Document:

EXHIBIT 10.1

 

SECOND AMENDED AND RESTATED RETENTION AGREEMENT

 

THIS SECOND AMENDED AND RESTATED RETENTION AGREEMENT
(the “Agreement”), is made on this 19th day of July, 2005
(the “Effective Date”), by and between GARDENBURGER, INC., an Oregon
Corporation (the “Company”) and Scott C. Wallace (the “Executive”).

 

WHEREAS, the Executive serves as a valued employee of
the Company and along with other key members of management of the Company
(collectively, the “Executives”) provides essential services to the Company;
and

 

WHEREAS, the Company and
the Executive have entered into that certain Employment Agreement dated February 26,
2004, and an Amendment to Employment Agreement dated March 24, 2005,
pursuant to which the Executive serves as the President and Chief Executive
Officer of the Company (collectively, the “Employment Agreement”); and

 

WHEREAS, in addition to the benefits that the
Executive may be entitled to receive under the Employment Agreement, the
Company and the Executive are parties to an Amended and Restated Retention
Agreement, dated May 4, 2005 (which amended and restated a prior Retention
Agreement, dated January 27, 2005, and an Amendment to Retention
Agreement, dated March 24, 2005), pursuant to which the Company has
endeavored to establish an incentive for the Executive to continue to be
employed by the Company through and following the execution of a definitive
agreement relating to a Change in Control (as defined in Section 2.4) or a
Going Private Transaction (as defined in Section 2.7); and

 

WHEREAS, the Amended and Restated Retention Agreement
did not contemplate the possibility of a Change in Control occurring through
means other than the execution of a definitive agreement, and the Company and
the Executive wish to provide for such possibility; and

 

WHEREAS, the Executive has previously informed (and
now reaffirms) the Company that the Executive will be unable to devote
Executive’s complete unimpaired attention to continue providing services to the
Company to assist the Company in negotiating a transaction which contemplates a
Change in Control or Going Private Transaction and will be forced to consider
other employment opportunities, due to the personal financial risks that such a
Change in Control or Going Private Transaction imposes on the Executive, unless
the Company agrees to modify the terms of the Amended and Restated Retention
Agreement; and

 

WHEREAS, the Company is aware that the Executives are
being recruited by other potential employers and that certain of the Executives
have already received offers regarding alternative employment opportunities;
and

 

WHEREAS, the Company has determined that Executive’s
continued services with the Company are important to the Company’s efforts to
maximize value pursuant to a

 

 

Change in Control or Going Private Transaction and that the Company
would suffer adverse consequences if Executive’s employment with the Company
terminated.

 

NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and promises contained herein, and intending to be legally
bound hereby, the parties agree as follows:

 

1.             Retention Bonus.

 

1.1. Bonus Amount and Conditions. Subject to
Sections 1.2, 3, 4 and 5.1, the Company shall pay to the Executive the
Retention Bonus (as defined in Section 2.9) to the Executive if: promptly,
upon request of the Company, the Executive executes and delivers a release of
claims against the Company, which release shall be in the same form as
Paragraph 9 to the Separation Agreement attached to the Employment Agreement
between the Executive and the Company; and the earlier to occur of:

 

(a)           the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of a full and
complete execution of a Sale Transaction; (ii) the date a Change in
Control occurs; or (iii) January 27, 2007; or

 

(b)           the
Executive’s employment by the Company is terminated by the Company without
Cause (as defined in Section 2.3) other than in connection with Executive’s death or Disability (as defined in Section 2.6).

 

1.2. Timing and Form of Payment.

 

(a)           If payment
to the Executive is due as a result of Section 1.1(a)(i), the Company
shall pay to the Executive:

 

(i)            seventy-five
percent (75%) of the Retention Bonus in a lump sum as soon as administratively
feasible following the date of a full and complete execution of a Sale
Transaction (the “Signing”); provided, however, that Executive shall not be
entitled to the payment contemplated in this Paragraph 1.2(a)(i) unless
the Executive exercises all reasonable efforts to support a Signing which
contemplates a Sale Transaction; and

 

(ii)           the
remaining twenty-five percent (25%) of the Retention Bonus in a lump sum as
soon as administratively feasible following the earlier of:  (A) the date of the consummation of the
transactions contemplated by the Sale Transaction; or (B) January 27,
2007, provided, however, that Executive shall not be entitled to the payment
contemplated in this Paragraph 1.2(a)(ii) unless the Executive, after the
Signing, exercises all reasonable efforts to support the consummation of the
Sale Transaction and to cooperate with the Company to consummate the Sale
Transaction (including, if so requested by the Company, providing assistance to
the prospective buyer in obtaining financing for the Sale Transaction.

