This document consists of 63 pages, of which this is page
Number 1. The index to Exhibits is on Page 19.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended July 31, 1997, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
California 94-3025618
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3603 Haven Avenue
Menlo Park, California 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(415) 306-1650
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for at least the
past 90 days.
Yes X No
--- ---
As of August 22, 1997, 11,247,137 shares of the Registrant's common
stock were outstanding.
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LANDEC CORPORATION
FORM 10-Q For the Quarter Ended July 31, 1997
INDEX
Page
Facing sheet 1
Index 2
Part I. Financial Information
Item 1. Financial Statements:
a) Consolidated condensed balance sheets as of
July 31, 1997 and October 31, 1996 3
b) Consolidated statements of operations for the
three and nine months ended July 31, 1997 and 1996 4
c) Consolidated statements of cash flows for the
nine months ended July 31, 1997 and 1996 5
d) Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information
Signature 18
Index to Exhibits 19
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
July 31, October 31,
1997 1996
----------- -----------
Assets
Current Assets:
Cash and cash equivalents $ 7,740 $ 14,185
Short-term investments 11,280 22,325
Restricted investment 8,837 --
Accounts receivable, net 2,318 23
Inventories 2,125 549
Prepaid expenses and other current assets 567 188
-------- --------
Total Current Assets 32,867 37,270
Property and equipment, net 4,078 963
Intangible assets, net 6,916 --
Other assets 202 125
-------- --------
$ 44,063 $ 38,358
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 1,079 $ 484
Accrued compensation 441 250
Other accrued liabilities 694 259
Payable related to acquisition of
Dock Resins Corporation 9,105 --
Current portion of long term debt 292 229
Deferred revenue 104 166
-------- --------
Total Current Liabilities 11,715 1,388
Non-current portion of long term debt 129 330
Deferred compensation 135 --
Stockholders' Equity:
Common stock 70,490 68,242
Notes receivable from shareholders (13) (13)
Deferred compensation (226) (311)
Accumulated deficit (38,167) (31,278)
-------- --------
Total Stockholders' Equity 32,084 36,640
-------- --------
$ 44,063 $ 38,358
======== ========
See accompanying notes.
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<TABLE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per-share data)
<CAPTION>
Three Months Ended July 31, Nine Months Ended July 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 4,136 $ 260 $ 5,076 $ 672
License fees -- -- -- 600
Research and development revenues 212 221 671 903
-------- -------- -------- --------
Total revenues 4,348 481 5,747 2,175
Operating costs and expenses:
Cost of product sales 2,788 233 3,731 772
Research and development 1,370 973 3,316 2,871
Selling, general and administrative 1,465 784 3,715 2,008
Purchase of in-process research and
development -- -- 3,022 --
-------- -------- -------- --------
Total operating costs and expenses 5,623 1,990 13,784 5,651
-------- -------- -------- --------
Loss from operations (1,275) (1,509) (8,037) (3,476)
Interest income 421 530 1,353 1,036
Interest expense (160) (23) (197) (77)
-------- -------- -------- --------
Net loss $ (1,014) $ (1,002) $ (6,881) $ (2,517)
======== ======== ======== ========
Net loss per share $ (0.09) $ (0.09) $ (0.63) $ (0.38)
======== ======== ======== =========
Shares used in computation of net loss per share 11,226 10,668 10,938 6,698
======== ======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
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<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended July 31,
1997 1996
------- -------
Cash flows from operating activities:
Net loss (6,881) $ (2,517)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of assets
under capital leases 429 296
Amortization of intangibles 158 --
Amortization of deferred compensation 85 84
Write-off of purchased in-process research
and development 3,022 --
Changes in current assets and liabilities
(net of effects of Dock Resins
acquisition):
Accounts receivable (341) (17)
Inventories 261 (138)
Prepaid expenses and other current assets (274) 4
Accounts payable (496) 8
Accrued compensation 97 (25)
Other accrued liabilities 140 (84)
Deferred revenue (62) (25)
-------- -------
Total adjustments 3,019 103
-------- -------
Net cash used in operating activities (3,862) (2,414)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (1,043) (226)
Increase in other assets and liabilities (68) (150)
Acquisition of Dock Resins, net of cash acquired (3,230) --
Purchases of available-for-sale securities (14,607) (25,155)
Sale of available-for-sale securities 4,041 --
Maturities of available-for-sale securities 21,603 3,000
------- -------
Net cash provided by (used in) investing activities 6,696 (22,531)
------- -------
Cash flows from financing activities:
Purchase of restricted investment (8,837) --
Proceeds from sale of common stock 150 35,104
Proceeds from repayment of notes receivable -- 8
Payments of payable to Dock Resins (423) --
Payments of long-term debt (169) (187)
-------- -------
Net cash (used in) provided by financing activities (9,279) 34,925
-------- -------
Net (decrease) increase in cash and cash equivalents (6,445) 9,980
Cash and cash equivalents at beginning of period 14,185 3,585
-------- -------
Cash and cash equivalents at end of period $ 7,740 $ 13,565
======== =======
See accompanying notes.
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<PAGE>
LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Landec
Corporation (the "Company" or "Landec") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the
opinion of management, all adjustments necessary to present fairly the financial
position, results of operations, and cash flows at July 31, 1997, and for all
periods presented, have been made. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The accompanying
financial data should be reviewed in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996.
The results of operations for the three and nine month periods ended
July 31, 1997 are not necessarily indicative of the results that may be expected
for the fiscal year ended October 31, 1997.
2. Acquisition of Dock Resins
On April 18, 1997, the Company acquired Dock Resins Corporation ("Dock
Resins") a privately-held manufacturer and marketer of specialty acrylics and
other polymers located in Linden, New Jersey for approximately $15.8 million
comprised of $13.7 million in cash, a secured promissory note due in January
1998 and direct acquisition costs along with 396,039 shares of common stock
valued at $2.1 million. A payable of $9.5 million was recorded as of the
acquisition date to recognize the promissory note and other liabilities related
to the acquisition ($442,000 of the other liabilities was paid during the three
months ended July 31, 1997). A marketable investment of $8.8 million has been
set aside as security for payment of the promissory note. In addition, $1.5
million of the cash consideration and all of the equity consideration was set
aside in escrow to cover future costs associated with obligations under the
representations and warranties made by Dock Resins in connection with the
acquisition. The acquisition has been accounted for using the purchase method.
The purchase price has been allocated to the acquired assets and liabilities
based on their relative fair values. These allocations were based on independent
valuations and other studies as of the date of acquisition. The following is a
summary of the purchase price allocation (in thousands):
Net assets and liabilities $ 3,181
Property, plant and equipment 2,501
Covenant not to compete 77
Customer base 496
Work force in place 690
Trademark 775
Developed technology 5,036
In-process research and development 3,022
-------
$15,778
=======
The intangible assets are being amortized over periods of five to
twenty years based on their individually estimated useful lives. The $3,022,000
allocated to in-process research and development technology, as determined by an
independent appraisal, was expensed during the quarter ended April 30, 1997 as
required under generally accepted accounting principles. The $2,501,000
allocated to property, plant and equipment is based on its fair value as
determined by an independent appraisal.
The Company's results of operations and cash flows for the nine months
ended July 31, 1997 include the results of Dock Resins from April 18, 1997
through July 31, 1997.
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<PAGE>
The following pro-forma summary of consolidated revenues, net loss and
net loss per share for the nine months ended July 31, 1997 and 1996 assumes the
acquisition occurred on November 1, 1995. These pro-forma results have been
prepared for comparative purposes only and are not necessarily indicative of the
Company's financial results if the acquisition had taken place at the beginning
of fiscal year 1996 or of future results.
Nine Months Ended July 31,
--------------------------
1997 1996
---- ----
(in thousands)
Revenues $ 12,466 $ 12,061
====== ======
Net loss $ (6,823) $ (2,342)
======= ======
Net loss per share $ (0.61) $ (0.33)
======= ======
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market and consisted of the following:
July 31, October 31,
1997 1996
---- ----
(in thousands)
Raw materials . . . . . . . . . . . $ 749 $ 149
Work in process . . . . . . . . . 202 245
Finished goods . . . . . . . . . . 1,174 155
-------- -------
$ 2,125 $ 549
======== =======
4. Recent Accounting Pronouncements
In February 1997, the Financial Standards Board issued Statement No.
128, Earnings Per Share ("SFAS 128"), which the Company will adopt in the three
month period ended January 31, 1998. At that time, the Company will be required
to change the method currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The requirement
would have no effect on earnings per share for the nine months ended July 31,
1997 and 1996. The impact of SFAS 128 on the calculation of diluted earnings per
share for these periods would also have no effect.
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income ("SFAS 130"), and Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). The Company is required to adopt these Statements in fiscal 1999. SFAS
130 establishes new standards for reporting and displaying comprehensive income
and its components, SFAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these Statements is expected to have
no impact on the Company's consolidated financial position, results of
operations, or cash flows.
5. Subsequent Events
On August 21, 1997, Intellicoat Corporation, a wholly owned subsidiary
of the Company, entered into an agreement to acquire Williams & Sun, Inc., d/b/a
Fielder's Choice Hybrids ("Fielder's Choice"), a privately-held direct marketer
of hybrid seed corn, located in Monticello, Indiana, for cash and Landec common
stock, with an aggregate estimated value of $10.8 million. Terms of the
agreement include additional consideration in the form of a cash earn-out based
on future performance of the Fielder's Choice business. The acquisition will be
accounted for using the purchase method. The acquisition is subject to certain
closing conditions and is expected to be completed during the fourth quarter of
fiscal year 1997.
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<PAGE>
On August 28, 1997, the net assets of the QuickCast(TM) product line
were sold to Bissell Healthcare Corporation ("Bissell") for $950,000 in cash
plus royalties on future sales for the next ten years. The Company expects to
record a gain of approximately $100,000 from the sale, net of approximately
$236,000 of operating losses incurred from the measurement date of June 12,
1997, the date on which the Company adopted a plan to sell its QuickCast product
line through July 31, 1997, which have been included in other current assets as
of July 31, 1997. QuickCast product sales were $41,000 for the period from May
1, 1997 through June 12, 1997, and $149,000 for the three months ended July
31,1996, $241,000 for the period from November 1, 1997 through June 12, 1997 and
$318,000 for the nine months ended July 31, 1996.
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<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
unaudited consolidated financial statements and notes thereto included in Part
I--Item 1 of this Form 10Q and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the fiscal year ended October 31, 1996 contained
in the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1996.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and, in particular
the factors described below under "Additional Factors That May Affect Future
Results," and those mentioned in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1996, under "Risk Factors."
Overview
Since its inception in October 1986, the Company has been primarily
engaged in the research and development of its Intelimer(R) technology and
related products. The Company has launched three product lines from this core
development -- QuickCast splints and casts, in April 1994; Intellipac(R)
breathable membranes for the fresh-cut produce packaging market, in September
1995; and Intelimer Polymer Systems in June 1997. To date, the Company has
recognized $2.6 million in total QuickCast product, Intellipac breathable
membrane and Intelimer Polymer Systems sales. As part of an effort to focus and
build on three strategic businesses -- Industrial Polymers, Food Packaging and
Agricultural Products -- the Company has recently completed or plans to complete
several strategic transactions. On April 18, 1997 the Company acquired Dock
Resins, which is primarily engaged in the manufacturing and marketing of
specialty acrylics and other polymers. On August 21, 1997, Intellicoat
Corporation, a subsidiary of the Company, entered into an agreement to acquire
Fielder's Choice, a direct marketer of hybrid seed corn. On August 28, 1997 the
Company sold its QuickCast product line to Bissell. The Company has been
unprofitable since its inception and expects to incur additional losses,
primarily due to the continuation of its research and development activities,
charges related to acquisitions, and expenditures necessary to further develop
its manufacturing and marketing capabilities. From inception through July 31,
1997, the Company's accumulated deficit was $38.2 million.
Results of Operations
Total revenues were $4.3 million for the third quarter of fiscal year
1997 compared to $481,000 for the third quarter of fiscal year 1996. Revenues
from product sales increased to $4.1 million in the third quarter of fiscal year
1997 from $260,000 in the third quarter of fiscal year 1996 due primarily to
$3.6 million of product sales from Dock Resins. Also contributing to the
increase was the Intellipac breathable membrane product sales which increased
from $110,000 for the third quarter of fiscal year 1996 to $466,000 for the
third quarter of fiscal year 1997, due primarily to an increase in unit sales.
