2005 (in
furtherance and not in limitation of the foregoing, the Purchaser acknowledges
and agrees that nothing in this Amendment, the CapitalSource Eighth Amendment,
or any instrument, agreement or document executed in connection herewith or
therewith, shall be deemed to (x) limit or impair the Agent’s right to issue a
Blockage Notice (as defined in the Agreement) and/or (y) commence the counting
of the 179 day standstill period referenced in subsection 6P(iv) of the
Agreement).

 

9.             Amendment
to Second Amended Note.  Section 4(a)(ii) clause (ii) of the Second Amended Note is hereby
amended and restated in its entirety as follows:

 

any interest due and
payable on any Interest Payment Date occurring after December 31, 2003, up to
but not including the Maturity Date, or any interest accrued thereon; provided
that the Company pays to the Registered Holder in cash on each Interest Payment
Date occurring on or after September 30, 2004, the amount of interest that has
accrued and become payable through such date pursuant to Section 2
hereof to the extent and only if permitted under Section 7.11 of the Revolving
Credit and Term Loan Agreement dated as of January 10, 2002, between
CapitalSource Finance LLC and the Company, as amended;

 

10.           Interest.
From and after the date hereof, until payment in full of all amounts due under
this Agreement and the Convertible Note, interest on all outstanding amounts
shall accrue monthly at the rate of 15% per annum subject to the terms of
Section 6P of the Agreement as amended hereby.

 

11.           Binding
on Successors and Assigns.  All the
terms and provisions of this Amendment shall be binding upon and inure to the
benefit of the parties hereto, their respective successors, assigns and legal
representatives.  Whenever in this
Amendment any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party.

 

4

 

12.           Further
Assurances.  Each of the Company and
the Purchaser, as the case may be, shall duly execute and deliver, or cause to
be executed and delivered, such further instruments and perform or cause to be
performed such further acts as may be necessary or proper in the reasonable
opinion of the Purchaser to carry out the provisions and purposes of this
Amendment.

 

13.           Effect
of Amendment.  To the extent any
terms and conditions in the Agreement shall contradict or be in conflict with
any provisions of this Amendment, the provisions of this Amendment shall
govern.

 

14.           Expenses.  All expenses of the Purchaser incurred in
connection with this Amendment, including reasonable expenses of the Purchaser’s
counsel, will be paid by the Company.

 

15.           Governing
Law.  This Amendment shall be
governed by, and shall be construed in accordance with, the laws of the state
of New York, without giving effect to any choice of law or conflict of law
rules or provisions (whether of the state of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the state of New York.

 

16.           Counterparts.  This Amendment may be executed in separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same agreement.

 

5

 

IN WITNESS WHEREOF, the parties hereto have duly
executed this Amendment as of the date first written above.

 

	
   

  	
  ANNEX HOLDINGS I LP

  
	
   

  	
  By: Annex Capital Partners LLC

  
	
   

  	
   

  
	
   

  	
  By: 

  	
    /s/ Alexander P. Coleman

  	
   

  
	
   

  	
   

  	
  Alexander P. Coleman

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GARDENBURGER, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Robert T. Trebing, Jr.

  	
   

  
	
   

  	
   

  	
  Name:  Robert T. Trebing, Jr.

  
	
   

  	
   

  	
  Title:   Senior Vice President and
  Chief Financial Officer

  

 

 

[Signature Page to
Seventh Amendment to Note Purchase Agreement and Convertible Senior
Subordinated Note]

 

 

EXHIBIT A

 

[Copy of CapitalSource Eighth Amendment to Revolving
Credit and Term Agreement]

 

 

ANNEX I

 

FINANCIAL COVENANTS

 

1)             Leverage Ratio

 

The Leverage Ratio for each Quarterly Test Period
shall not exceed the ratios specified below:

 

	
  Quarterly Test Period

  	
   

  	
  Ratio

  	
   

  
	
  September 30,
  2005

  	
   

  	
  1.80:1.00

  	
   

  
	
  December 31,
  2005 and as of each Quarterly Test Period thereafter

  	
   

  	
  1.55:1.00

  	
   

  

 

2)             Minimum EBITDA

 

EBITDA shall not be less than -$1,350,000 for the
fiscal quarter ending March 31, 2005 and $1,250,000 for the fiscal quarter
ending June 30, 2005.  Commencing with
the Quarterly Test Period ending September 30, 2005 and continuing on and as of
each Quarterly Test Period thereafter, EBITDA shall not be less than
$2,800,000.

 

3)             Fixed Charge Coverage Ratio

 

The Fixed Charge Coverage Ratio for each Quarterly
Test Period shall not be less than the ratios specified below:

 

	
  Quarterly Test Period

  	
   

  	
  Ratio

  	
   

  
	
  September 30,
  2005

  	
   

  	
  0.90 :1.00

  	
   

  
	
  December 31,
  2005 and as of each Quarterly Test Period thereafter

  	
   

  	
  1.00:1.00

  	
   

  

 

For purposes of the covenants set forth in this
Section 2D, the terms listed below shall have the following meanings:

 

“Capital Expenditures” shall mean, for any
fiscal year or fiscal quarter, as applicable, the sum (without duplication) of
all expenditures (whether paid in cash or accrued as liabilities) during such
fiscal year that are or should be treated as capital expenditures under GAAP.

