Document:

EXHIBIT 10.21

 

INSTRUMENT OF ADHERENCE

 

THIS INSTRUMENT OF ADHERENCE is executed of September
2nd 2004, by Dresdner Kleinwort Benson Private Equity Partners, L.P.
(the “Transferor”) and Annex Holdings I LP (the “Transferee”).

 

RECITALS:

 

The Transferor has on the date hereof transferred to
the Transferee 178,501 shares of the Common Stock, no par value (the “Shares”)
of Gardenburger, Inc. (the “Company”), Warrant No. W-1, representing 557,981
warrant shares of the Company (the “Warrant”) and an Amended and Restated
Convertible Senior Subordinated Note of the Company (the “Note” and
collectively with the Shares and the Warrant, the Securities”).

 

AGREEMENT:

 

1.             By
execution hereof, the Transferee acknowledges and agrees that it has acquired
the Securities of the Company from the Transferor subject to the terms of (i)
the Note Purchase Agreement, dated as of March 27, 1998, as amended, (the “Note
Purchase Agreement”), (ii) the Registration Rights Agreement, dated as of March
27, 1998, as amended, (the “Registration Rights Agreement”), (iii) the Warrant Agreement,
dated as of January 10, 2002, (the “Warrant Agreement”) and (iv) the Stock
Purchase Warrant issued by the Company to the Transferor, dated as of January
10, 2002 (the “Stock Purchase Warrant” and together with the Registration
Rights Agreement and the Warrant Agreement, the “Ancillary Agreements”).  The Transferee agrees to be bound by all of
the terms and provisions of the Note Purchase Agreement, the Ancillary
Agreements and all amendments thereto as if the Transferee were originally a
party thereto.  Each of the Transferor
and the Transferee agrees that, immediately upon the execution and delivery of
this Instrument, the Transferor’s rights under the Note Purchase Agreement and
the Ancillary Agreements shall be assigned to the Transferee in accordance with
the terms of such agreements and that the Transferee shall enjoy all of the
rights and benefits to which the Transferor is entitled thereunder as if the
transferee were the original party thereto.

 

2.             Transferor
and Transferee each hereby agree that all management and other rights of the
Transferor under the Note Purchase Agreement and Ancillary Agreements shall be
transferred to Transferee simultaneously with the transfer of the Securities.  For the avoidance of doubt, the transfer of
the Securities from the Transferor to the Transferee shall not in any way or
for any purpose be deemed to have occurred prior to the effectiveness of the
transfer of such management and other rights.

 

3.             The
parties agree to execute such further instruments and to take such further
action as may be reasonably necessary to carry out the intent of this
Instrument.

 

 

4.             This
Instrument shall be governed by, and construed in accordance with, the laws of
the State of Oregon, as such laws are applied to contracts entered into and
performed in such State.

 

5.             This
Instrument shall be binding upon the transferees, successors and assigns of the
parties hereto.

 

6.             This
Instrument may be executed in counterparts with the same force and effect as if
each of the signatories had executed the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have executed
this Instrument as of the day and year first above written.

 

 

	
   

  	
  DRESDNER KLEINWORT
  BENSON

  
	
   

  	
  PRIVATE EQUITY
  PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Alex Coleman

  	
   

  
	
   

  	
  Name: Alex Coleman

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ANNEX HOLDINGS I LP

  
	
   

  	
   

  
	
   

  	
  By: Annex Capital
  Partners LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tim Hanford

  	
   

  
	
   

  	
  Name: Tim Hanford

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged and
  Agreed:

  	
   

  
	
   

  	
   

  
	
  GARDENBURGER, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Scott Wallace

  	
   

  	
   

  
	
  Name:

  	
  Scott Wallace

  	
   

  
	
  Title:

  	
  President & CEO

  	
   

  
						

 

2EXHIBIT
10.24

 

THIS WARRANT WAS ORIGINALLY
ISSUED ON SEPTEMBER 2, 2004, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT 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 AGREEMENT
DATED AS OF JANUARY 10, 2002 BY AND BETWEEN THE ISSUER HEREOF (THE “COMPANY”)
AND THE ORIGINAL HOLDER HEREOF.  A COPY
OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON REQUEST.