Revenues from research and development funding was $212,000 for the third
quarter of fiscal year 1997 compared to $221,000 for the third quarter of fiscal
year 1996. For the first nine months of fiscal year 1997 total revenues were
$5.7 million compared to $2.2 million during the same period in 1996. Revenue
from product sales for the first nine months in fiscal year 1997 increased to
$5.1 million from $672,000 during the same period in 1996 due principally to
$4.1 million of product sales from Dock Resins. Also contributing to the
increase was the Intellipac breathable membrane product sales which increased
from $354,000 for the first nine months of fiscal year 1996 to $690,000 for the
first nine months of fiscal year 1997, due primarily to an increase in unit
sales. Product sales for the discontinued QuickCast product line for the period
from November 1, 1996 through June 12, 1997 were $241,000. There were no
revenues from license fees during the first nine months of fiscal year 1997
compared to $600,000 during the same period in 1996. The decrease in license
fees revenue was due to a one time payment in the second quarter of fiscal year
1996 under an expanded agreement with Nitta Corporation. Revenue from research
and development funding for the first nine months in fiscal year 1997 decreased
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<PAGE>
to $671,000 from $903,000 during the same period in 1996 due to a decrease in
the number of research and development contracts in fiscal year 1997.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $2.8 million for the third quarter of fiscal year 1997
compared to $233,000 for the third quarter of fiscal year 1996. Cost of product
sales as a percentage of product sales decreased to 67% in the third quarter of
fiscal year 1997 from 90% in the third quarter of fiscal year 1996. Cost of
product sales for the first nine months of fiscal year 1997 was $3.7 million
compared to $772,000 during the same period in 1996. Cost of product sales as a
percentage of product sales decreased to 74% for the first nine months of fiscal
year 1997 from 115% during the same period in 1996. These decreases in the cost
of product sales as a percentage of product sales were primarily the result of
higher margins resulting from product sales of the Dock Resins products. Cost of
product sales for the discontinued QuickCast product line for the period from
November 1, 1996 through June 12, 1997 were $462,000. The Company anticipates
that gross margins will continue to improve during the remainder of fiscal year
1997 due to the historically higher margins achieved from sales of Dock Resins'
products. However, longer-term improvement is unpredictable due to the early
stage commercialization of several of the Company's products and integration of
certain of these products into Dock Resins' manufacturing process.
Research and development expenses were $1.4 million for the third
quarter of fiscal year 1997 compared to $1.0 million for the third quarter of
fiscal year 1996, an increase of 41%. For the first nine months of fiscal year
1997 research and development expenses were $3.3 million compared to $2.9
million during the same period in 1996, an increase of 15%. These increases in
research and development expenses for the three and nine months ended July 31,
1997 compared to the same periods of fiscal year 1996 were primarily due to
increased development costs for the Company's Intelimer polymer systems and
Intellicoat(TM) seed coating products and the addition of development costs
related to Dock Resins' products during fiscal year 1997. In future periods, the
Company expects that spending for research and development will continue to
increase in absolute dollars, although it may vary as a percentage of total
revenues.
Selling, general and administrative expenses consist primarily of sales
and marketing expenses associated with the Company's product sales, business
development expenses, and staff and administrative expenses. Selling, general
and administrative expenses were $1.5 million for the third quarter of fiscal
year 1997 compared to $784,000 for the third quarter of fiscal year 1996, an
increase of 87%. For the first nine months of fiscal year 1997 selling, general
and administrative expenses were $3.7 million compared to $2.0 million during
the same period in 1996, an increase of 85%. Selling, general and administrative
expenses increased primarily as a result of increased sales and marketing
expenses, the additional administrative costs associated with supporting a
public company for an entire nine-month period (the Company's initial public
offering was completed on February 15, 1996), and the acquisition of Dock Resins
during fiscal year 1997. Sales and marketing expenses increased to $570,000 for
the third quarter of fiscal year 1997 from $311,000 for the third quarter of
fiscal year 1996. For the first nine months of fiscal year 1997 sales and
marketing expenses increased to $1.8 million compared to $894,000 during the
same period in 1996. The increase in sales and marketing expenses was primarily
attributable to the costs to support four national U.S. distributors for
QuickCast products including the creation of an internal sales department for
QuickCast products, the creation of marketing departments for the Intelimer
polymer systems and Intellicoat products and the acquisition of Dock Resins
during fiscal year 1997. Sales and marketing costs for the discontinued
QuickCast product line for the period from November 1, 1996 through June 12,
1997 was $822,000. Although the Company expects to achieve future cost savings
as a result of the discontinuation of the QuickCast product line, total selling,
general and administrative spending for existing products will continue to
increase in absolute dollars in future periods, while it may vary as a
percentage of total revenues.
Net interest income was $261,000 for the third quarter of fiscal year
1997 compared to $507,000 for the third quarter of fiscal year 1996. The
decrease during the third quarter of 1997 as compared to 1996 was due
principally to less cash being available for investing and the interest expense
on the payable to Dock Resins. For the first nine months of fiscal year 1997 net
interest income was $1.2 million compared to $1.0 million during the same period
in 1996. Net interest income increased for the first nine months of fiscal year
1997 compared to the same period in fiscal year 1996 due principally to more
cash being available for investing for a longer period of time in fiscal year
1997 as the Company's initial public offering was completed in February 1996,
partially offset by the interest expense on the payable related to the
acquisition of Dock Resins.
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Liquidity and Capital Resources
As of July 31, 1997 the Company had unrestricted cash, cash equivalents
and short-term investments of $19.0 million, a net decrease of $17.5 million
from $36.5 million as of October 31, 1996. This decrease was primarily due to
cash used by operations of $3.9 million for the first nine months of fiscal year
1997, and the net payment of $3.2 million and the establishment of a restricted
investment of $8.8 million related to the acquisition of Dock Resins. As of July
31, 1997, the Company had payables totaling $9.1 million related to the
acquisition of Dock Resins which will be paid by the end of the first quarter of
fiscal 1998. In addition, the Company expects to pay approximately $3.0 million
in cash in connection with the acquisition of Fielder's Choice, when
consummated.
During the first nine months of fiscal year 1997, the Company purchased
seed processing equipment and incurred leasehold improvements expenditures to
support the development of Intellicoat products and incurred building
improvement expenditures to expand capacity at Dock Resins. These expenditures
represented the majority of the $1.0 million of property and equipment purchased
during the first nine months of fiscal year 1997.
The Company believes that existing cash, cash equivalents and
short-term investments will be sufficient to finance its operational and capital
requirements through at least the next twelve months. The Company's future
capital requirements, however, depend on numerous factors, including the
progress of its research and development programs; the development of commercial
scale manufacturing capabilities; the development of marketing, sales and
distribution capabilities; the ability of the Company to maintain existing
collaborative and licensing arrangements and establish and maintain new
collaborative and licensing arrangements; the timing of the acquisition of
Fielder's Choice; the assimilation and integration of Dock Resins and Fielder's
Choice into Landec; the timing and amount, if any, of payments received under
licensing and research and development agreements; the costs involved in
preparing, filing, prosecuting, defending and enforcing intellectual property
rights; the ability to comply with regulatory requirements; the emergence of
competitive technology and market forces; the effectiveness of product
commercialization activities and arrangements; and other factors. If the
Company's currently available funds, together with the internally generated cash
flow from operations are not sufficient to satisfy its financing needs, the
Company would be required to seek additional funding through other arrangements
with collaborative partners, bank borrowings and public or private sales of its
securities. The Company has no credit facility or other committed sources of
capital. There can be no assurance that additional funds, if required, will be
available to the Company on favorable terms.
Additional Factors That May Affect Future Results
The Company desires to take advantage of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995. Specifically, the
Company wishes to alert readers that the following important factors, as well as
other factors, could in the future affect, and in the past have affected, the
Company's actual results and could cause the Company's results for future
quarters to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company.
History of Operating Losses and Accumulated Deficit. The Company has
incurred net losses in each year since its inception, including a net loss of
$6.9 million for the nine months ended July 31, 1997, and the Company's
accumulated deficit as of July 31, 1997 totaled $38.2 million. The Company
expects to incur additional losses for the foreseeable future. The amount of
future net losses and time required by the Company to reach profitability are
highly uncertain and there can be no assurance that the Company will be able to
reach profitability at all.
Uncertainty Relating to Integration of New Business Acquisitions. The
successful combination of the Company and Dock Resins and Intellicoat and
Fielder's Choice, if and when such acquisition is completed, will require
substantial effort from each organization. The diversion of the attention of
management and any difficulties encountered in the transition process could have
an adverse impact on the Company's ability to realize the anticipated benefits
of the acquisition. The successful combination of the companies will also
require coordination of their research and development, manufacturing, and sales
and marketing efforts. In addition, the process of combining the organizations
could cause the interruption of, or a loss of momentum in, the Company's
activities. There can be no assurance that the Company will be able to retain
key management, technical, sales and customer support personnel of Dock Resins
and Fielder's Choice, or that the Company will realize the anticipated benefits
of the acquisitions. In addition, the acquisition
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of Fielder's Choice is subject to certain closing conditions, and there can be
no assurance that the merger will be completed.
Early Commercialization; Dependence on New Products and Technologies;
Uncertainty of Market Acceptance. While the Company recently commenced marketing
certain of its Intelimer polymer products, it is in the early stage of product
commercialization of these products and many of its potential products are in
development. The Company believes that its future success will depend in large
part on its ability to develop and market new products in its target markets and
in new markets. In particular, the Company expects that its ability to compete
effectively with existing industrial, food packaging, medical and agricultural
companies will depend substantially on successfully developing, commercializing,
achieving market acceptance of and reducing the cost of producing the Company's
products. In addition, commercial applications of the Company's temperature
switch polymer technology are relatively new and evolving. There can be no
assurance that the Company will be able to successfully develop, commercialize,
achieve market acceptance of or reduce the cost of producing the Company's
products, or that the Company's competitors will not develop competing
technologies that are less expensive or otherwise superior to those of the
Company. There can be no assurance that the Company will be able to develop and
introduce new products and technologies in a timely manner or that new products
and technologies will gain market acceptance. The failure to develop and market
successfully new products could have a material adverse effect on the Company's
business, operating results and financial condition.
The success of the Company in generating significant sales of its
products will depend in part on the ability of the Company and its partners to
achieve market acceptance of the Company's products and technology. The extent
to which, and rate at which, market acceptance and penetration are achieved by
the Company's current and future products is a function of many variables
including, but not limited to, price, safety, efficacy, reliability, conversion
costs and marketing and sales efforts, as well as general economic conditions
affecting purchasing patterns. There can be no assurance that markets for the
Company's products will develop or that the Company's products and technology
will be accepted and adopted. The failure of the Company's products to achieve
market acceptance could have a material adverse effect on the Company's
business, operating results and financial condition.
Competition and Technological Change. The Company operates in highly
competitive and rapidly evolving fields, and new developments are expected to
continue at a rapid pace. Competition from large industrial, food packaging,
medical and agricultural companies is expected to be intense. In addition, the
nature of the Company's collaborative arrangements may result in its corporate
partners becoming competitors of the Company. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company, and may have substantially greater
experience in conducting clinical and field trials, obtaining regulatory
approvals and manufacturing and marketing commercial products. There can be no
assurance that these competitors will not succeed in developing alternative
technologies and products that are more effective, easier to use or less
expensive than those which have been or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive.
Limited Manufacturing Experience; Dependence on Third Parties. The
Company's success is dependent in part upon its ability to manufacture its
products in commercial quantities in compliance with regulatory requirements and
at acceptable costs. There can be no assurance that the Company will be able to
achieve this. The Company has experienced negative gross margins on certain of
its product sales to date. Although Dock Resins will provide practical knowledge
in the scale-up of Intelimer polymer products, production in commercial-scale
quantities may involve technical challenges for the Company. The Company
anticipates that a substantial portion of the Company's products will be
manufactured in the Linden, New Jersey facility acquired in the purchase of Dock
Resins. The Company's reliance on this facility involves a number of potential
risks, including the absence of adequate capacity, the unavailability of, or
interruption in access to, certain process technologies and reduced control over
delivery schedules, and low manufacturing yields and high manufacturing costs.
The Company may also need to consider seeking collaborative arrangements with
other companies to manufacture certain of its products. If the Company becomes
dependent upon third parties for the manufacture of its products, then the
Company's profit margins and its ability to develop and deliver such products on
a timely basis may be adversely affected. Moreover, there can be no assurance
that such parties will adequately perform and any failures by third parties may
delay the submission of products for regulatory approval, impair the Company's
ability to deliver products on a timely basis, or otherwise impair the Company's
competitive position. The occurrence of any of these factors could have a
material adverse effect on the Company's business, operating results and
financial condition.
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The manufacture of the Company's products will be subject to periodic inspection
by regulatory authorities. There can be no assurance that the Company will be
able to obtain necessary regulatory approvals on a timely basis or at all.