 

(b)           If payment
to the Executive is due as a result of Section 1.1(a)(ii), the Company
shall pay to the Executive the Retention Bonus in a lump sum as soon as
administratively feasible following the date a Change in Control occurs.

 

2

 

(c)           If payment
to the Executive is due as a result of Section 1.1(a)(iii), the Company
shall pay to the Executive the Retention Bonus in a lump sum as soon as
administratively feasible following January 27, 2007.

 

(d)           If payment
to the Executive is due as a result of Section 1.1(b), the Company shall
pay to the Executive the Retention Bonus in a lump sum as set forth in Section 2.9(c) or
Section 2.9(d), as applicable.

 

2.             Certain
Definitions. As used herein:

 

2.1. “Affiliate” means, with respect to a
Person (as defined below), another Person that directly or indirectly controls,
or is controlled by, or is under common control with such Person.

 

2.2. “Base Salary” means the annual amount
equal to Two Hundred and Eighty Six Thousand Dollars ($286,000), as adjusted by
the Board of Directors of the Company from time to time.

 

2.3. “Cause” shall have the meaning set forth
in Article I of the Employment Agreement.

 

2.4. “Change in Control” shall have the meaning
set forth in Article I of the Employment Agreement, as amended.

 

2.5. [This Section Intentionally Omitted.]

 

2.6. “Disability” shall have the meaning set
forth in Article I of the Employment Agreement.

 

2.7. “Going Private Transaction” shall have the
meaning set forth in Section (a)(3) of Rule 13e-3 promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

2.8. “Person” means any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act.

 

2.9. “Retention Bonus” means the amount equal
to:

 

(a)           if the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of the Signing and
the Signing occurs on or before July 27, 2006, or (ii) the date a
Change in Control occurs and such date is on or before July 27, 2006, an
amount equal to twelve (12) months of Base Salary in effect at the time of the
payment pursuant to Section 1.2; or

 

(b)           if the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of the Signing,
which Signing occurs after July 27, 2006; (ii) the date a Change in
Control occurs and such date is after July 27, 2006; or

 

3

 

(iii) January 27, 2007, an amount equal to sixteen (16) months of
Base Salary in effect at the time of the payment pursuant to Section 1.2;
or

 

(c)           if payment
to the Executive is due as a result of Section 1.1(b) and the
Executive’s termination of employment occurs on or before July 27, 2006,
the product of:  (i) the amount
equal to twelve (12) months of Base Salary in effect at the time of the
Executive’s termination of employment; multiplied by (ii) the quotient
of:  (A) the number of days
commencing on January 27, 2005 and ending on the date of the Executive’s
termination of employment; divided by (B) one of the following:  (1) in the event of a Signing, the
number of days commencing on January 27, 2005 and ending on the date of
the Signing; or (2) in the event of a Change in Control (which is not the
result of a Signing), the number of days commencing on January 27, 2005,
and ending on the date of the Change in Control; or (3) in the event
neither a Signing nor a Change in Control occurs prior to January 27,
2007, then 730; or

 

(d)           if payment
to the Executive is due as a result of Section 1.1(b) and the
Executive’s termination of employment occurs at anytime after July 27,
2006, the product of:  (i) the
amount equal to sixteen (16) months of Base Salary in effect at the time of the
Executive’s termination of employment; multiplied by (ii) the quotient
of:  (A) the number of days
commencing on January 27, 2005 and ending on the date of the Executive’s
termination of employment; divided by (B) one of the following:  (1) in the event of a Signing, the
number of days commencing on January 27, 2005, and ending on the date of
the Signing; or (2) in the event of a Change in Control (which is not the
result of a Signing), the number of days commencing on January 27, 2005,
and ending on the date of the Change in Control; or (3) in the event
neither a Signing nor a Change in Control occurs prior to January 27,
2007, then 730.

 

2.10. “Sale Transaction” shall have the meaning
set forth in Article I of the Employment Agreement, as amended.

 

2.11. “Signing” shall have the meaning assigned
to it in Section 1.2(a)(i) of this Agreement.