 

STOCK
PURCHASE WARRANT

 

	
  Date of Issuance:
  September 2, 2004

  	
  Certificate
  No. W-50

  

 

For value received, GARDENBURGER, INC., an Oregon
corporation (the “Company”), hereby grants to ANNEX HOLDINGS I LP (the “Initial
Purchaser”), or its transferees and assigns, the right to purchase from the
Company a total of 557,981 Warrant Shares (as defined herein) at a price equal
to $0.28 per share (such price per share, the “Initial Exercise Price”).  This Warrant is one of the warrants (including
any 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 this
Warrant from DRESDNER KLEINWORT BENSON PRIVATE EQUITY PARTNERS LP, a Delaware
limited liability partnership.  The
Initial Purchaser agrees to be bound by all of the terms and provisions of the
Warrant Agreement under that certain Instrument of Adherence dated September 2,
2004.  The exercise price and number of
Warrant Shares (and the amount and kind of other securities) for which this
Warrant is exercisable shall be subject to adjustment as provided herein.  Certain capitalized terms used herein are
defined in Section 5 hereof.

 

This Warrant is subject to the following provisions:

 

SECTION 1.  Exercise
of Warrant.

 

A.            Exercise
Period.  The purchase rights
represented by this Warrant may be exercised, in whole or in part, at any time
and 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”).

 

B.            Exercise
Procedure.

 

(i)            This
Warrant shall be deemed to have been exercised when all of the following items
have been delivered to the Company (the “Exercise Time”):

 

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

 

(b)           this
Warrant; and

 

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

 

 

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

 

(ii)           Certificates
for Warrant Shares purchased upon exercise of this Warrant shall be delivered
by the Company to the Purchaser within five days after the date of the Exercise
Time together with any cash payable in lieu of a fraction of a share pursuant
to Section 13 hereof.  Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially
identical hereto, representing the rights formerly represented by this Warrant
which have not expired or been exercised and shall, within such five-day
period, deliver such new Warrant to the Person designated for delivery in the
Exercise Agreement.

 

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

 

(iv)          The
issuance of certificates for Warrant Shares upon exercise of this Warrant shall
be made without charge to the Registered Holder or the Purchaser for any
issuance tax in respect thereof or other cost incurred by the Company in
connection with such exercise and the related issuance of Warrant Shares.

 

(v)           The
Company shall not close its books against the transfer of this Warrant or of
any Warrant Shares issued or issuable upon the exercise of this Warrant in any
manner which interferes with the timely exercise of this Warrant.

 

(vi)          The Company
shall assist and cooperate with the Registered Holder or any Purchaser required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.

 

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

 

(viii)        The
Company shall at all times reserve and keep available out of its authorized but
unissued Common Stock solely for the purpose of issuance upon the exercise of
the Warrants, the maximum number of Warrant Shares issuable upon exercise of
all outstanding Warrants.  All Warrant
Shares which are so issuable shall, when issued and upon the payment of the
applicable Exercise Price, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens, adverse claims and charges.  The Company shall take all such actions as
may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic or foreign securities exchange
upon which shares of Common Stock, or other securities constituting Warrant
Shares, may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance).  The Company shall use its best efforts to
cause the Warrant Shares, immediately upon such exercise, to be listed on any
domestic or foreign securities exchange upon which shares of Common Stock, or
other securities constituting Warrant Shares, are listed at the time of such
exercise.  The Company shall not take any
action which would cause the number of authorized but unissued shares of Common
Stock to be less than the number of shares required to be reserved hereunder
for issuance upon exercise of the Warrants.

 

(ix)           If the
Warrant Shares issuable by reason of exercise of this Warrant are convertible
into or exchangeable for any other stock or securities of the Company, the
Company shall, at the Purchaser’s option and upon surrender of this Warrant by
such Purchaser as provided above together with any notice, statement or payment
required to effect such conversion or exchange of Warrant Shares, deliver to
such Purchaser (or as otherwise specified by such Purchaser) a certificate or
certificates representing the stock or 

 

2

 

securities into
which the Warrant Shares issuable by reason of such conversion are convertible
or exchangeable, registered in such name or names and in such denomination or
denominations as such Purchaser has specified.