Delays in receipt of or failure to receive such approvals or loss of previously
received approvals would have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on Single Source Suppliers. Many of the raw materials used
in manufacturing certain of the Company's products are currently purchased from
a single source, including certain monomers used to synthesize Intelimer
polymers and substrate materials for the Company's breathable membrane products.
In addition, virtually all of the hybrid corn varieties sold by Fielder's Choice
are purchased from a single source. Upon manufacturing scale-up and increases in
hybrid corn sales, the Company may enter into alternative supply arrangements.
Although to date the Company has not experienced difficulty acquiring materials
for the manufacture of its products nor has Fielder's Choice experienced
difficulty in acquiring hybrid corn varieties, no assurance can be given that
interruptions in supplies will not occur in the future, that the Company will be
able to obtain substitute vendors, or that the Company will be able to procure
comparable materials or hybrid corn varieties at similar prices and terms within
a reasonable time. Any such interruption of supply could have a material adverse
effect on the Company's ability to manufacture and distribute its products and,
consequently, could materially and adversely affect the Company's business,
operating results and financial condition.
Customer Concentration. For the three months and nine months ended July
31, 1997, sales to the Company's top five customers accounted for approximately
69% and 67%, respectively of the Company's product sales. The top customer
accounted for 39% of the Company's product sales in both periods. The Company
expects that for the foreseeable future a limited number of customers may
account for a substantial portion of its net revenues. The Company may
experience changes in the composition of its customer base as Dock Resins has
experienced in the past. The Company does not have long-term purchase agreements
with any of its customers. The reduction, delay or cancellation of orders from
one or more major customers for any reason or the loss of one or more of such
major customers could materially and adversely affect the Company's business,
financial condition and results of operations. In addition, since the products
manufactured in the Linden facility are often sole sourced to its customers, the
Company's operating results could be materially and adversely affected if one or
more of its major customers were to develop other sources of supply. There can
be no assurance that the Company's current customers will continue to place
orders, that orders by existing customers will not be canceled or will continue
at the levels of previous periods or that the Company will be able to obtain
orders from new customers.
Patents and Proprietary Rights. The Company's success depends in large
part on its ability to obtain patents, maintain trade secret protection and
operate without infringing on the proprietary rights of third parties. There can
be no assurance that any pending patent applications will be approved, that the
Company will develop additional proprietary products that are patentable, that
any patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by any third parties or that the patents of
others will not prevent the commercialization of products incorporating the
Company's technology. The Company has received, and may in the future receive,
from third parties, including some of its competitors, notices claiming that it
is infringing third party patents or other proprietary rights. For example, the
Company has received a letter alleging that its Intellipac breathable membrane
product infringes patents of another party. The Company has investigated this
matter and believes that its Intellipac breathable membrane product does not
infringe the specified patents of such party. The Company has received an
opinion of patent counsel that the Intellipac breathable membrane product does
not infringe any valid claims of such patents. If the Company were determined to
be infringing any third-party patent, the Company could be required to pay
damages, alter its products or processes, obtain licenses or cease certain
activities. If the Company is required to obtain any licenses, there can be no
assurance that the Company will be able to do so on commercially favorable
terms, if at all. Litigation, which could result in substantial costs to and
diversion of effort by the Company, may also be necessary to enforce any patents
issued or licensed to the Company or to determine the scope and validity of
third-party proprietary rights. Any such litigation or interference proceeding,
regardless of outcome, could be expensive and time consuming and could subject
the Company to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require the Company to cease using such
technology and, consequently, could have a material adverse effect on the
Company's business, operating results and financial condition.
Government Regulation. The Company's products and operations are
subject to substantial regulation in the United States and foreign countries.
Although Landec believes that it will be able to comply with all applicable
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regulations regarding the manufacture and sale of its products and polymer
materials, such regulations are always subject to change and depend heavily on
administrative interpretations and the country in which the products are sold.
There can be no assurance that future changes in regulations or interpretations
relating to such matters as safe working conditions, laboratory and
manufacturing practices, environmental controls, and disposal of hazardous or
potentially hazardous substances will not adversely effect the Company's
business. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations in the future,
or that such laws or regulations will not have a material adverse effect on the
Company's business, operating results and financial condition. Failure to comply
with the applicable regulatory requirements can, among other things, result in
fines, injunctions, civil penalties, suspensions or withdrawal of regulatory
approvals, product recalls, product seizures, including cessation of
manufacturing and sales, operating restrictions and criminal prosecution.
Environmental Regulations. Federal state and local regulations impose
various environmental controls on the discharge or disposal of toxic, volatile
or otherwise hazardous chemicals and gases used in certain manufacturing
processes. Dock Resins is involved in various investigations and proceedings
conducted by the federal Environmental Protection Agency and certain state
environmental agencies regarding disposal of waste materials. Although the
factual situations and the progress of each of these matters differ, the Company
believes it has retained adequate reserves to account for any resultant
liability, including any New Jersey Industrial Site Recovery Act remediation
regarding its Linden, New Jersey facility. In most cases, the Company's
liability will be limited to sharing clean-up or other remedial costs with other
potentially responsible parties. Any failure by the Company to control the use
of, or to restrict adequately the discharge of, hazardous substances under
present or future regulations could subject it to substantial liability or could
cause its manufacturing operations to be suspended. There can be no assurance
that changes in environmental regulations will not impose the need for
additional capital equipment or other requirements.
Limited Sales or Marketing Experience. Although Dock Resins has
experience in marketing products in certain common markets with Landec's
Intelimer polymer products, the Company has only limited experience marketing
and selling its Intelimer polymer products. While Dock Resins will provide
consultation and in some cases direct marketing support for Landec's Intelimer
polymer products, the Company intends to distribute certain of its products
through its corporate partners and other distributors and to sell certain other
products through a direct sales force. Establishing sufficient marketing and
sales capability may require significant resources. There can be no assurance
that the Company will be able to recruit and retain skilled sales management,
direct salespersons or distributors, or that the Company's sales efforts will be
successful. To the extent that the Company enters into distribution arrangements
for the sale of its products, the Company will be dependent on the efforts of
third parties. There can be no assurance that such efforts will be successful.
Dependence on Collaborative Partners. The Company's strategy for the
development, clinical and field testing, manufacturing, commercialization and
marketing of certain of its current and future products includes entering into
various collaborations with corporate partners, licensees and others. To date,
the Company has entered into collaborative arrangements with The BFGoodrich
Company and Hitachi Chemical Co., Ltd. ("Hitachi") in connection with its
Intelimer polymer systems; Fresh Express Farms, Apio, Inc., Roplast Industries,
Inc. and PrintPack, Inc. ("PrintPack) in connection with its Intellipac
breathable membrane products; Nitta Corporation ("Nitta") and Hitachi in
connection with its adhesive products and Smith & Nephew Medical Limited ("Smith
& Nephew"), Physician Sales and Services, Inc., North Coast Medical, Inc. and
Sammons Preston, Inc. in connection with its QuickCast orthopedic products (on
August 28, 1997, the Company sold the QuickCast product line to Bissell). The
Company is dependent on its corporate partners to develop, test, manufacture
and/or market certain of its products. Although the Company believes that its
partners in these collaborations have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of
resources to be devoted to these activities are not within the control of the
Company. There can be no assurance that such partners will perform their
obligations as expected or that the Company will derive any additional revenue
from such arrangements. There can be no assurance that the Company's partners
will pay any additional option or license fees to the Company or that they will
develop and market any products under the agreements. Moreover, certain of the
collaborative agreements provide that they may be terminated at the discretion
of the corporate partner, and certain of the collaborative agreements provide
for termination under certain other circumstances. In addition, there can be no
assurance as to the amount of royalties, if any, on future sales of QuickCast
products as the Company no longer has control over the sales of such products
since the sale of the QuickCast product line.
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In March of 1997, the Company terminated its relationship with Smith &
Nephew for the sales and distribution of QuickCast products in certain European
and Pacific Rim countries, Canada and South Africa.
In May of 1997, the Company agreed to amend its co-development and
marketing agreement with PrintPack in the Intellipac breathable membrane area by
removing the exclusivity restrictions. This amendment will allow Landec to
explore other sources of packaging material and application equipment and
product development opportunities while continuing the collaboration with
PrintPack on a non-exclusive basis.
There can be no assurance that the Company's partners will not pursue
existing or alternative technologies in preference to the Company's technology.
Furthermore, there can be no assurance that the Company will be able to
negotiate additional collaborative arrangements in the future on acceptable
terms, if at all, or that such collaborative arrangements will be successful. To
the extent that the Company chooses not to or is unable to establish such
arrangements, it would experience increased capital requirements to undertake
research, development, manufacture, marketing or sale of its current and future
products in such markets. There can be no assurance that the Company will be
able to independently develop, manufacture, market, or sell its current and
future products in the absence of such collaborative agreements.
International Operations and Sales. In the third quarter of the fiscal
year 1997 and 1996, approximately 4% and 52%, respectively, of the Company's
total revenues were derived from product sales to and collaborative agreements
with international customers, and the Company expects that international
revenues, although down from historical levels, will continue to be an important
component of its total revenues. A number of risks are inherent in international
transactions. International sales and operations may be limited or disrupted by
the regulatory approval process, government controls, export license
requirements, political instability, price controls, trade restrictions, changes
in tariffs or difficulties in staffing and managing international operations.
Foreign regulatory agencies have or may establish product standards different
from those in the United States, and any inability to obtain foreign regulatory
approvals on a timely basis could have an adverse effect on the Company's
international business and its financial condition and results of operations.
While the Company's foreign sales are currently priced in dollars, fluctuations
in currency exchange rates may reduce the demand for the Company's products by
increasing the price of the Company's products in the currency of the countries
to which the products are sold. There can be no assurance that regulatory,
geopolitical and other factors will not adversely impact the Company's
operations in the future or require the Company to modify its current business
practices.
Quarterly Fluctuations in Operating Results. In the past, the Company's
results of operations have varied significantly from quarter to quarter and such
fluctuations are expected to continue in the future. Quarterly operating results
will depend upon several factors, including the timing and amount of expenses
associated with expanding the Company's operations, the timing of collaborative
agreements with, and performance of, potential partners, the timing of
regulatory approvals and new product introductions, the mix between pilot
production of new products and full-scale manufacturing of existing products and
the mix between domestic and export sales. The Company also cannot predict rates
of licensing fees and royalties received from its partners. In addition, due to
the cyclical nature of the corn seed industry, a significant portion of
Fielder's Choice revenues and profits will be concentrated over a few months
during the spring planting season. As a result of these and other factors, the
Company expects to continue to experience significant fluctuations in quarterly
operating results, and there can be no assurance that the Company will become or
remain consistently profitable in the future.
Product Liability Exposure and Availability of Insurance. The testing,
manufacturing, marketing, and sale of the products being developed by the
Company involve an inherent risk of allegations of product liability. While no
product liability claims have been made against the Company to date, if any such
claims were made and adverse judgments obtained, they could have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company has taken and intends to continue to take what
it believes are appropriate precautions to minimize exposure to product
liability claims, there can be no assurance that it will avoid significant
liability. The Company currently maintains medical and non-medical product
liability insurance in the minimum amount of $4.0 million per occurrence with a
minimum annual aggregate limit of $5.0 million. There can be no assurance that
such coverage is adequate or will continue to be available at an acceptable
cost, if at all. A product liability claim, product
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recall or other claim with respect to uninsured liabilities or in excess of
insured liabilities could have a material adverse effect on the Company's
business, operating results and financial condition.
Possible Volatility of Stock Price. Factors such as announcements of
technological innovations, the attainment of (or failure to attain) milestones
in the commercialization of the Company's technology, new products, new patents
or changes in existing patents, the acquisition or disposal of a part of the
business, or development of new, collaborative arrangements by the Company, its
competitors or other parties, as well as government regulations, investor
perception of the Company, fluctuations in the Company's operating results and
general market conditions in the industry may cause the market price of the
Company's Common Stock to fluctuate significantly. In addition, the stock market
in general has recently experienced extreme price and volume fluctuations, which
have particularly affected the market prices of technology companies and which
have been unrelated to the operating performance of such companies. These broad
fluctuations may adversely effect the market price of the Company's common
stock.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On August 21, 1997, Intellicoat Corporation, a wholly owned subsidiary of
the Company, entered into an agreement to acquire Williams & Sun, Inc., d/b/a
Fielder's Choice Hybrids ("Fielder's Choice"), a privately-held direct marketer
of hybrid seed corn, located in Monticello, Indiana, for cash and Landec common
stock, with an aggregate estimated value of $10.8 million. Terms of the
agreement include additional consideration in the form of a cash earn-out based
on future performance of the Fielder's Choice business. The acquisition will be
accounted for using the purchase method. The acquisition is subject to certain
closing conditions and is expected to be completed during the fourth quarter of
fiscal year 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Agreement and Plan of Reorganization among Landec
Corporation, Intellicoat Corporation, Williams & Sun,
Inc., and Michael L. Williams dated August 21, 1997.