 

3.             Parachute Payments.
Payments under this Agreement shall be made without regard to whether the
deductibility of such payments (or any other payments) would be limited or
precluded by Section 280G of the Internal Revenue Code of 1986 (the “Code”)
and without regard to whether such payments would subject the Executive to the
federal excise tax levied on certain “excess parachute payments” under Section 4999
of the Code; provided, however, that if the Total After-Tax Payments (as
defined below) would be increased by the limitation or elimination of any
amount payable under this Agreement, then amounts payable under this Agreement
will be reduced to the extent necessary to maximize the Total After-Tax Payments.
The determination of whether and to what extent payments under this Agreement
are required to be reduced in accordance with the preceding sentence will be
made at the Company’s expense by an independent, certified public accountant
selected by the Executive and reasonably acceptable to the Company. In the
event of any underpayment or overpayment under this Agreement (as determined
after the application of this Section 3), the amount of such underpayment
or overpayment will be immediately paid by the Company to the Executive or
refunded by the Executive to the Company, as the case may be, with interest at
the applicable federal rate provided for in Section 7872(f)(2) of the
Code. For purposes of this Agreement, “Total After-Tax

 

4

 

Payments” means the total of all “parachute payments” (as that term is
defined in Section 280G(b)(2) of the Code) made to or for the benefit
of the Executive (whether made hereunder or otherwise), after reduction for all
applicable federal taxes (including, without limitation, the tax described in Section 4999
of the Code).

 

4.             Certain
Limitations.

 

4.1. Cash Flow Limitation. Notwithstanding any
other provision of this Agreement to the contrary, the aggregate amount of any
payments due under this Agreement or any similar retention agreements executed
now or in the future with any other employee of the Company or any of its
Affiliates (each a, “Key Employee”) to the Executive and one or more Key
Employees in a single fiscal year shall be limited so that in no event shall
the aggregate amount to be paid in cash cause the Company’s Available Credit
plus Cash to fall below $1,500,000 (“Cash Flow Ceiling”); and in the event the
Available Credit plus Cash would fall below such amount, the Company shall
deliver to the Executive to the extent required by this Agreement a payment in
an amount equal to the product of (i) the Cash Flow Ceiling multiplied by (ii) a
fraction, the numerator of which is the aggregate amount of such Executive’s
full payment hereunder for the fiscal year and the denominator of which is the
aggregate amount of all payments due to the Executive and all other Key
Employees in such fiscal year (“Cash Flow Permitted Amount”). To the extent
that payments under this Agreement to the Executive in a single fiscal year
would exceed the Cash Flow Ceiling (“Cash Flow Shortfall”), the Company shall
pay the Cash Flow Permitted Amount to the Executive and shall pay the Cash Flow
Shortfall (in whole or in part) as rapidly as permitted by the terms of this Section 4.1.
The obligation to pay the Cash Flow Shortfall shall constitute subordinated
debt of the Company until paid. The Company may, in the sole discretion of the
Board, elect to waive the annual cash flow limitation set forth above, and
absent such a waiver, the limitation shall apply to payments due under this
Agreement. For purposes of this Section 4.1, “Available Credit plus Cash”
means credit available to the Company as calculated by the Chief Financial
Officer or an acceptable designee using the borrowing worksheet supplied by the
Company’s Senior Lender plus the total amount of cash in the Company’s bank
account(s).

 

4.2. Debt Limitations. Notwithstanding any
other provision of this Agreement to the contrary, if a payment of any amount
to the Executive under this Agreement would, if made, be prohibited pursuant to
any agreement to which the Company (as defined below) is or from time to time
becomes a party, evidencing or governing indebtedness for borrowed money (each,
a “Debt Agreement”), the Company shall identify to the Executive the part, if
any, of the amount that the Company is permitted to pay in cash under the Debt
Agreement (the “Permitted Cash Amount”). If any amount is payable under this
Agreement in excess of the Permitted Cash Amount (the “Debt Covenant Shortfall”)
on the applicable payment date, the Company shall pay the Permitted Cash Amount
and shall pay the Debt Covenant Shortfall (in whole or in part) as rapidly as
permitted by and in accordance with the terms of the Debt Agreement. The
obligation to pay the Debt Covenant Shortfall shall constitute subordinated
debt of the Company until paid. The Company shall use commercially reasonable
efforts to obtain a waiver of any such prohibition as may be contained in any
applicable Debt Agreement, but the Company shall not be obligated to post
additional collateral or to accelerate or increase its debt payments to obtain
such waiver.

 

5

 

4.3. Notwithstanding anything to the contrary in this
Agreement, the limitations contained in Sections 4.1 and 4.2 of this Agreement
on the payment of monies to which the Executive is entitled to receive under
this Agreement shall not apply if the triggering event that entitles the Executive
to receive monies under this Agreement is a Signing which contemplates a Sale
Transaction or a consummation of a Sale Transaction.