 

“EBITDA” shall mean, for any fiscal quarter or
Quarterly Test Period, as applicable, the sum, without duplication, of the
following for the Company on a consolidated and

 

ANNEX I - 1

 

consolidating basis:  Net Income determined in accordance with
GAAP, plus, (a) Interest Expense, (b) taxes on income, whether
paid, payable or accrued, (c) depreciation expense, (d) amortization
expense, (e) non-cash dividends on preferred stock, and (f) all other
non-cash, non-recurring charges and expenses, excluding accruals for cash
expenses made in the ordinary course of business, all of the foregoing
determined in accordance with GAAP, less all non-cash income.

 

“Fixed Charge Coverage Ratio” shall mean, at any
date of determination, for the Company individually and collectively on a
consolidated and consolidating basis, the ratio of (a) EBITDA for the
Quarterly Test Period most recently ended before such date, to (b) Fixed
Charges for the Quarterly Test Period most recently ended before such date, in
each case taken as one accounting period.

 

“Fixed Charges” shall mean, on any calculation
date, for any Quarterly Test Period, the sum of the following for the Company,
individually and collectively, on a consolidated and consolidating basis:  (a) Total Debt Service for such period,
(b) Capital Expenditures during such period, (c) income taxes paid in cash
or accrued during such period, and (d) dividends paid or declared during such
period.

 

“Interest Expense” shall mean, for any fiscal
quarter or Quarterly Test Period, as applicable, total interest expense
(including attributable to Capital Leases in accordance with GAAP) of the
Company individually and collectively, on a consolidated and consolidating
basis with respect to all outstanding Indebtedness including capitalized
interest but excluding commissions, discounts and other fees owed with respect
to letters of credit and bankers’ acceptance financing and net costs under
Interest Rate Agreements.

 

“Interest Rate Agreement” shall mean any
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to hedge the position with respect to interest rates.

 

“Leverage Ratio” shall mean, at any date of
determination, for the Company, the ratio of (i) the aggregate unpaid
principal amount of all Loans (under and as defined in the Senior Credit
Agreement) on such date, plus the aggregate liability of the Company
pursuant to any letter of credit or surety bond on such date to (ii)  EBITDA for the Quarterly Test Period.

 

“Net Income” shall mean, for any fiscal quarter
or Quarterly Test Period, as applicable, the net income (or loss) of the
Company individually and collectively on a consolidated and consolidating basis for such period taken as a single accounting period
determined in conformity with GAAP; provided, that there shall be
excluded (i) the income (or loss) of any Person in which any other Person
(other than the Company) has a joint interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company by such
Person during such period, (ii) the income (or loss) of any Person accrued
prior to the date it becomes the Company or is merged into or consolidated with
the Company or that Person’s assets are acquired by the Company, (iii) the
income of any Subsidiary of Borrower to the extent that the declaration or
payment of dividends or similar distributions of that income by that Subsidiary
is not at the time permitted by operation of the terms of the charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation

 

ANNEX I
- 2

 

applicable to that Subsidiary, (iv) compensation
expense resulting from the issuance of capital stock, stock options or stock
appreciation rights issued to former or current employees, including officers,
of the Company, or the exercise of such options or rights, in each case to the
extent the obligation (if any) associated therewith is not expected to be
settled by the payment of cash by the Company or any affiliate thereof, and
(v) compensation expense resulting from the repurchase of capital stock,
options and rights described in clause (iv) of this definition of Net
Income.

 

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

 

“Total Debt” shall mean, the aggregate unpaid
principal amount of all Loans (as defined in the Senior Credit Agreement on such date), plus the aggregate unpaid principal
amount of all Convertible Notes owed to the Purchasers on such date.

 

“Total Debt Ratio” shall mean, at any date of
determination, for the Company individually and collectively on a consolidated
and consolidating basis, the ratio of (a) Total Debt for the Quarterly Test
Period most recently ended before such date to (b) EBITDA for the Quarterly
Test Period.

 

“Total Debt Service” shall mean for any period,
for the Company individually and collectively on a consolidated and
consolidating basis, the sum of (i) scheduled or other required payments of
principal on Indebtedness, (ii) any other cash fees due or payable in
connection with any Indebtedness, and (iii) Interest Expense (excluding any
non-cash interest or non-cash charges accrued for such period with respect to
the fees and expenses paid by the Company in connection with the January 10,
2002 closing of the Senior Credit Agreement, the fees and expenses paid by the
Company in connection with the CapitalSource Eighth Amendment, any exit fees
payable under the Senior Credit Agreement and the closing fees and expenses and
any premium paid or payable with respect to the Convertible Notes and the
Eighth Amendment to the Agreement dated February 18, 2005).

 

ANNEX I - 3

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