27.1 Financial Data Schedule
(b) On May 6, 1997, the Company filed a Form 8-K reporting the
acquisition of Dock Resins.
(c) On July 3, 1997, the Company filed a Form 8-K/A reporting the
acquisition of Dock Resins.
(d) On September 12, 1997, the Company filed Form 8-K reporting
the sale of the net assets of the QuickCast product line.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDEC CORPORATION
By:/s/ JOY T. FRY
------------------------------------------
Joy T. Fry
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized and Principal Financial and Accounting Officer)
Date: September 15, 1997
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LANDEC CORPORATION
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
2.1 Agreement and Plan of Reorganization Among Landec 20
Corporation, Intellicoat Corporation, Williams & Sun,
Inc., and Michael L. Williams
27.1 Financial Data Schedule 63
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered
into as of August 21, 1997, by and among Landec Corporation, a California
corporation ("Landec"), Intellicoat Corporation, a Delaware corporation and
subsidiary of Landec ("Intellicoat" and collectively with Landec, the "Landec
Companies"), Williams & Sun, Inc., an Indiana corporation ("Target") and Michael
L. Williams (the "Shareholder").
RECITALS
WHEREAS, the Boards of Directors of Target, Landec and Intellicoat
believe it is in the best interests of their respective companies and the
shareholders of their respective companies that Target and Intellicoat combine
into a single company through the statutory merger of Target with and into
Intellicoat (the "Merger").
WHEREAS, the Shareholder and Intellicoat believe it is in their
respective best interests for Shareholder to transfer certain assets owned by
the Shareholder or entities controlled by the Shareholder to Target prior to the
Merger (the "Asset Transfer").
WHEREAS, pursuant to the Merger, among other things, all outstanding
shares of Target Common Stock ("Target Common Stock") shall be converted into
shares of Landec Common Stock ("Landec Common Stock"), cash and/or the right to
receive cash in the future.
WHEREAS, Target, the Shareholder, Landec and Intellicoat desire to make
certain representations and warranties and other agreements in connection with
the Merger.
WHEREAS, the parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
MERGER; EARN-OUT; CERTAIN TRANSACTIONS
1.1 The Merger. At the Effective Time (as hereinafter defined) and
subject to and upon the terms and conditions of this Agreement, the Agreement of
Merger attached hereto as Exhibit A (the "Agreement of Merger") and the
applicable provisions of the Delaware General Corporations Law and the Indiana
Business Corporation Law (collectively, "State Law"), Target shall be merged
with and into Intellicoat, the separate corporate existence of Target shall
cease and Intellicoat shall continue as the surviving corporation. Intellicoat
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
(a) Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Agreement of Merger and
the applicable provisions of State Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Intellicoat shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Intellicoat shall become the debts, liabilities and duties of the Surviving
Corporation.
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(b) Certificate of Incorporation; Bylaws.
(i) At the Effective Time, the Certificate of
Incorporation of Intellicoat, as in effect immediately prior to the Effective
Time, shall continue to be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Delaware General
Corporations Law and such Certificate of Incorporation.
(ii) The Bylaws of Intellicoat, as in effect
immediately prior to the Effective Time, shall continue to be the Bylaws of the
Surviving Corporation until thereafter amended.
(c) Directors and Officers. At the Effective Time, the
directors of Intellicoat, as in effect immediately prior to the Effective Time,
shall continue to be the directors of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified. The officers
of Intellicoat, as in effect immediately prior to the Effective Time, shall
continue to be the officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified.
(d) Effect on Capital Stock. Subject to the terms and
conditions of this Agreement and the Agreement of Merger as of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of Target Common Stock, at the Effective Time:
(i) Conversion of Target Common Stock Held by
Minority Interest Holders. Each of the shares of Target Common Stock issued and
outstanding immediately prior to the Effective Time held by a Minority Interest
Holder shall be converted into the right to receive (A) that number of shares of
Landec Common Stock determined by dividing $66,843.03 by $5.50 (the "Minority
Stock Consideration"), plus (B) an amount of cash equal to $56,256.47 per share
(the "Minority Cash Consideration" and collectively with the Minority Stock
Consideration, the "Minority Interest Consideration"). The parties hereto
acknowledge that the Minority Cash Consideration will be used to satisfy certain
tax withholding obligations of Target with respect to the Minority Interest
Holders, which were incurred in connection with the Permitted Issuances (as
hereinafter defined), and therefore the Minority Cash Consideration will not be
delivered to the Minority Interest Holders but instead to the relevant tax
authorities. No adjustment shall be made in the Minority Interest Consideration
issued in the Merger as a result of any increase or decrease in the market price
of Landec Common Stock prior to the Effective Time.
(ii) Conversion of Target Common Stock Held by the
Shareholder. Each of the 100 shares of Target Common Stock issued and
outstanding immediately prior to the Effective Time held by Shareholder shall be
converted into the right to receive (A) that number of shares of Landec Common
Stock determined by dividing $73,829.13 by $5.50, plus (B) an amount of cash
equal to $25,270.37 per share. The Shareholder shall also be entitled to receive
such amounts as are payable from time to time pursuant to the terms and
conditions of Section 1.4 hereof. The collective consideration set forth in this
clause (iii), together with the rights to payments under Section 1.4 hereof
shall be referred to as the "Majority Interest Consideration". No adjustment
shall be made in the Majority Interest Consideration issued in the Merger as a
result of any increase or decrease in the market price of Landec Common Stock
prior to the Effective Time. The Majority Interest Consideration, together with
the Minority Interest Consideration shall be referred to herein as the "Merger
Consideration".
(iii) Cancellation of Target Common Stock Owned by
Target. At the Effective Time, all shares of Target Common Stock that are owned
by Target as treasury stock immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
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(iv) Adjustments to Exchange Ratio. The Closing Price
shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution (other than the Permitted
Distributions, as hereinafter defined) of securities convertible into Landec
Common Stock or Target Common Stock), reorganization, recapitalization or other
like change with respect to Landec Common Stock or Target Common Stock occurring
after the date hereof and prior to the Effective Time.
(v) Fractional Shares. No fraction of a share of
Landec Common Stock will be issued, but in lieu thereof each holder of shares of
Target Common Stock who would otherwise be entitled to a fraction of a share of
Landec Common Stock (after aggregating all fractional shares of Landec Common
Stock to be received by such holder) shall receive from Landec an amount of cash
(rounded to the nearest whole cent) equal to the product of such fraction and
$5.50.
(vi) No Further Ownership Rights in Target Common
Stock. The Merger Consideration issued upon the exchange of shares of Target
Common Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Common Stock, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Common Stock which were outstanding
immediately prior to the Effective Time.
(e) Tax Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code.
(f) Restricted Securities. The shares of Landec Common Stock
issued in connection with the Merger will be "restricted securities" under the
Securities Act of 1933, as amended (the "Act") and Rules 144 and/or 145
promulgated thereunder and may only be sold or otherwise transferred pursuant to
an effective registration statement under the Act or an exemption from the
registration requirements of the Act. The parties hereto understand and agree
that the shares of Landec Common Stock issued in connection with the Merger, and
any securities issued in respect thereof or exchange therefor, will bear one or
more appropriate legends regarding restrictions on transfer imposed by state and
federal securities laws and other restrictions on transfer set forth in this
Agreement or any exhibit hereto.
1.2 Closing.
(a) Closing. The closing of the Merger (the "Closing") shall
take place on September 30, 1997, or upon the mutual agreement of the parties,
as soon as practicable thereafter, in each case, only after the satisfaction or
waiver of each of the conditions set forth in Article V hereof or at such other
time as the parties hereto agree (the "Closing Date"). The Closing shall take
place at the offices of Venture Law Group, 2800 Sand Hill Road, Menlo Park,
California, or at such other location as the parties hereto agree.
(b) Actions at the Closing. At the Closing, Landec,
Intellicoat, Target and Shareholder shall take such actions and execute and
deliver such agreements and other instruments and documents as necessary or
appropriate to effect the transactions contemplated by this Agreement in
accordance with its terms, including, without limitation, the following:
(i) The parties hereto shall cause the Merger to be
consummated by filing the Agreement of Merger, together with any required
officers' certificates, with the Secretary of State of the States of Delaware
and Indiana, in accordance with the relevant provisions of State Law (the time
of such filing being the "Effective Time");
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(ii) The shareholders of Target shall deliver
certificates representing all of the outstanding shares of Target to the
Surviving Corporation;
(iii) Landec shall deliver the Merger Consideration
to the shareholders of Target;
(iv) Intellicoat shall pay the fees due Crawford
Associates as described in Section 1.4(e); and
(v) The parties shall deliver the certificates and
documents required by Article VI hereof to the appropriate recipients thereof.
(c) Taking of Necessary Action; Further Action. If at any time
after the Effective Time, any further action of Target or Intellicoat is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Target and Intellicoat,
the officers and directors of Target and Intellicoat are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement. Subsequent to the Effective Time, the Shareholder shall,
from time to time execute and deliver, upon the request of the Surviving
Corporation, all such other and further materials and documents and instruments
of conveyance, transfer or assignment as may be requested by the Surviving
Corporation to effect, record or verify the transfer to, and vesting in the
Surviving Corporation, of Shareholder's right title and interest in and to the
Transferred Assets (as hereinafter defined), free and clear of all Liens
(excluding the Permitted Encumbrances, as hereinafter defined), in accordance
with the terms of this Agreement.
1.3 Earn-Out.
(a) Definitions.
(i) "Actual Price" means the net funds received by
Intellicoat or any one or more of the Landec Companies or their successors and
assigns (collectively "Sellers"), from sales of Hybrid Seed Corn, per Hybrid
Corn Seed Bag, after deduction of the following ancillary selling and related
costs incurred by Seller in connection with such Hybrid Corn Seed Bag: (A)
discounts for timing of payment, volume purchases, cash payment, and new
customer discount, (B) shipping and insurance costs, (C) taxes and duties
(excluding taxes imposed on income arising from such sales), (D) rebates,
chargebacks and commissions (excluding royalties payable hereunder), and (E)
retroactive price reductions.
(ii) "Base Year" shall begin on July 1 of a calendar
year and shall terminate on June 30 of the subsequent calendar year, provided
however that the first Base Year (the "Initial Base Year") shall begin on the
day following the Closing Date and end on June 30, 1998.
(iii) "Hybrid Seed Corn" means hybrid seed corn or
any seed crop sold by Sellers as a genetic replacement for hybrid seed corn.
(iv) "Hybrid Corn Seed Bag" means a standard 80,000
kernel seed bag of Hybrid Seed Corn, including, but not limited to, seed coated
with Intellicoat coatings.
(v) "Target Price Range" means a range of prices for
Hybrid Seed Corn per Hybrid Seed Corn Bag established in advance for a given
Base Year by agreement of Intellicoat and Shareholder, which incorporates
anticipated deductions per Hybrid Corn Seed Bag for the following: (A) discounts
for timing of payment, volume purchases, cash payment, and new customer
discount, (B) shipping and insurance costs, (C)
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taxes and duties (excluding taxes imposed on income arising from such sales),
(D) rebates, chargebacks and commissions (excluding royalties payable
hereunder), and (E) retroactive price reductions. A Target Price Range may be
determined for each hybrid, or for other categories of Hybrid Seed Corn (e.g.,
Hybrid Seed Corn coated with Intellicoat seed coatings).
(b) Payments.
(i) For each Base Year, beginning with the Initial
Base Year and continuing for each Base Year thereafter, until the obligations of
the parties under this Section 1.3 have been terminated in accordance with the
terms hereof, Intellicoat will pay to Shareholder an amount equal to the product
of the number of Hybrid Corn Seed Bags for which revenue is recognized by all
Sellers in the aggregate during each Base Year, for which the Actual Price was
within the Target Price Range for the applicable Base Year, or as otherwise
approved by Intellicoat in writing, multiplied by $1.50. The payment for each
Base Year shall be due with respect to such Base Year on or before August 31
immediately following the end of such Base Year. In the event that the Hybrid
Corn Seed Bag shall cease to be the standard bag for delivery of Hybrid Seed
Corn to customers of the Sellers, or in the event that the Sellers at any time
employ other sizes or bags or containers for Hybrid Seed Corn, the terms of this
Agreement shall, as to bags or containers other than the Hybrid Seed Corn Bag,
be construed to provide for a $1.50 payment to Shareholder for each 80,000
kernels of Hybrid Seed Corn, as packaged by the Sellers, based on standard
kernel capacity of the applicable bags or containers. In the event that
Intellicoat shall fail or refuse to pay any amounts when due to Shareholder
under this Section 1.3, Intellicoat shall pay to Shareholder interest on amounts
thirty (30) days or more past due at a per annum rate of one and one-half
percent (1 1/2%) per month compounded quarterly until paid, together with
attorneys' fees and other direct costs incurred by Shareholder in collecting
such past due amounts.