 

(x)            The
Company shall not, and shall not permit its subsidiaries to, directly or
indirectly, by any action (including, without limitation, reincorporating in a
jurisdiction other than Oregon or Delaware, amending its Articles of
Incorporation or through any Organic Change (as defined in Section 2D),
the issuance or sale of securities or any other voluntary action) avoid or seek
to 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 of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant.  Without
limiting the generality of the foregoing, the Company shall (a) obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant and (b) not undertake any
reverse stock split, combination, reorganization or other reclassification of
its capital stock which would have the effect of making this Warrant exercisable
for less than one share of Common Stock. 
Notwithstanding the foregoing, the Registered Holders may waive any of
their rights under this Warrant, including without limitation, the antidilution
rights set forth in Section 2 below.

 

C.            Exercise
Agreement.  Upon any exercise of this
Warrant, the Purchaser shall deliver to the Company an Exercise Agreement in
substantially the form set forth in Exhibit I hereto, except that
if the Warrant Shares are not to be issued in the name of the Registered
Holder, the Exercise Agreement shall also state the name of the Person to whom
the certificates for the Warrant Shares are to be issued, and if the number of
Warrant Shares to be issued does not include all of the Warrant Shares
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be issued.

 

D.            Automatic
Exercise.

 

(i)            This
Warrant shall be deemed to have been exercised in full automatically in a
cashless exercise as described in Section 1B(i)(c)(iii) above upon
the closing of a transaction constituting a Sales Event.

 

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

 

SECTION 2.  Adjustment
of 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 as
provided in this Section 2 (as so adjusted, the “Exercise Price”),
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, each as provided in this Section 2.

 

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

 

(i)            If and
whenever, on or after the Date of Issuance, the Company issues or sells, or in
accordance with Section 2B is deemed to have issued or sold (other
than pursuant to a Permitted Issuance) any shares of Common Stock for a
consideration per share less than the per share Exercise Price immediately
prior 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 to
such issuance or sale by a fraction, (a) the numerator of which shall be
the number of shares of Common Stock Deemed Outstanding immediately prior to
such issuance or sale plus the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of
additional shares of Common Stock actually so issued would purchase at the
Exercise Price in effect immediately prior to such issuance or sale, and (b) the
denominator of which will be the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale plus the number of
additional shares of Common Stock actually so issued.

 

3

 

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

 

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

 

(i)            Issuance
of Rights or Options.  If after the
Date of Issuance the Company in any manner grants any rights or options (other
than pursuant to a Permitted Issuance) to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or exchangeable for
Common Stock (including without limitation convertible common stock) (such
rights or options being herein called “Options” and such convertible or
exchangeable stock or securities being herein called “Convertible Securities”)
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon conversion or exchange of such Convertible Securities is
less than the Exercise Price then in effect, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share.  For purposes of this paragraph,
the “price per share for which Common Stock is issuable upon exercise of such
Options or upon conversion or exchange of such Convertible Securities” is
determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options.  No further adjustment of the Exercise Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.

 

(ii)           Issuance
of Convertible Securities.  If after
the Date of Issuance the Company in any manner issues or sells any Convertible
Securities (other than pursuant to a Permitted Issuance) and the price per
share for which Common Stock is issuable upon such conversion or exchange
thereof is less than the Exercise Price then in effect, then the maximum number
of shares of Common Stock issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share.  For the purposes of this paragraph, the “price
per share for which Common Stock is issuable upon such conversion or exchange
thereof” is determined by dividing (A) the total amount received or
receivable by the Company as consideration for the issuance or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment of the Exercise Price
shall be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and if any such issuance or sale of
such Convertible Securities is made upon exercise of any Options for which
adjustments of the Exercise Price have been or are to be made pursuant to other
provisions of this Section 2B, no further adjustment of the
Exercise Price shall be made by reason of such issuance or sale.

 

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

 

4

 

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

 

(v)           Calculation
of Consideration Received.  If any
Common Stock, Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor.  In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company shall
be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company shall be the market price thereof as of the date of
receipt.  In case any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger, amalgamation or other business
combination or re-organization in which the Company is the surviving entity,
the amount of consideration therefor shall be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be.  The fair value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders through good faith negotiations.  If such parties are unable to reach agreement
within a reasonable period of time, such fair value shall be determined by an
appraiser jointly selected by the Company and the Required Holders, whose
determination shall be final and binding on the Company, and the fees and
expenses of such appraiser shall be paid one-half by the Company and one-half
by the Required Holders on a pro rata basis.