 

5.             Miscellaneous.

 

5.1. No Liability of Officers and Directors for
Severance Upon Insolvency. Notwithstanding any other provision of this
Agreement and intending to be bound by this provision, the Executive hereby (a) waives
any right to claim payment of amounts owed to him, now or in the future,
pursuant to this Agreement from directors or officers of the Company if the Company
becomes insolvent and/or files a petition for relief under the United States
Bankruptcy Code in any state or Federal court (as determined in good faith by
the Board), and (b) fully and forever releases and discharges the Company’s
officers and directors from any and all claims, demands, liens, actions, suits,
causes of action or judgments arising out of any present or future claim for
such amounts.

 

5.2. Waiver of Civil Code Section 1542. The
Company and the Executive each understand and agree that the releases provided
herein extend to all claims of every nature and kind, whether known or unknown,
suspected or unsuspected. It is expressly understood and agreed that the
parties hereby waive the provisions of Section 1542 of the California
Civil Code (and any statute or law of similar construction in any other
jurisdiction), which provides as follows:

 

A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.

 

5.3. Successors and Assigns. The Company may
assign this Agreement to any successor to all or substantially all of its
assets and business by means of liquidation, dissolution, merger,
consolidation, transfer of assets, or otherwise. The rights of the Executive
hereunder are personal to the Executive and may not be assigned by him.

 

5.4. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California without regard to the principles of conflicts of laws.

 

5.5. Enforcement. Any legal proceeding arising
out of or relating to this Agreement will be instituted in the United States
District Court, Central District of California, Santa Ana Division, or if that
court does not have or will not accept jurisdiction, in any court of general
jurisdiction in the State of California, County of Orange, and the Executive
and the Company hereby consent to the personal and exclusive jurisdiction of
such court(s) and hereby waive any objection(s) that they may have to personal
jurisdiction, the laying of venue of any such proceeding and any claim or
defense of inconvenient forum.

 

6

 

5.6. Waivers; Separability. The waiver by
either party hereto of any right hereunder or any failure to perform or breach
by the other party hereto will not be deemed a waiver of any other right
hereunder or any other failure or breach by the other party hereto, whether of
the same or a similar nature or otherwise. No waiver will be deemed to have
occurred unless set forth in a writing executed by or on behalf of the waiving
party. No such written waiver will be deemed a continuing waiver unless
specifically stated therein, and each such waiver will operate only as to the
specific term or condition waived. If any provision of this Agreement is
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect.

 

5.7. Notices. All notices and communications
that are required or permitted to be given hereunder must be in writing and
will be deemed to have been duly given when delivered personally or upon mailing
by registered or certified mail, postage prepaid, return receipt requested, as
follows:

 

If to
the Company, to:

 

Gardenburger, Inc.

15615 Alton Parkway, Suite 350

Irvine, California 92618

Attention:  Robert Trebing

 

With a
copy to:

 

Pepper
Hamilton LLP

5 Park Plaza, Suite 1700

Irvine, California 92614

Attention:  Michael A. Rule, Esquire

 

If to
Executive, to:

 

Mr. Scott
Wallace

32551 Seven Seas Drive

Dana Point, CA 92629

 

or to such other address as may be specified in a
notice given by one party to the other party hereunder.

 

5.8. Entire Agreement; Amendments. This
Agreement contains the entire agreement and understanding of the parties
relating to the provision of a retention bonus and merges and supersedes all
prior and contemporaneous discussions, agreements and understandings of every
nature relating to that subject. This Agreement may not be changed or modified,
except by an Agreement in writing signed by each of the parties hereto.

 

7

 

5.9. Withholding. The Company will withhold
from any payments due to Executive hereunder, all taxes, FICA or other amounts
required to be withheld pursuant to any applicable law.

 

5.10. Headings Descriptive. The headings of
sections and paragraphs of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of
this Agreement.

 

5.11. Counterparts. This Agreement may be
executed in multiple counterparts, each of which will be deemed to be an
original, but all of which together will constitute but one and the same
instrument.

 

[Signature page follows]

 

8

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date and year first above written.