(ii) Upon the Closing Date, Landec shall execute and
deliver to Shareholder its continuing guarantee of performance and payment by
Intellicoat under this Section 1.3 in substantially the form attached hereto as
Exhibit I.
(iii) Notwithstanding the foregoing, in no event
shall Intellicoat be required to make aggregate payments under this Section 1.3
in excess of $2,400,000 (exclusive of attorneys' fees, interest and costs of
collection), and upon the payment of such aggregate sum to Shareholder hereunder
(together with any attorneys' fees, interest and costs of collection), any
further payments under Section 1.3 shall cease, and the Sellers shall be
relieved of any further payment obligations under this Section 1.3.
(iv) The above payments shall be made in U.S. dollars
by check made payable to Shareholder or by wire transfer to such accounts as
Shareholder may from time to time designate. At the time of making a payment,
Intellicoat will provide Shareholder with a statement showing the sales for the
applicable time period and a detailed calculation of the payment due under this
Section 1.3 with respect to such sales.
(v) If by law, regulation or fiscal policy of any
particular country, remittance of payments hereunder in U.S. Dollars is
restricted or forbidden, notice thereof shall be given promptly to Shareholder,
and the payments shall be made by the deposit thereof in local currency to the
credit of Shareholder in a local banking institution designated by Shareholder.
When in any country the laws or regulations prohibit both the transmittal and
deposit of royalties on sales in such a country, payments shall be suspended for
so long as a prohibition is in effect and as soon as such prohibition ceases to
be in effect, all payments which Intellicoat would have been under obligation to
transmit or deposit but for the prohibition, shall forthwith be deposited or
transmitted promptly to the extent allowable.
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(vi) Intellicoat shall keep true and complete records
and books of account of all sales of Hybrid Corn Seed Bags by Sellers on which
payments are due and payable at its principal place of business for five (5)
years following the date when the payment relating to such sale is due, such
that Intellicoat and may accurately determine under generally accepted
accounting principles the sums due to Shareholder under this Section 1.3. Such
records shall be retained by Intellicoat. Shareholder and his duly authorized
representatives shall be entitled from time to time to review and copy all
documents of the Sellers which reasonably relate to the compliance by Sellers
with the terms of this Section 1.3. Shareholder may not exercise this audit
right more than one (1) time during each Base Year. Any authorized
representatives of Shareholder engaged in such an audit shall execute a
confidentiality agreement with the Seller in a form reasonably satisfactory to
Intellicoat. Each party shall bear their own costs in connection with such an
audit, provided however that (A) in the event that it is determined in an audit
with respect to a Base Year that Intellicoat has underpaid amounts due to
Shareholder with respect to sales of Hybrid Seed Corn by a factor of ten percent
(10%) or more, then Intellicoat shall pay all reasonable direct expenses,
including but not limited to attorneys' fees and other professional fees
incurred by Shareholder and his authorized representatives in connection with
such audit, and (B) in the event that it is determined in an audit with respect
to a Base Year that Intellicoat has overpaid amounts due to Shareholder with
respect to sales of Hybrid Seed Corn by a factor of ten percent (10%) or more,
then Shareholder shall pay all reasonable direct expenses, including but not
limited to attorneys' fees and other professional fees incurred by Intellicoat
and its authorized representatives in connection with such audit.
(vii) Payments shall be made free and clear of any
taxes, duties, levies, fees or charges, except for backup or other withholding
taxes (to the extent applicable). Shareholder will not, however, be entitled to
reimbursement for taxes measured by his net income in consequence of such
required payments. In the event Intellicoat makes payments for which provision
is made by law or regulation for the withholding of taxes due by the recipient
and Intellicoat makes such deduction for the account of Shareholder, Intellicoat
will promptly furnish Shareholder with such evidence of the withholding of any
taxes. Intellicoat will also provide Shareholder with a tax certificate or
receipt from the competent tax authority of the withholding country, or such
other supporting data, as may be required to establish that the tax has been
withheld by Intellicoat and paid to the appropriate governmental entity on
behalf of Shareholder.
(viii) Intellicoat and Shareholder have determined
the Target Price Range per Hybrid Corn Seed Bag for the Initial Base Year which
is attached hereto as Schedule 1.3. On or before July 31, 1998, and on or before
July 31 of each succeeding calendar year, Intellicoat and Shareholder shall use
commercially reasonable efforts to mutually establish a Target Price Range for
the succeeding Base Year. In the event that the parties cannot agree as to the
Target Price Range for any Base Year, the Target Price Range for the preceding
Base Year shall remain in full force and effect until otherwise determined by
agreement of Intellicoat and Shareholder.
(ix) Notwithstanding the foregoing, in the event that
Shareholder has breached the terms of the Non-Competition Agreement (as
hereinafter defined), Intellicoat shall be entitled to offset any damages
resulting from such breach from amounts due and owing under this Section 1.3,
subject to arbitration in accordance with Section 7.9 hereof.
(c) Indemnification Offset. Landec and Intellicoat shall have
the option (but not the obligation) to offset any losses, damages, claims,
costs, expenses, interest, awards, judgments and penalties (including, without
limitation, legal costs and expenses and interest on the amount of any loss from
the date suffered or incurred) arising directly or indirectly under, resulting
from or caused by the circumstances described in the indemnification provisions
of Sections 6.6 hereof, and pursuant to the terms and conditions thereof.
(d) Termination of Sales.
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(i) Notwithstanding the above, in the event that the
Intellicoat shall at any time cease to engage in the sale of Hybrid Seed Corn
then Intellicoat shall pay to Shareholder an amount equal to $2,400,000, less
any payments previously made under this Section 1.3, any offsets described in
Section 1.3(c), and any reductions pursuant to Section 1.3(b)(ix). Upon payment
in full of such amount, together with any interest, attorneys' fees, or other
amounts (if any) due under this Agreement, the Sellers shall have no further
obligation under this Section 1.3.
(ii) In the event that Intellicoat shall sell or
otherwise transfer (by merger or otherwise) all or substantially all of the
Hybrid Seed Corn business to a third party, the obligations under this Section
1.3 shall be assumed by such third party, provided however, that, if in the
reasonable opinion of Shareholder (such opinion not to be withheld
unreasonably), the credit-worthiness of such third party (when measured in light
of the credit-worthiness of Landec) is not reasonably sufficient to ensure
payment of the amounts expected to be due hereunder, then Intellicoat shall
retain its obligations (and Landec's guarantee shall continue) hereunder.
Intellicoat (and Landec by its guarantee) shall in any event remain obligated
for payments under this Section with respect to revenue recognized from sales of
Hybrid Seed Corn Bags during periods prior to any sale or transfer of its Hybrid
Seed Corn business. Landec shall provide to Shareholder a copy of any assumption
agreement of a third party as soon as practicable after its execution. Such
assumption agreement shall be in a form and substance substantially consistent
with the obligations set forth herein or otherwise reasonably acceptable to
Shareholder.
1.4 Certain Transactions.
(a) Section 1031 Transaction. Schedule 1.4 (a) hereto lists
certain assets owned by the Shareholder (the "Transferred Real Property") and
certain liabilities related to such assets (the "Transferred Liabilities") as
well as certain assets which are currently owned by the Target (the "Assumed
Assets") and certain liabilities related to the Assumed Assets (the "Assumed
Liabilities"). The parties hereto acknowledge that after the date of this
Agreement, but prior to the Closing Date, the Shareholder will transfer the
Transferred Real Property to the Target and will assume the Assumed Liabilities
as consideration for the Assumed Assets and the assumption of the Transferred
Liabilities by the Target (such transaction referred to herein as the "Property
Swap"). Target will cause the Property Swap to be conducted so as to be a
tax-free transaction in accordance with Section 1031 of the Code, and Target
covenants that no Taxes (as hereinafter defined) were incurred or will be
incurred by the Target as a result thereof.
(b) Purchase of FIRST Software. Prior to the date of this
Agreement, the Shareholder caused The Farm Guard Group, Inc. to transfer all
right, title and interest in the FIRST Software system to the Target in exchange
for the forgiveness of indebtedness. Such transaction was conducted such that no
Taxes were incurred by Target in connection with such transaction. The FIRST
Software together with the Transferred Real Property and the Leased Equipment
described in Section 1.4(c) are referred to herein as the "Transferred Assets").
(c) Purchase of Leased Equipment. Schedule 1.4(c) hereto lists
certain assets leased by Target from Norwest Equipment Finance, Inc. (the
"Leased Equipment"). On or before the Closing, shareholder will pay amounts to
Norwest Equipment Finance, Inc. necessary for Target to purchase such Leased
Equipment, net of a deposit previously paid by Target to Norwest Equipment
Finance, Inc.
(d) Issuance of Minority Interest Shares. After the date of
this Agreement, but prior to the Closing Date, the Target plans to issue 2.28474
shares of Target Common Stock to Michael L. Godlove and 4.56947 shares of Target
stock to Martin J. Huseman as compensation for past services rendered to Target
(such issuances referred to herein as the "Permitted Issuances"). Each of Mr.
Godlove and Mr. Huseman are referred to
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herein as a "Minority Interest Holder" and collectively as the "Minority
Interest Holders." Concurrently with the execution of this Agreement by the
parties, the Minority Interest Holders have executed the form of Consent and
Voting Agreement attached hereto as Exhibit H.
(e) Payment of Crawford Fees. At the Closing, Intellicoat
shall assume and pay to Crawford Associates, Inc. ("Crawford") the obligations
of Target to pay net fees due to Crawford in connection with the consummation of
this Agreement up to $737,500, as provided in a certain Consulting Agreement
between Target and Crawford dated January 18, 1996, and modified and superseded
by an Agreement between Target and Crawford dated August 6, 1997 (the "Crawford
Agreement").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET AND SHAREHOLDER
Each representation and warranty set forth below is qualified by any
exceptions or disclosures set forth in the Target Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified.
In all other respects, each representation and warranty set out in this Article
II is not limited or qualified in any way whatsoever, will not merge on Closing
or by reason of the execution and delivery of any agreement, document or
instrument on Closing, will remain in force on and after the Closing Date, is
given with the intention that liability is not confined to breaches discovered
before Closing, is separate and independent and is not limited by reference to
any other representation or warranty or any other provision of this Agreement,
and is made and given with the intention of inducing the Landec Companies to
enter into this Agreement. As used herein, the term "Material Adverse Effect"
means any change or effect that is or is likely to be materially adverse to the
business, assets (including intangible assets), financial condition, results of
operations or prospects of Target or the Transferred Assets, either individually
or in the aggregate. Except as otherwise explicitly stated herein, each of the
following representations assumes that (a) the Property Swap has been effected
as of the date hereof, (b) that the Permitted Issuances have taken place and (c)
that the Leased Equipment has been acquired by Target. Unless the context
requires otherwise, any reference to the properties, assets, or liabilities of
Target shall be deemed to include the Transferred Assets and the Leased
Equipment. Each of Target and Shareholder represents and warrants to Landec and
Intellicoat as follows:
2.1 Organization Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Indiana. Target has the corporate power to own its properties and to carry on
its business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. Target has delivered a true and correct copy of the
Articles of Incorporation and Bylaws, each as amended to date, to Landec. Target
is not in violation of any of the provisions of its Articles of Incorporation or
Bylaws. Target does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
2.2 Capital Structure. The authorized capital stock of Target consists
of 1,000 shares of Common Stock, of which there are 100 shares issued and
outstanding as of the date hereof and 6.854210 shares have been reserved for
issuance pursuant to the Permitted Issuances. The ownership of the outstanding
shares of Target capital stock, after giving effect to the Permitted Issuances,
will be as set forth on Schedule 2.2 hereof. There are no other outstanding
shares of capital stock or voting securities and no outstanding commitments to
issue any shares of capital stock or voting securities. All outstanding shares
of Target Capital Stock are (and shares to be outstanding after the Permitted
Issuances will be) duly authorized, validly issued, fully paid and
non-assessable; free of any liens or encumbrances; and not subject to preemptive
rights or rights of first refusal created by statute,
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the Articles of Incorporation or Bylaws of Target or any agreement to which
Target is a party or by which it is bound. Except for the rights created
pursuant to this Agreement, there are no options, warrants, calls, rights,
commitments or agreements of any character to which Target, Shareholder or a
Minority Interest Holder is a party or by which it is bound obligating Target,
Shareholder or a Minority Interest Holder to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Target or obligating Target, Shareholder or a
Minority Interest Holder to grant or enter into any option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of the Target Common Stock. True
and complete copies of all agreements and instruments relating to the purchase
of Target Common Stock have been made available to Landec and such agreements
and instruments have not been amended, modified or supplemented, and there are
no agreements to amend, modify or supplement such agreements or instruments in
any case from the form made available to Landec. All outstanding shares of
Target Common Stock were issued (and the Permitted Issuances will be conducted)
in compliance with all applicable federal and state securities laws.