 

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

 

(vii)         Treasury
Shares.  The number of shares of
Common Stock outstanding at any given time does not include shares owned or
held by or for the account of the Company or any subsidiary of the Company and
the disposition of any shares so owned or held shall be considered an issue or
sale of Common Stock.

 

(viii)        Record
Date.  If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

C.            Subdivision
or Combination of Common Stock.  If
the Company at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) the Common Stock into a greater number of shares
or pays a dividend or makes a distribution to holders of the Common Stock in
the form of shares of Common Stock, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares obtainable upon exercise of this Warrant shall be proportionately
increased.  Subject to clause (b) of
Section 1B(x), if the Company at any time combines (by reverse
stock split or otherwise) the Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares obtainable upon
exercise of this Warrant shall be proportionately decreased.

 

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

 

5

 

exchange for
Common Stock is referred to herein as an “Organic Change”.  Prior to the consummation of any Organic
Change, the Company shall make appropriate provision to ensure that each
Registered Holder of Warrants shall thereafter have the right to acquire and
receive upon exercise thereof, in lieu of or addition to (as the case may be)
the Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder’s Warrants, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable upon
exercise of such Registered Holder’s Warrants had such Organic Change not taken
place.  In any such case, the Company
shall make appropriate provision (in form and substance satisfactory to the
Required Holders) with respect to such Registered Holder’s rights and interests
to insure that the provisions hereof (including Sections 2, 3
and 4 hereof) shall thereafter be applicable to the Warrants (including,
in the case of any such Organic Change in which the successor entity or
purchasing entity is other than the Company, an immediate adjustment of the
Exercise Price to the value for the Common Stock reflected by the terms of such
Organic Change and a corresponding immediate adjustment in the number of Warrant
Shares acquirable and receivable upon exercise of the Warrants, if the value so
reflected is less than the Exercise Price in effect immediately prior to such Organic
Change).  The Company shall not effect
any such Organic Change unless, prior to the consummation thereof, the
successor 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 the
Required Holders) the obligation to deliver to each Registered Holder of the
Warrants such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Registered Holder may be entitled to acquire.

 

E.             Certain
Events.  If any event occurs of the
type contemplated by the provisions of this Section 2 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights
with equity features but excluding any Permitted Issuance), then the Company’s
Board of Directors and the Required Holders shall negotiate in good faith and
agree on an appropriate adjustment in the Exercise Price and the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the Registered Holder of this Warrant.

 

F.             Notices.

 

(i)            Promptly
upon any adjustment of the Exercise Price, the Company shall give written
notice thereof to the Registered Holder, setting forth in reasonable detail and
certifying the calculation of such adjustment.

 

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

 

(iii)          The
Company shall also give written notice to the Registered Holder at least 30 days
prior to the date on which any Organic Change, dissolution or liquidation shall
take place.

 

SECTION 3.  Dividends;
Shareholders Rights.  If the Company
pays a dividend or distribution upon the Common Stock, other than dividends or
distributions described in Section 2C, then the Company shall pay
to the holder of this Warrant, at the time of payment thereof, such dividend or
distribution which would have been paid to such holder had this Warrant been
fully exercised immediately prior to the date on which a record is taken for
such dividend or distribution or, if no record is taken, the date as of which
the record holders of Common Stock entitled to said dividends or distributions
are to be determined.  Except as set
forth herein, this Warrant does not entitle the holder of this Warrant to any
of the rights of a stockholder of the Company until such holder has exercised
or is deemed to have exercised this Warrant in accordance with the terms
hereof.