 

	
   

  	
   

  	
  GARDENBURGER,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Robert T.
  Trebing, Jr.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice
  President and

  
	
   

  	
   

  	
   

  	
  Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Scott C. Wallace

  	
   

  
	
   

  	
   

  	
  Scott C. Wallace

  
						

 

9EXHIBIT 10.2

 

SECOND AMENDED AND RESTATED RETENTION AGREEMENT

 

THIS SECOND AMENDED AND RESTATED RETENTION AGREEMENT
(the “Agreement”), is made on this 19th day of July, 2005
(the “Effective Date”), by and between GARDENBURGER, INC., an Oregon
Corporation (the “Company”) and James W. Linford (the “Executive”).

 

WHEREAS, the Executive serves as a valued employee of
the Company and along with other key members of management of the Company
(collectively, the “Executives”) provides essential services to the Company;
and

 

WHEREAS, the Company and
the Executive have entered into that certain Employment Agreement dated February 26,
2004, and an Amendment to Employment Agreement dated March 24, 2005,
pursuant to which the Executive serves as the Senior Vice President and Chief
Operating Officer of the Company (collectively, the “Employment Agreement”);
and

 

WHEREAS, in addition to the benefits that the
Executive may be entitled to receive under the Employment Agreement, the
Company and the Executive are parties to an Amended and Restated Retention
Agreement, dated May 4, 2005 (which amended and restated a prior Retention
Agreement, dated January 27, 2005, and an Amendment to Retention
Agreement, dated March 24, 2005), pursuant to which the Company has
endeavored to establish an incentive for the Executive to continue to be
employed by the Company through and following the execution of a definitive
agreement relating to a Change in Control (as defined in Section 2.4) or a
Going Private Transaction (as defined in Section 2.7); and

 

WHEREAS, the Amended and Restated Retention Agreement
did not contemplate the possibility of a Change in Control occurring through
means other than the execution of a definitive agreement, and the Company and
the Executive wish to provide for such possibility; and

 

WHEREAS, the Executive has previously informed (and
now reaffirms) the Company that the Executive will be unable to devote
Executive’s complete unimpaired attention to continue providing services to the
Company to assist the Company in negotiating a transaction which contemplates a
Change in Control or Going Private Transaction and will be forced to consider
other employment opportunities, due to the personal financial risks that such a
Change in Control or Going Private Transaction imposes on the Executive, unless
the Company agrees to modify the terms of the Amended and Restated Retention
Agreement; and

 

WHEREAS, the Company is aware that the Executives are
being recruited by other potential employers and that certain of the Executives
have already received offers regarding alternative employment opportunities;
and

 

WHEREAS, the Company has determined that Executive’s
continued services with the Company are important to the Company’s efforts to
maximize value pursuant to a

 

 

Change in Control or Going Private Transaction and that the Company
would suffer adverse consequences if Executive’s employment with the Company
terminated.

 

NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and promises contained herein, and intending to be legally
bound hereby, the parties agree as follows:

 

1.             Retention Bonus.

 

1.1. Bonus Amount and Conditions. Subject to
Sections 1.2, 3, 4 and 5.1, the Company shall pay to the Executive the
Retention Bonus (as defined in Section 2.9) to the Executive if: promptly,
upon request of the Company, the Executive executes and delivers a release of
claims against the Company, which release shall be in the same form as
Paragraph 9 to the Separation Agreement attached to the Employment Agreement between
the Executive and the Company; and the earlier to occur of:

 

(a)           the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of a full and
complete execution of a Sale Transaction; (ii) the date a Change in Control
occurs; or (iii) January 27, 2007; or

 

(b)           the
Executive’s employment by the Company is terminated by the Company without
Cause (as defined in Section 2.3) other than in connection with Executive’s death or Disability (as defined in Section 2.6).

 

1.2. Timing and Form of Payment.

 

(a)           If payment
to the Executive is due as a result of Section 1.1(a)(i), the Company
shall pay to the Executive:

 

(i)            seventy-five
percent (75%) of the Retention Bonus in a lump sum as soon as administratively
feasible following the date of a full and complete execution of a Sale
Transaction (the “Signing”); provided, however, that Executive shall not be
entitled to the payment contemplated in this Paragraph 1.2(a)(i) unless
the Executive exercises all reasonable efforts to support a Signing which
contemplates a Sale Transaction; and

 

(ii)           the
remaining twenty-five percent (25%) of the Retention Bonus in a lump sum as
soon as administratively feasible following the earlier of:  (A) the date of the consummation of the
transactions contemplated by the Sale Transaction; or (B) January 27,
2007, provided, however, that Executive shall not be entitled to the payment
contemplated in this Paragraph 1.2(a)(ii) unless the Executive, after the
Signing, exercises all reasonable efforts to support the consummation of the
Sale Transaction and to cooperate with the Company to consummate the Sale
Transaction (including, if so requested by the Company, providing assistance to
the prospective buyer in obtaining financing for the Sale Transaction.