2.3 Transferred Assets.
(a) The Transferred Assets include all properties, tangible
and intangible, and only such properties, as are currently leased or otherwise
used by Target in operating its business (other than those owned by Target)
which are necessary for the Surviving Corporation to operate after the Closing
Date in a manner substantially equivalent to the manner in which Target has
operated prior to and through the Closing Date. No licenses or other consents
from, or payments to, any other entity are or will be necessary for the
Surviving Corporation to conduct its business and use the Transferred Assets in
the manner in which Target has operated and used the same.
(b) The Shareholder (or organizations controlled by the
Shareholder) currently holds (or in the case of the FIRST software, held) good
and marketable title to all of the Transferred Assets (other than the Leased
Equipment) and has (or in the case of the FIRST software, had) the complete and
unrestricted power and the unqualified right to sell, assign and deliver the
Transferred Assets to Target. Upon consummation of the transactions contemplated
by this Agreement, the Surviving Corporation will acquire good and marketable
title to the Transferred Assets free and clear of any Liens (other than the
Permitted Encumbrances) and there will exist no restriction on the use or
transfer of the Transferred Assets. No person or entity other than the
Shareholder has any right or interest in the Transferred Assets (other than the
Leased Equipment), including the right to grant interests in the Transferred
Assets to third parties.
(c) No restrictions will exist on the Surviving Corporation's
right to sell, resell, license or sublicense any of the Transferred Assets or
engage in the business of Target as conducted with the Transferred Assets, nor
will any such restrictions be imposed as a consequence of the transactions
contemplated by this Agreement or by any agreement referenced in this Agreement.
(d) None of the material structures on the Transferred Real
Property or the real property assets of Target encroaches upon the real property
of another entity, and no structure of any other entity encroaches upon any real
property included in the Transferred Assets or the assets of Target.
(e) No violation of any law, regulation or ordinance,
including without limitation, laws, regulations or ordinances relating to
zoning, environmental, city planning or similar matters
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relating to any Transferred Asset or assets of Target currently exists or has
existed at any time except for violations which have not had and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Target or the Transferred Assets. There are no developments
affecting any of the Transferred Assets or the assets of Target, pending or, to
the knowledge of Target or Shareholder threatened, which might materially
detract from the value of such Transferred Assets or the assets of Target,
materially interfere with any present or intended use of any such Transferred
Assets or the assets or Target or have a Material Adverse Effect on the
marketability of the Transferred Assets or the assets of Target.
2.4 No Violation. Neither the execution, delivery and performance of
this Agreement and all of the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (i) upon obtaining the third-party consents
described in the Target Disclosure Schedule, conflict with or result in a
violation or breach of, or constitute a default or require consent of any third
party (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any notice, bond, mortgage,
indenture, license, franchise, permit, agreement, lease or other instrument or
obligation to which Shareholder is a party or by which the Target Common Stock
or the Transferred Assets may be bound, (ii) violate any statute, ordinance or
law or any rule, regulation, order, writ, injunction or decree of any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") applicable to Shareholder or by which
the Target Common Stock or the Transferred Assets may be bound, or (iii) violate
any provision of the Articles of Incorporation or Bylaws of Target.
2.5 Authority. Target has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target. This Agreement has been duly executed
and delivered by Target and constitutes the valid and binding obligation of
Target enforceable against Target in accordance with its terms. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Target or
Shareholder in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Agreement of Merger, together with any required officers'
certificates, as provided in Section 1.2, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country,
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Target or the Transferred Assets and would not prevent, or materially
alter or delay any of the transactions contemplated by this Agreement.
Shareholder is qualified to operate and lease the Transferred Assets (other than
the Leased Equipment) in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on the Transferred Assets, and
Target is qualified to operate and lease the Leased Equipment in each
jurisdiction in which the failure to be so qualified would have a Material
Adverse Effect on the Leased Equipment.
2.6 Authority of Shareholder. Shareholder has full power and authority
to execute and deliver this Agreement (and all other agreements and instruments
contemplated hereunder) and perform his obligations hereunder and thereunder.
This Agreement has been duly and validly executed and delivered by Shareholder
and constitutes, and the other agreements and instruments to be executed and
delivered by Shareholder pursuant hereto, upon their execution and delivery by
Shareholder, will constitute (assuming, in each case, the due and
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valid authorization, execution and delivery thereof by the other parties
hereto), legal, valid and binding agreements of Shareholder, enforceable against
Shareholder in accordance with their respective terms.
2.7 Financial Statements. Target has delivered to Landec its audited
financial statements (balance sheet, statement of operations and statement of
cash flows) as of, and for the twelve (12) month periods ended October 31, 1996
and October 31, 1995, and its restated, unaudited financial statements (balance
sheet, statement of operations and statement of cash flows) as of, and for the
eight (8) month period ended June 30, 1997 (the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
(except that the unaudited financial statements do not have notes thereto)
applied on a consistent basis throughout the periods indicated and with each
other except that the unaudited Financial Statements do not contain accruals for
federal state and local income Taxes and are subject to normal year-end
adjustments which, in the aggregate, will not be material. Except as described
in the preceding sentence, the Financial Statements accurately set out and
describe the financial condition and operating results of Target as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. Target maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
2.8 Absence of Certain Changes. Since June 30, 1997 (the "Target
Balance Sheet Date"), Target has conducted its business, and Shareholder has
operated the Transferred Assets, in the ordinary course consistent with past
practice, and since such time, neither Shareholder nor Target has:
(a) Charter Documents. Caused or permitted any amendments to
Target's Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declared or paid any
dividends on or made any other distributions (whether in cash, stock or
property) in respect of any of Target's capital stock, or split, combined or
reclassified any of Target's capital stock or issued or authorized the issuance
of any other securities in respect of, in lieu of or in substitution for shares
of Target's capital stock, or repurchased or otherwise acquired, directly or
indirectly, any shares of Target's capital stock;
(c) Material Contracts. Entered into any material contract or
commitment, or violated, amended or otherwise modified or waived any of the
terms of any of Target's material contracts, other than in the ordinary course
of business consistent with past practice;
(d) Issuance of Securities. Other than in connection with the
Permitted Issuances, issued, delivered or sold or authorized or proposed the
issuance, delivery or sale of, or purchased or proposed the purchase of, any
shares of Target's capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(e) Intellectual Property. Transferred to any person or entity
any rights to Target's Intellectual Property (as hereinafter defined) other than
in the ordinary course of business consistent with past practice;
(f) Exclusive Rights. Entered into or amended any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Target's products
or technology;
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(g) Dispositions. Except in connection with the Property Swap,
sold, leased, licensed or otherwise disposed of or encumbered any of (i) the
Transferred Assets or (ii) Target's properties or assets which are material,
individually or in the aggregate, to Target's business, taken as a whole;
(h) Indebtedness. Incurred any indebtedness for borrowed money
on behalf of Target or secured by the Transferred Assets or caused Target to
guarantee any indebtedness or issue or sell any debt securities or guarantee any
debt securities of others;
(i) Leases. Caused Target to enter into an operating lease
with aggregate expected payments in excess of $20,000;
(j) Payment of Obligations. Caused Target to pay, discharge or
satisfy in an amount in excess of $10,000 in any one case or $50,000 in the
aggregate, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) arising other than in the ordinary course
of business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Financial Statements or expenses incurred
by Target in connection with this Agreement;
(k) Capital Expenditures. Caused Target to make any capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and consistent with past practice;
(l) Insurance. Materially reduced the amount of any material
insurance coverage provided by existing insurance policies relating to the
Transferred Assets or the business, assets or liabilities of Target;
(m) Termination or Waiver. Terminated or waived any right of
substantial value to Target or relating to the Transferred Assets;
(n) New Hires; Pay Increases. Other than as disclosed on
Schedule 2.8(n) hereto, caused Target to adopt or amend any employee benefit or
stock purchase or option plan, or hired any new director level or officer level
employee, paid any special bonus or special remuneration to any employee or
director, or increased the salaries or wage rates of Target's employees;
(o) Severance Arrangements. Granted any severance or
termination pay (i) to any director or officer of Target or (ii) to any other
employee of Target except grants which are made in the ordinary course of
business in accordance with Target's standard past practice;
(p) Lawsuits. Commenced a lawsuit relating to Target or the
Transferred Assets other than for the routine collection of bills;
(q) Acquisitions. Caused Target to acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to Target's business, taken as a whole;
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(r) Taxes. Other than in the ordinary course of business, made
or changed any material election in respect of Taxes relating to Target or the
Transferred Assets, adopted or changed any accounting method in respect of Taxes
of Target or the Transferred Assets or consented to any extension or waiver of
the limitation period applicable to any claim or assessment in respect of Taxes
of Target or the Transferred Assets;
(s) Revaluation. Revalued any of the Transferred Assets or
Target's assets, including without limitation writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business; or
(t) Other. Agreed in writing or otherwise to take, any of the
actions described in Sections 2.8(a) through (s) above, or any action which
would make any of Target's or Shareholder's representations or warranties
contained in this Agreement untrue or incorrect or prevent it from performing or
cause it not to perform Target's or Shareholder's covenants hereunder.
2.9 Absence of Undisclosed Liabilities. Excluding federal state and
local income Taxes for the current year, Target has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the Balance Sheet for the
period ended June 30, 1997 (the "Target Balance Sheet"), (ii) those incurred in
the ordinary course of business and not required to be set forth in the Target
Balance Sheet under generally accepted accounting principles, (iii) those
incurred in the ordinary course of business since the Target Balance Sheet Date
and consistent with past practice; (iv) those incurred in connection with the
execution of this Agreement; (v) the obligations of Target to pay up to an
additional $737,500 under the Crawford Agreement; and (vi) those otherwise
disclosed on the Target Disclosure Schedule or other schedules to this
Agreement, including but not limited to any requirements for withholding or
contributions of amounts due to federal, state or local taxing authorities in
connection with the Permitted Issuances or other distributions to shareholders
or employees of Target referred to in the Agreement and in the Target Disclosure
Schedule or other schedules to this Agreement. There are no outstanding
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) relating to the Transferred Assets other than the Transferred
Liabilities.
2.10 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or Shareholder,
threatened against Target, the Transferred Assets, or any of Target's
properties, officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Target or the Transferred Assets. There is no
judgment, decree or order against Target, Shareholder, the Transferred Assets
or, to the knowledge of Target or Shareholder, any of Target's directors or
officers (in their capacities as such), that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Target or the Transferred Assets. All litigation to which Target is a
party or which relates to the Transferred Assets in any way, or, to the
knowledge of Target and Shareholder, in which Target is threatened to become a
party or the Transferred Assets are threatened to become a subject, is disclosed
in the Target Disclosure Schedule.
2.11 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or the Transferred
Assets which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business practice of
Target or business conducted with the Transferred Assets, any acquisition of
property by Target, the conduct of business by Target as currently conducted or
as proposed to be conducted by Target, or the conduct of business with the
Transferred Assets as currently conducted or proposed to be conducted.
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2.12 Governmental Authorization. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business or the holding of any such
interest. Shareholder has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which Shareholder currently operates or
holds any interest in any of the Transferred Assets or (ii) that is required for
the operation of the business conducted with the Transferred Assets or the
holding of any such interest.((i) and (ii) herein collectively with (i) and (ii)
from the preceding sentence, collectively called "Target Authorizations"). All
of such Target Authorizations are in full force and effect, except where the
failure to obtain or have any such Target Authorizations could not reasonably be
expected to have a Material Adverse Effect on Target.
2.13 Title to Property. Target has good and marketable title to all of
its properties, interests in properties and assets, real and personal, reflected
in the Target Balance Sheet or acquired after the Target Balance Sheet Date
(except properties, interests in properties and assets sold or otherwise
disposed or since the Target Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, (iii) the Transferred
Liabilities, and (iv) liens securing debt which is reflected on the Target
Balance Sheet (collectively with the Transferred Liabilities and including but
not limited to the liabilities listed on Schedule 2.13(b) hereto, the "Permitted
Encumbrances"). The plants, property and equipment of Target that are used in
the operations of their businesses are in good operating condition and repair
subject to ordinary wear and tear and to requirements for periodic maintenance.
All properties used in the operations of Target are reflected in the Target
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected. Schedule 2.13 identifies each parcel of real property
owned or leased by Target.