 

SECTION 4.  Purchase
Rights.  If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of the Common Stock (the “Purchase Rights”), then the Company
shall grant, issue or sell (as the case may be) to the Registered Holder the
aggregate Purchase Rights which such Registered Holder would have acquired if
such Registered Holder had held the maximum number of Warrant Shares acquirable
upon complete exercise of this 

 

6

 

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

 

SECTION 5.  Definitions.  The following terms have the meanings set forth
below:

 

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

 

“Common Stock Deemed Outstanding” means, at any
given time, the number of shares of all classes of the Common Stock outstanding
at such time, calculated on a fully diluted basis to give effect to the
conversion of all outstanding Preferred Stock into Common Stock and any other
securities convertible or exchangeable into Common Stock, and the exercise of
all outstanding rights, options and warrants to subscribe for or purchase
Common Stock, regardless, in each case, of whether such securities are actually
convertible, exchangeable or exercisable at such time, but excluding any
Warrant Shares.

 

“Date of Issuance” means September 2, 2004.

 

“Fair Market Value” means (i) the average
of the closing sales prices of the Common Stock on all domestic securities
exchanges on which the Common Stock is listed, or (ii) if there have been
no sales, the average of the high bid and low ask prices on all such exchanges
at the end of such day, or (iii) if on any day the Common Stock is not so
listed 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 the
Common Stock is not listed on an exchange or reported on the Nasdaq National
Market, the average of the representative bid and ask quotations for the Common
Stock as of 4:00 P.M., Eastern time, as reported on the Nasdaq interdealer
quotation system or any similar successor organization, in each such case
averaged over a period of ten consecutive trading days, including the day as of
which “Fair Market Value” is being determined.  Notwithstanding the foregoing, if at any time
of determination either (x) the Common Stock is not registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, and either
listed on a national securities exchange or authorized for quotation in the
Nasdaq system, or (y) less than 25% of the outstanding Common Stock is
held by the public free of transfer restrictions under the Securities Act of
1933, as amended, then Fair Market Value shall mean the price that would be
paid per share for the entire common equity interest in the Company in an
orderly sale transaction between a willing buyer and a willing seller, using
valuation techniques then prevailing in the securities industry and assuming
full disclosure of all relevant information and a reasonable period of time for
effectuating such sale, as determined pursuant to good faith negotiations
between the Board and the Warrant holders. 
In the event the parties cannot agree on Fair Market Value, the Required
Holders shall have the right to require that an independent investment banking
firm mutually acceptable to the Company and the Required Holders determine Fair
Market Value, which firm shall submit to the Company and the Warrant holders a
written report setting forth such determination.  The expenses of such firm will be borne
one-half by the Company and one-half by such holders on a pro rata basis, and
the 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 any
such 5% Owner or a trust for the benefit of such 5% Owner and/or such other
Persons.

 

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

 

7

 

number of restricted securities plus shares subject to
Options shall not exceed 4,651,000, (iv) pursuant to employee benefit
plans qualified under Section 401(k) or 423 of the Internal Revenue Code;
provided, that the aggregate number of such securities shall not exceed
250,000, (v) upon conversion of the Second Amended and Restated
Convertible Senior Subordinated Note issued to Annex Holdings I LP, dated September
2, 2004 (the “Annex Notes”) pursuant to their terms as in effect on the
Date of Issuance or to satisfy semi-annual interest obligations to holders of
the Annex Notes outstanding on the Date of Issuance, (vi) upon exercise of
warrants to purchase an aggregate of up to 1,115,962 shares of Common Stock
issued or to be issued to holders of the Annex Notes, the Preferred Stock or
their permitted transferees or assigns, or (vii) pursuant to the Company’s
Rights Agreement as in effect on the Date of Issuance, including the Rights as
defined 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) the
Company’s Series A Convertible Preferred Stock, no par value and (ii) the
Company’s Series B Convertible Preferred Stock, no par value and (iii) in
each case, any capital stock (other than Common Stock) issued in exchange,
substitution, or replacement therefor, including without limitation the Company’s
Series C Convertible Preferred Stock, no par value, and the Company’s
Series D Convertible Preferred Stock, no par value.

 

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

 

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

 

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

 

“Securities Act” means the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.

 

“Warrant Shares” means shares of Common Stock
issuable upon exercise of the Warrant; provided, that if the securities
issuable upon exercise of the Warrants are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term “Warrant Shares” shall mean shares of the security issuable upon
exercise of the Warrants if such security is issuable in shares, or shall mean
the equivalent units in which such security is issuable if such security is not
issuable in shares.

 

SECTION 6.  Restriction
on Transferability.  This Warrant
shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Warrant, which conditions are intended to ensure compliance
with 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 such
securities subject to the provisions and upon the conditions specified in this
Warrant.