 

(b)           If payment
to the Executive is due as a result of Section 1.1(a)(ii), the Company
shall pay to the Executive the Retention Bonus in a lump sum as soon as
administratively feasible following the date a Change in Control occurs.

 

2

 

(c)           If payment
to the Executive is due as a result of Section 1.1(a)(iii), the Company
shall pay to the Executive the Retention Bonus in a lump sum as soon as
administratively feasible following January 27, 2007.

 

(d)           If payment
to the Executive is due as a result of Section 1.1(b), the Company shall
pay to the Executive the Retention Bonus in a lump sum as set forth in Section 2.9(c) or
Section 2.9(d), as applicable.

 

2.             Certain
Definitions. As used herein:

 

2.1. “Affiliate” means, with respect to a
Person (as defined below), another Person that directly or indirectly controls,
or is controlled by, or is under common control with such Person.

 

2.2. “Base Salary” means the annual amount
equal to Two Hundred and Eleven Thousand Dollars ($211,000), as adjusted by the
Board of Directors of the Company from time to time.

 

2.3. “Cause” shall have the meaning set forth
in Article I of the Employment Agreement.

 

2.4. “Change in Control” shall have the meaning
set forth in Article I of the Employment Agreement, as amended.

 

2.5. [This Section Intentionally Omitted.]

 

2.6. “Disability” shall have the meaning set
forth in Article I of the Employment Agreement.

 

2.7. “Going Private Transaction” shall have the
meaning set forth in Section (a)(3) of Rule 13e-3 promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

2.8. “Person” means any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act.

 

2.9. “Retention Bonus” means the amount equal
to:

 

(a)           if the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of the Signing and
the Signing occurs on or before July 27, 2006, or (ii) the date a
Change in Control occurs and such date is on or before July 27, 2006, an
amount equal to twelve (12) months of Base Salary in effect at the time of the
payment pursuant to Section 1.2; or

 

(b)           if the
Executive has remained continuously employed by the Company through the earlier
of:  (i) the date of the Signing,
which Signing occurs after July 27, 2006; (ii) the date a Change in
Control occurs and such date is after July 27, 2006; or

 

3

 

(iii) January 27, 2007, an amount equal to sixteen (16) months of
Base Salary in effect at the time of the payment pursuant to Section 1.2;
or

 

(c)           if payment
to the Executive is due as a result of Section 1.1(b) and the
Executive’s termination of employment occurs on or before July 27, 2006,
the product of:  (i) the amount
equal to twelve (12) months of Base Salary in effect at the time of the
Executive’s termination of employment; multiplied by (ii) the quotient
of:  (A) the number of days
commencing on January 27, 2005 and ending on the date of the Executive’s
termination of employment; divided by (B) one of the following:  (1) in the event of a Signing, the
number of days commencing on January 27, 2005 and ending on the date of
the Signing; or (2) in the event of a Change in Control (which is not the
result of a Signing), the number of days commencing on January 27, 2005,
and ending on the date of the Change in Control; or (3) in the event
neither a Signing nor a Change in Control occurs prior to January 27,
2007, then 730; or

 

(d)           if payment
to the Executive is due as a result of Section 1.1(b) and the
Executive’s termination of employment occurs at anytime after July 27,
2006, the product of:  (i) the
amount equal to sixteen (16) months of Base Salary in effect at the time of the
Executive’s termination of employment; multiplied by (ii) the quotient
of:  (A) the number of days
commencing on January 27, 2005 and ending on the date of the Executive’s
termination of employment; divided by (B) one of the following:  (1) in the event of a Signing, the
number of days commencing on January 27, 2005, and ending on the date of
the Signing; or (2) in the event of a Change in Control (which is not the
result of a Signing), the number of days commencing on January 27, 2005,
and ending on the date of the Change in Control; or (3) in the event
neither a Signing nor a Change in Control occurs prior to January 27,
2007, then 730.

 

2.10. “Sale Transaction” shall have the meaning
set forth in Article I of the Employment Agreement, as amended.

 

2.11. “Signing” shall have the meaning assigned
to it in Section 1.2(a)(i) of this Agreement.