2.14 Intellectual Property.
(a) Target owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that is used or proposed to be used in the business of
Target as currently conducted or as proposed to be conducted by Target, except
to the extent that the failure to have such rights have not had and could not
reasonably be expected to have a Material Adverse Effect on Target.
(b) Schedule 2.14 lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered copyrights, and maskworks, included in the
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Target is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all licenses, sublicenses and other agreements as to which Target is a
party and pursuant to which Target is authorized to use any third party patents,
trademarks or copyrights, including software ("Third Party Intellectual Property
Rights") which are incorporated in, are, or form a part of any Target product
that is material to its business.
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(c) To the knowledge of Target and Shareholder, there is no
material unauthorized use, disclosure, infringement or misappropriation of any
Intellectual Property rights of Target, any trade secret material to Target, or
any Intellectual Property right of any third party to the extent licensed by or
through Target, by any third party, including any employee or former employee of
Target. Target has not entered into any agreement to indemnify any other person
against any charge of infringement of any Intellectual Property.
(d) Target is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any material license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights, the breach of which would have a Material Adverse Effect on Target.
(e) To Target's and Shareholder's knowledge, all patents,
registered trademarks, service marks and copyrights held by Target are valid and
subsisting. Target (i) has not been sued in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party; (ii) has no knowledge that the manufacturing, marketing, licensing
or sale of its products infringes any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
such infringement would have a Material Adverse Effect on Target; and (iii) has
not brought any action, suit or proceeding for infringement of Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party.
(f) Target has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Target does not
already own by operation of law.
(g) Target has taken all necessary and appropriate steps (to
the extent employed by comparable businesses) to protect and preserve the
confidentiality of all material Intellectual Property not otherwise protected by
patents, patent applications or copyright ("Confidential Information"). To the
knowledge of Target and Shareholder, all use, disclosure or appropriation of
Confidential Information owned by Target by or to a third party has been
pursuant to the terms of a written agreement between Target and such third
party. All use, disclosure or appropriation of Confidential Information not
owned by Target has been pursuant to the terms of a written agreement between
Target and the owner of such Confidential Information, or to the knowledge of
Target and Shareholder, is otherwise lawful.
2.15 Environmental Matters.
(a) Definitions. For the purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "Environmental Conditions" shall mean any
environmental contamination or pollution or threatened contamination or
pollution of, or the Release or threatened Release of Hazardous Materials into,
the surface water, groundwater, surface soil, subsurface soil, air and land.
(ii) "Environmental Laws" shall mean all federal,
regional, state, county or local laws, statutes, ordinances, decisional law,
rules, regulations, codes, orders, decrees, directives and judgments relating to
public health or safety, pollution, damage to or protection of the environment,
Environmental Conditions, Releases or threatened Releases of Hazardous Materials
into the environment or the use, manufacture, processing, distribution,
treatment, storage, generation, disposal, transport or handling of Hazardous
Materials, whether existing in the past or present or hereafter
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enacted, rendered, adopted or promulgated. Environmental Laws shall include, but
are not limited to, the following laws, and the regulations promulgated
thereunder, as the same may be amended from time to time: the Comprehensive
Environmental Response Compensation and Liability Act (42 U.S.C. 9601 et seq.)
("CERCLA"); the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.)
("RCRA"); the Clean Air Act (42 U.S.C. 7401 et seq.); the Clean Water Act (33
U.S.C. 1251 et seq.); together with their state law analogs.
(iii) "Environmental Permits" shall mean all permits,
authorizations, registrations, certificates, licenses, approvals or consents
required under or issued by any Governmental Entity pursuant to Environmental
Laws.
(iv) "Former Facilities" shall mean any plants,
offices, land, manufacturing or other facilities formerly owned, operated,
leased, managed, used, controlled or occupied by Target in connection with
Target's business, or by any former subsidiary of Target or any
predecessor-in-interest of Target.
(v) "Hazardous Material" shall mean any toxic or
hazardous substance, material or waste and any pollutant or contaminant, or
infectious or radioactive substance or material, or any substances, materials
and wastes defined or regulated under any Environmental Laws, including without
limitation, solid wastes, petroleum, polychlorinated byphenyls and urea
formaldehyde.
(vi) "Property" shall mean the facilities located at
302 and 306 N. Main Street, Monticello, Indiana, presently owned and operated by
Shareholder and leased by Target and to be transferred to Target pursuant to the
Property Swap.
(vii) "Release" shall mean any intentional or
unintentional release, discharge, spill, leaking, pumping, pouring, emitting,
emptying, injection, disposal or dumping.
(viii) "Remedial Action" shall mean any and all: (i)
investigations of Environmental Conditions, including assessments, remedial
investigations, sampling, monitoring or the installation of monitoring wells; or
(ii) actions taken to address Environmental Conditions, including the use,
implementation, application, installation, operation or maintenance of removal
actions, in-situ or ex-situ remediation technologies to the surface and
subsurface soils, excavation and off-site disposal of such soils, soil vapor
extraction systems, recovery wells, sumps or trenches, systems for long-term
treatment of surface water or groundwater.
(b) Each of Target and Shareholder represents and warrants:
(i) Permits. Target and Shareholder possess all
Environmental Permits necessary in order to conduct Target's business as it is
now being conducted and use the Property as currently operated by Target and
Shareholder. Each Environmental Permit issued to Target or Shareholder is in
full force and effect. Target and Shareholder are in compliance with all
requirements, terms and provisions of the Environmental Permits issued to Target
and Shareholder and each has filed on a timely basis (and updated as required)
all reports, notices, applications or other documents required to be filed
pursuant to the Environmental Permits. Target and Shareholder have submitted to
Landec true and complete copies of all of the Environmental Permits (if any)
issued to or held by Target or
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Shareholder which by their terms or by operation of law will expire or otherwise
become ineffective on or before the Closing Date. Target and Shareholder shall
take all necessary actions to have such Environmental Permits renewed or
reissued to Target prior to the Closing Date so as to allow Surviving
Corporation to continue Target's business and use the Property without
interruption after the Closing Date.
(ii) Compliance With Environmental Laws. Target's
business and the Property are, and at all times have been, in material
compliance with all Environmental Laws then applicable to Target's business, the
Former Facilities, or the Property.
(iii) Reports, Disclosures and Notifications. Target
and Shareholder have filed on a timely basis (and updated as required) all
reports, disclosures, notifications, applications, pollution prevention,
stormwater prevention or discharge prevention or response plans or other
emergency or contingency plans required to be filed under Environmental Laws.
Schedule 2.15 lists all such reports, disclosures, notifications, applications
and plans filed by Target and Shareholder under Environmental Laws. All such
reports, disclosures, notifications, applications and plans are true, accurate
and complete.
(iv) Notices. Neither Target nor Shareholder has
received any notice that Target, the Property or any of the Former Facilities:
(i) is in violation of the requirements of any Environmental Permit or
Environmental Laws; (ii) is the subject of any suit, claim, proceeding, demand,
order, investigation or request or demand for information arising under any
Environmental Permit or Environment Laws; or (iii) has actual or potential
liability under any Environmental Laws, including without limitation CERCLA,
RCRA, or any comparable state or local Environmental Laws.
(v) No Reporting or Remediation Obligations. There
are no Environmental Conditions or other facts, circumstances or activities
arising out of or relating to Target's business, the Property, or the use,
operation or occupancy by Target or Shareholder of the Property or, to the
knowledge of the Shareholder or Target after diligent inquiry, the Former
Facilities that result or reasonably could be expected to result in (A) any
obligation of Target or Shareholder to file any report or notice, to conduct any
investigation, sampling or monitoring or to effect any environmental cleanup or
remediation, whether onsite or offsite; or (B) liability, either to governmental
agencies or third parties, for damages (whether to person, property or natural
resources), cleanup costs or remedial costs of any kind or nature whatsoever.
(vi) Liens and Encumbrance. No federal, state, local
or municipal governmental agency or authority has obtained or asserted an
encumbrance or lien upon the Property or any other property of Target or, to the
knowledge of the Shareholder or Target after diligent inquiry, any of the Former
Facilities as a result of any Release, use or cleanup of any Hazardous Material
for which Target or Shareholder is legally responsible, nor has any such
Release, use or cleanup occurred which could result in the assertion or creation
of such a lien or encumbrance.
(vii) Storage Transport or Disposal of Hazardous
Materials.
(A) There is not now nor has there ever been
located on the Property any areas or vessels used or intended for the treatment,
storage or disposal of Hazardous Materials,
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including, but not limited to, drum storage areas, surface impoundments,
incinerators, landfills, tanks, lagoons, ponds, waste piles or deep well
injunction systems.
(B) Neither Target nor Shareholder has
transported any Hazardous Material for storage, treatment or disposal, or
arranged for the transportation, storage, treatment or disposal of any Hazardous
Material by contract, agreement or otherwise, at or to any location used for the
treatment, storage or disposal of Hazardous Material.
(viii) Future Laws. There are no Environmental Laws
currently enacted or promulgated, but as to which compliance is not yet
required, that would require Shareholder, the Surviving Corporation or the
Landec Companies to take any action at the Property within three (3) years from
the Closing of this Agreement in order to bring Target's business or the
operations at the Property as presently conducted into compliance with such
Environmental Laws.
2.16 Taxes.
(a) Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.
(ii) The term "Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes, including
information returns or reports with respect to backup withholding and other
payments to third parties.
(b) Returns Filed and Taxes Paid. All Returns required to be
filed by or on behalf of Target, or relating to the Transferred Assets have been
duly filed on a timely basis and such Returns are true, complete and correct,
except to the extent that any failures to file or misstatements would not,
individually or in the aggregate have a Material Adverse Effect. All Taxes shown
to be payable on such Returns or on subsequent assessments with respect thereto,
and all payments of estimated Taxes required to be made by or on behalf of
Target under Section 6655 of the Code or comparable provisions of state, local
or foreign law, have been paid in full on a timely basis, and no other Taxes are
payable by Target with respect to items or periods covered by such Returns
(whether or not shown on or
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reportable on such Returns). Target has and as of the Closing Date (assuming the
effectuation of the Property Swap) will have, no liability for unpaid Taxes
(whether actual or contingent, and whether or not shown on Returns filed prior
to the Closing Date) for any periods (or portion thereof) ending on or prior to
the Closing Date. Target has withheld and paid over all Taxes required to have
been withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no liens on
the Transferred Assets or any of the assets of Target with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes Target is
contesting in good faith through appropriate proceedings and for which
appropriate reserves have been established. Target has not been at any time a
member of any partnership or joint venture for a period for which the statute of
limitations for any Tax potentially applicable to Target or the Transferred
Assets as a result of such membership has not expired.
(c) Tax Reserves. Target does not accrue or reserve and has
not accrued or reserved any amounts for unpaid income Taxes in its unaudited
Financial Statements.
(d) Returns Furnished. Landec has been furnished by Target
with true and complete copies of (i) relevant portions of income tax audit
reports, statements of deficiencies, closing or other agreements received by or
on behalf of Target or Shareholder relating to Taxes, and (ii) all federal and
state income or franchise tax returns and state sales and use tax Returns for or
including Target for the fiscal years ended October 31, 1994, October 31, 1995,
and October 31, 1996. Target has never been a member of an affiliated group of
corporations filing consolidated returns or a unitary group of corporations
filing combined returns. Target is not required to file Returns with any state
other than states for which Returns have been duly filed and furnished to
Landec.
(e) Tax Deficiencies; Audits; Statutes of Limitations. The
Returns of Target have never been audited by a government or taxing authority,
nor is any such audit in process, pending or threatened. No deficiencies exist
or have been asserted within the past five (5) years (either in writing or
verbally, formally or informally) or are expected to be asserted with respect to
Taxes of Target or relating to the Transferred Assets, and Target has not
received notice (either in writing or verbally, formally or informally) nor
expects to receive notice that it has not filed a Return or paid Taxes required
to be filed or paid. Target is not a party to any action or proceeding for
assessment or collection of Taxes, nor has such event been asserted or
threatened (either in writing or verbally, formally or informally) against
Target, any of its assets or the Transferred Assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of
Target or Taxes or Returns relating to the Transferred Assets. Target and
Shareholder have disclosed on its state income and franchise tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.
(f) Tax Sharing Agreements. Target is not (nor has it ever
been) a party to any tax sharing agreement.
(g) Tax Elections. Target is not, nor has it been, a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code, and Landec is not required to withhold tax on the purchase of the
Target Common Stock or the Transferred Assets by reason of Section 1445 of the
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Code. Target is not a "consenting corporation" under Section 341(f) of the Code.