 

SECTION 7.  Restrictions
on Transfer.

 

(i)            Consent
to Restriction.  Each holder consents
to the Company making a notation on its records and giving instructions to any
transfer agent of its Warrants in order to implement the restrictions on
transfer established in this Agreement.

 

(ii)           Conditions
of Transfer.  The holder of this
Warrant, by acceptance thereof, agrees not to make any disposition of all or
any portion of this Warrant unless and until such holder shall have notified
the Company in writing of the proposed disposition and furnished the Company
with (i) a detailed statement 

 

8

 

of the
circumstances surrounding the proposed disposition, (ii) a properly
executed Assignment (in substantially the form of Exhibit II
hereto), (iii) this Warrant, and (iv) if reasonably requested by the
Company, an opinion of counsel, reasonably satisfactory to the Company, that
such disposition shall not require registration under the Securities Act or
qualification or registration under state securities laws.  Notwithstanding the foregoing, no such
opinion of counsel shall be necessary for a transfer by a holder of this
Warrant to an Affiliate (as defined in the Securities Act) of such holder.

 

SECTION 8.  Warrant
Exchangeable for Different Denominations. 
This Warrant is exchangeable, upon the surrender hereof by the
Registered Holder at the principal executive offices of the Company, for new
Warrants of like tenor representing in the aggregate the purchase rights
hereunder, and each of such new Warrants shall represent such portion of such
rights 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 be
exchanged for one or more Warrants to purchase Common Stock.  The date of issuance shall be deemed to be
the Date of Issuance regardless of the number of times new certificates
representing the unexpired and unexercised rights formerly represented by this
Warrant shall be issued.

 

SECTION 9.  Replacement.  Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing this Warrant, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided that if the Registered Holder is a financial institution or
other institutional investor its own agreement shall be satisfactory), or, in
the case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate 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 provided
herein, all notices and deliveries referred to in this Warrant shall be in
writing, shall be delivered personally, sent by registered or certified mail,
return receipt requested and postage prepaid or sent via nationally recognized
overnight courier or via facsimile, and shall be deemed to have been given when
so delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered
Holder, at such Registered Holder’s address as it appears in the records of the
Company (unless otherwise indicated by any such Registered Holder).

 

SECTION 11.  Amendment
and Waiver.  Except as otherwise
provided herein, the provisions of the Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the prior
written consent of the Required Holders.

 

SECTION 12.  Warrant
Register.  The Company shall maintain
at its principal executive offices books for the registration and the
registration of transfer of Warrants.  The
Company may deem and treat the Registered Holder as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes and shall not be affected by any notice to the
contrary.

 

SECTION 13.  Fractions
of Shares.  The Company may, but
shall not be required to, issue a fraction of a Warrant Share upon the exercise
of this Warrant in whole or in part.  As
to any fraction of a share which the Company elects not to issue, the Company
shall make a cash payment in respect of such fraction in an amount equal to the
same fraction of the Fair Market Value of a Warrant Share on the date of such
exercise.

 

SECTION 14.  Descriptive
Headings; Governing Law.  The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF OREGON, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF
THE STATE OF OREGON OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION
OF THE LAWS OF ANY JURISDICTION OTHER THAN THOSE OF THE STATE OF OREGON.

 

* * * * *

 

9

 

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

 

 

	
   

  	
  GARDENBURGER, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Scott C. Wallace

  	
   

  
	
   

  	
  Name:

  	
  Scott C. Wallace

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  Attest:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

10

 

EXHIBIT I

 

EXERCISE
AGREEMENT

 

	
  To:

  	
  Dated:

  

 

 

The undersigned, pursuant to the provisions set forth
in 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 makes
payment herewith in full therefor at the price per share provided by such Warrant.

 

 

	
   

  	
  Signature

  	
   

  
	
   

  	
   

  
	
   

  	
  Address

  	
   

  
				

 

I-1

 

EXHIBIT II

 

ASSIGNMENT

 

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

 

	
  Names of Assignee

  	
   

  	
  Address

  	
   

  	
  No. of Shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  Dated:

  	
  Signature

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Witness

  	
   

  	
   

  

 

II-1

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