 

3.             Parachute Payments.
Payments under this Agreement shall be made without regard to whether the
deductibility of such payments (or any other payments) would be limited or
precluded by Section 280G of the Internal Revenue Code of 1986 (the “Code”)
and without regard to whether such payments would subject the Executive to the
federal excise tax levied on certain “excess parachute payments” under Section 4999
of the Code; provided, however, that if the Total After-Tax Payments (as
defined below) would be increased by the limitation or elimination of any
amount payable under this Agreement, then amounts payable under this Agreement
will be reduced to the extent necessary to maximize the Total After-Tax
Payments. The determination of whether and to what extent payments under this
Agreement are required to be reduced in accordance with the preceding sentence
will be made at the Company’s expense by an independent, certified public
accountant selected by the Executive and reasonably acceptable to the Company. In
the event of any underpayment or overpayment under this Agreement (as
determined after the application of this Section 3), the amount of such
underpayment or overpayment will be immediately paid by the Company to the
Executive or refunded by the Executive to the Company, as the case may be, with
interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code. For purposes of this Agreement, “Total After-Tax

 

4

 

Payments” means the total of all “parachute payments” (as that term is
defined in Section 280G(b)(2) of the Code) made to or for the benefit
of the Executive (whether made hereunder or otherwise), after reduction for all
applicable federal taxes (including, without limitation, the tax described in Section 4999
of the Code).

 

4.             Certain
Limitations.

 

4.1. Cash Flow Limitation. Notwithstanding any
other provision of this Agreement to the contrary, the aggregate amount of any
payments due under this Agreement or any similar retention agreements executed
now or in the future with any other employee of the Company or any of its
Affiliates (each a, “Key Employee”) to the Executive and one or more Key
Employees in a single fiscal year shall be limited so that in no event shall
the aggregate amount to be paid in cash cause the Company’s Available Credit
plus Cash to fall below $1,500,000 (“Cash Flow Ceiling”); and in the event the
Available Credit plus Cash would fall below such amount, the Company shall
deliver to the Executive to the extent required by this Agreement a payment in
an amount equal to the product of (i) the Cash Flow Ceiling multiplied by (ii) a
fraction, the numerator of which is the aggregate amount of such Executive’s
full payment hereunder for the fiscal year and the denominator of which is the
aggregate amount of all payments due to the Executive and all other Key
Employees in such fiscal year (“Cash Flow Permitted Amount”). To the extent
that payments under this Agreement to the Executive in a single fiscal year
would exceed the Cash Flow Ceiling (“Cash Flow Shortfall”), the Company shall
pay the Cash Flow Permitted Amount to the Executive and shall pay the Cash Flow
Shortfall (in whole or in part) as rapidly as permitted by the terms of this Section 4.1.
The obligation to pay the Cash Flow Shortfall shall constitute subordinated
debt of the Company until paid. The Company may, in the sole discretion of the
Board, elect to waive the annual cash flow limitation set forth above, and
absent such a waiver, the limitation shall apply to payments due under this
Agreement. For purposes of this Section 4.1, “Available Credit plus Cash”
means credit available to the Company as calculated by the Chief Financial
Officer or an acceptable designee using the borrowing worksheet supplied by the
Company’s Senior Lender plus the total amount of cash in the Company’s bank
account(s).

 

4.2. Debt Limitations. Notwithstanding any
other provision of this Agreement to the contrary, if a payment of any amount
to the Executive under this Agreement would, if made, be prohibited pursuant to
any agreement to which the Company (as defined below) is or from time to time
becomes a party, evidencing or governing indebtedness for borrowed money (each,
a “Debt Agreement”), the Company shall identify to the Executive the part, if
any, of the amount that the Company is permitted to pay in cash under the Debt
Agreement (the “Permitted Cash Amount”). If any amount is payable under this
Agreement in excess of the Permitted Cash Amount (the “Debt Covenant Shortfall”)
on the applicable payment date, the Company shall pay the Permitted Cash Amount
and shall pay the Debt Covenant Shortfall (in whole or in part) as rapidly as
permitted by and in accordance with the terms of the Debt Agreement. The
obligation to pay the Debt Covenant Shortfall shall constitute subordinated
debt of the Company until paid. The Company shall use commercially reasonable
efforts to obtain a waiver of any such prohibition as may be contained in any
applicable Debt Agreement, but the Company shall not be obligated to post
additional collateral or to accelerate or increase its debt payments to obtain
such waiver.

 

5

 

4.3. Notwithstanding anything to the contrary in this
Agreement, the limitations contained in Sections 4.1 and 4.2 of this Agreement
on the payment of monies to which the Executive is entitled to receive under
this Agreement shall not apply if the triggering event that entitles the
Executive to receive monies under this Agreement is a Signing which
contemplates a Sale Transaction or a consummation of a Sale Transaction.

 

5.             Miscellaneous.

 

5.1. No Liability of Officers and Directors for
Severance Upon Insolvency. Notwithstanding any other provision of this
Agreement and intending to be bound by this provision, the Executive hereby (a) waives
any right to claim payment of amounts owed to him, now or in the future,
pursuant to this Agreement from directors or officers of the Company if the
Company becomes insolvent and/or files a petition for relief under the United
States Bankruptcy Code in any state or Federal court (as determined in good
faith by the Board), and (b) fully and forever releases and discharges the
Company’s officers and directors from any and all claims, demands, liens,
actions, suits, causes of action or judgments arising out of any present or
future claim for such amounts.

 

5.2. Waiver of Civil Code Section 1542. The
Company and the Executive each understand and agree that the releases provided
herein extend to all claims of every nature and kind, whether known or unknown,
suspected or unsuspected. It is expressly understood and agreed that the
parties hereby waive the provisions of Section 1542 of the California
Civil Code (and any statute or law of similar construction in any other
jurisdiction), which provides as follows:

 

A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.

 

5.3. Successors and Assigns. The Company may
assign this Agreement to any successor to all or substantially all of its
assets and business by means of liquidation, dissolution, merger,
consolidation, transfer of assets, or otherwise. The rights of the Executive
hereunder are personal to the Executive and may not be assigned by him.

 

5.4. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California without regard to the principles of conflicts of laws.

 

5.5. Enforcement. Any legal proceeding arising
out of or relating to this Agreement will be instituted in the United States
District Court, Central District of California, Santa Ana Division, or if that
court does not have or will not accept jurisdiction, in any court of general
jurisdiction in the State of California, County of Orange, and the Executive
and the Company hereby consent to the personal and exclusive jurisdiction of
such court(s) and hereby waive any objection(s) that they may have to personal
jurisdiction, the laying of venue of any such proceeding and any claim or
defense of inconvenient forum.

 

6

 

5.6. Waivers; Separability. The waiver by
either party hereto of any right hereunder or any failure to perform or breach
by the other party hereto will not be deemed a waiver of any other right
hereunder or any other failure or breach by the other party hereto, whether of
the same or a similar nature or otherwise. No waiver will be deemed to have
occurred unless set forth in a writing executed by or on behalf of the waiving
party. No such written waiver will be deemed a continuing waiver unless
specifically stated therein, and each such waiver will operate only as to the
specific term or condition waived. If any provision of this Agreement is
declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which
shall remain in full force and effect.

 

5.7. Notices. All notices and communications
that are required or permitted to be given hereunder must be in writing and
will be deemed to have been duly given when delivered personally or upon
mailing by registered or certified mail, postage prepaid, return receipt
requested, as follows:

 

If to
the Company, to:

 

Gardenburger, Inc.

15615 Alton Parkway, Suite 350

Irvine, California 92618

Attention:  Robert Trebing

 

With a
copy to:

 

Pepper
Hamilton LLP

5 Park Plaza, Suite 1700

Irvine, California 92614

Attention:  Michael A. Rule, Esquire

 

If to
Executive, to:

 

Mr. James
W. Linford

2177 N. Sevenoaks Way

Eagle, ID 83616

 

or to such other address as may be specified in a
notice given by one party to the other party hereunder.

 

5.8. Entire Agreement; Amendments. This
Agreement contains the entire agreement and understanding of the parties
relating to the provision of a retention bonus and merges and supersedes all
prior and contemporaneous discussions, agreements and understandings of every
nature relating to that subject. This Agreement may not be changed or modified,
except by an Agreement in writing signed by each of the parties hereto.

 

7

 

5.9. Withholding. The Company will withhold
from any payments due to Executive hereunder, all taxes, FICA or other amounts
required to be withheld pursuant to any applicable law.

 

5.10. Headings Descriptive. The headings of
sections and paragraphs of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of
this Agreement.

 

5.11. Counterparts. This Agreement may be
executed in multiple counterparts, each of which will be deemed to be an
original, but all of which together will constitute but one and the same
instrument.

 

[Signature page follows]

 

8

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date and year first above written.

 

	
   

  	
  GARDENBURGER,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott C.
  Wallace

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Executive
  Officer, President

  
	
   

  	
   

  	
  and Chairman of
  the Board

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James W. Linford

  	
   

  
	
   

  	
  James W. Linford

  
					

 

9

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