Target has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Target pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Target has not
agreed to, nor is it required to make any adjustment under Code Section 481(a)
by reason of, a change in accounting method, and Target does not and will not
otherwise have any material income reportable for a period ending after the
Closing Date attributable to a transaction or other event (e.g., an installment
sale) occurring prior to the Closing Date. Target is not, nor has it been, a
"reporting corporation" subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations thereunder. Target
is in compliance with the terms and conditions of any applicable tax exemptions,
agreements or orders of any foreign government to which they may be subject or
which they may have claimed, and the transactions contemplated by this Agreement
will not have any adverse effect on such compliance.
(h) Target will transfer to Intellicoat at least ninety
percent (90%) of the fair market value of the net assets and at least seventy
percent (70%) of the fair market value of the gross assets held by Target
immediately prior to the Merger. For the purpose of determining the percentage
of Target's net and gross assets transferred to Intellicoat in the Merger, the
following assets will be treated as property held by Target immediately prior to
but not transferred to Intellicoat in the Merger: (i) assets disposed of by
Target (other than assets transferred by Target to Intellicoat in the Merger)
prior to the Merger and in contemplation thereof, (ii) assets used by Target to
pay dissenting stockholders or to pay other expenses or liabilities incurred in
connection with the Merger, and (iii) assets used to make distribution,
redemption or other payments in respect of Target capital stock or rights to
acquire such stock (including payments treated as such for tax purposes, but
excluding regular, normal dividends) that are made in contemplation of the
Merger or related thereto.
(i) Target is participating in the Merger for good and valid
business reasons and not for tax purposes.
(j) Target has operated and will through the Effective Time
continue to operate its historic business or use a significant portion of its
historic business assets in a business.
(k) The liabilities of Target and the liabilities to which the
assets of Target to be transferred to Intellicoat in the Merger are subject have
been incurred by Target in the ordinary course of its business.
(l) Target is not and will not be, on the Effective Time, an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code.
(m) Target is not under the jurisdiction of a court in a Title
11 bankruptcy or similar case within the meaning of Section 368 (a)(3)(A) of the
Code.
(n) After due inquiry with officers and directors, Target has
no knowledge of any plan or intention (a "Plan") on the part of Target's
stockholders to engage in a sale, exchange, transfer, distribution, pledge,
disposition or any other transaction which results in a reduction in the risk of
ownership or a direct or indirect disposition (a "Sale") of shares of Landec
Common Stock to be issued
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to such stockholders in the Merger, which shares would have an aggregate fair
market value, as of the Effective Time, in excess of fifty percent (50%) of the
aggregate fair market value (as determined based on the value to be exchanged in
the Merger), immediately prior to the Merger, of all outstanding shares of
Target Common Stock. For purposes of this paragraph, shares of Target Common
Stock (or the portion thereof) (i) with respect to which a Target stockholder
receives consideration in the Merger other than Landec Common Stock (including,
without limitation, cash paid to dissenting shareholders, payments pursuant to
the Earn-Out provisions of Section 1.3 hereof, the cash portion of the Merger
Consideration paid pursuant to Section 1.1(d), and cash paid in lieu of
fractional shares of Landec Common Stock) and/or (ii) with respect to which a
Sale occurs prior to and in contemplation of the Merger shall be considered
shares of outstanding Target Common Stock exchanged for Landec Common Stock in
the Merger and then disposed of pursuant to a Plan.
2.17 Employee Benefit Plans.
(a) Schedule 2.17 lists, with respect to Target and any trade
or business (whether or not incorporated) which is treated as a single employer
with Target (an "ERISA Affiliate") within the meaning of Section 414(b), (c),
(m) or (o) of the Code, (i) all material employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), (ii) each loan to a non-officer employee in excess of $20,000, each
loan to officers and directors and any stock option, stock purchase, phantom
stock, stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria benefit
(Code Section 125) or dependent care (Code Section 129), life insurance or
accident insurance plans, programs or arrangements, (iii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target and that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Target of greater than $20,000 remain for the benefit
of, or relating to, any present or former employee, consultant or director of
Target (together, the "Target Employee Plans").
(b) Target has furnished to Landec a copy of each of the
Target Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and, to the extent still in its possession, any
material employee communications relating thereto) and has, with respect to each
Target Employee Plan which is subject to ERISA reporting requirements, provided
copies of the Form 5500 reports filed for the last three plan years. Any Target
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to the Internal Revenue Service for such a determination letter
prior to the expiration of the requisite period under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination. Target has also furnished Landec with the most recent
Internal Revenue Service determination letter, if any, issued with respect to
each such Target Employee Plan, and nothing has occurred since the issuance of
each such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any Target Employee Plan subject to Code Section 401(a).
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(c) (i) None of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Target Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each Target Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and Target and each ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any respect in default under or violation of, and have no knowledge
of any default or violation by any other party to, any of the Target Employee
Plans, which default or violation could reasonably be expected to have a
Material Adverse Effect; (iv) neither Target nor any ERISA Affiliate is subject
to any liability or penalty under Sections 4976 through 4980 of the Code or
Title I of ERISA with respect to any of the Target Employee Plans; (v) all
material contributions required to be made by Target or any ERISA Affiliate to
any Target Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Target Employee
Plan for the current plan years; (vi) with respect to each Target Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) each of the Target
Employee Plans may be terminated by Target at any time without liability to
Target; and (viii) no Target Employee Plan is covered by, and neither Target nor
any ERISA Affiliate has incurred or expects to incur any liability under Title
IV of ERISA or Section 412 of the Code. With respect to each Target Employee
Plan subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, Target has prepared in good faith and timely filed all
requisite governmental reports (which were true and correct as of the date
filed) and, has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Target Employee Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the best knowledge of Target
is threatened, against or with respect to any such Target Employee Plan,
including any audit or inquiry by the IRS or United States Department of Labor.
Neither Target nor any ERISA Affiliate is a party to, or has made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target has
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder, except to the extent
that such failure to comply would not, in the aggregate, have a Material Adverse
Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any other ERISA Affiliate to severance benefits or any
other payment, except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or service provider.
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(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in Target's financial statements.
2.18 Employee Matters. Target is in compliance in all material respects
with all currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against Target under
any workers compensation plan or policy or for long term disability. Target has
no material obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder. There are no proceedings pending or, to the
knowledge of Target or Shareholder, threatened, between Target and any of its
employees, which proceedings have or could reasonably be expected to have a
Material Adverse Effect on Target. Target is not a party to any collective
bargaining agreement or other labor union contract nor does Target know of any
activities or proceedings of any labor union or organize any such employees.
2.19 Interested Party Transactions. Target is not indebted to any
director, officer, employee or agent of Target (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to Target.
2.20 Insurance. Target has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Target including the Transferred Assets. There is no
material claim pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and Target is otherwise in compliance with the terms of such policies and
bonds. Neither Target nor Shareholder has any knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.21 Compliance With Laws. Target has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business. With respect to federal, state, local or foreign
statute, law and regulations other than those described in Sections 2.15, 2.16
and 2.17 hereof, Target (and Shareholder with respect to the Transferred Assets)
has complied with, is not in violation of any such federal, state, local or
foreign statute, law or regulation except for such violations or failures to
comply as could not reasonably be expected to have a Material Adverse Effect on
Target.
2.22 Minute Books. The minute books of Target made available to Landec
contain a complete summary of all meetings of directors and shareholders or
actions by written consent since the time of incorporation of Target through the
date of this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
2.23 Complete Copies of Materials. Target and Shareholder have
delivered or made available true and correct copies of each document which has
been requested by Landec or its counsel in connection with their legal and
accounting review of Target. All the material contracts, agreements and
instruments to which Target is a party or which relate to the Transferred Assets
are listed in 2.23 hereto.
2.24 Brokers' and Finders' Fees. Other than the obligations of Target
to pay up to $737,500 to Crawford pursuant to the Crawford Agreement, neither
Target nor Shareholder has incurred, nor will they incur,
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directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.25 Vote Required. The written consent of Shareholder and the Minority
Interest Holders is the only vote of the holders of any of Target's Common Stock
necessary to approve this Agreement and the transactions contemplated hereby.
There will be no dissenting shareholders or persons with dissenter's rights (as
such terms are defined in the Indiana Business Corporation Law) related to the
transactions contemplated hereby.
2.26 Board Approval. The Board of Directors of Target has unanimously
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
in the best interests of the shareholders of Target and is on terms that are
fair to such shareholders and (iii) recommended that the shareholders of Target
approve this Agreement and the Merger.
2.27 Inventory. The inventories shown on the Financial Statements or
thereafter acquired by Target, consisted of items of a quantity and quality
usable or salable in the ordinary course of business less ordinary allowances
for unsaleable products. Since June 30, 1997, Target has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Target has not received written or oral notice that it will experience in the
foreseeable future any difficulty in obtaining hybrid cord seed, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, but such prices and the terms and conditions of their purchase are
subject to negotiation with third parties. The values at which inventories are
carried reflect the inventory valuation policy of Target, which is consistent
with its past practice and in accordance with generally accepted accounting
principles applied on a consistent basis.
2.28 Accounts Receivable. Subject to any reserves set forth in the
Financial Statements, the accounts receivable shown on the Financial Statements
represent and will represent bona fide claims against debtors for sales and
other charges, and are not subject to discount except for normal trade
discounts. To the best of Target's and Shareholder's knowledge, after due
inquiry, the amount carried for doubtful accounts and allowances disclosed in
the Financial Statements is sufficient to provide for any losses which may be
sustained on realization of the receivables.
2.29 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of Target's gross revenues during the 12
month period preceding the date hereof, and no supplier of Target, has canceled
or otherwise terminated, or made any written threat to Target to cancel or
otherwise terminate its relationship with Target, or has at any time on or after
June 30, 1997 decreased materially its services or supplies to Target in the
case of any such supplier, or its usage of the services or products of Target in
the case of such customer, and to Target's knowledge, no such supplier or
customer intends to cancel or otherwise terminate its relationship with Target
or to decrease materially its services or supplies to Target or its usage of the
services or products of Target, as the case may be.
2.30 Certain Shareholder Representations. Shareholder represents and
warrants that:
(a) Restricted Shares; Rule 144. Shareholder is aware that the
Merger Stock Consideration must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available. Purchaser is aware of the provisions of Rules 144 and 145 promulgated
under the Securities Act which permit limited resale of shares received in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly
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with a "market maker" (as provided by Rule 144(f)) and the number of shares
being sold during any three-month period not exceeding specified limitations.
Shareholder is further aware that the Merger Stock Consideration shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULES 144 AND/OR 145 UNDER THE SECURITIES
ACT OF 1933, AS AMENDED APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH THE PROVISIONS OF SUCH RULE."
(b) Experience. Shareholder has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to Landec so that he is capable of evaluating the merits and
risks of his investment in Landec and has the capacity to protect his own
interests. In addition, Shareholder recognizes that a holding in Landec is
highly speculative and involves significant risks including a complete loss of
such holding. Finally, Shareholder represents that he is an "Accredited
Investor" as defined in Rule 501(a) of Regulation D of the Securities Act.
(c) Investment. Shareholder is acquiring the Merger Stock
Consideration for investment for his own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any distribution
thereof. He understands that the Merger Stock Consideration has not been, and
will not be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act, the
availability of which depends upon among other thing, the bona fide nature of
the investment intent and the accuracy of Shareholder's representations as
expressed herein.
(d) Public Market; No Federal or State Approval. Shareholder
understands that while a public market currently exists for the Common Stock of
Landec, that Landec has made no assurances that a public market will continue to
exist in the future. Shareholder understands that no Federal or state agency has
passed upon the Merger Stock Consideration or made any finding or determination
as to the fairness of the investment or any recommendation or endorsement of the
Merger Stock Consideration.
(e) Access to Data. Shareholder has had an opportunity to
discuss the business, management and financial affairs of Landec and Intellicoat
with its management. Shareholder has also had opportunity to ask questions of
officers of Landec and Intellicoat, which questions were answered to his
satisfaction.
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2.31 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule or Exhibit hereto, including
the Target Schedule, or certificate furnished by Target pursuant to this
Agreement or any written statement furnished to Landec pursuant hereto or in
connection with the transactions contemplated hereby, when all such documents
are read together in their entirety, as of the date hereof contains or is
reasonably expected to contain at the Effective Time any untrue statement of a
material fact, or as of the date hereof omits or is reasonably expected to omit
at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LANDEC AND INTELLICOAT
Except as disclosed in a document of even date herewith and delivered
by Landec to Target prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Landec
Disclosure Schedule"), Landec and Intellicoat represent and warrant to Target as
follows:
3.1 Organization, Standing and Power. Each of the Landec Companies, is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of the Landec Companies has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on it.
Landec has delivered a true and correct copy of the Articles of Incorporation
and Bylaws of each of the Landec Companies, each as amended to date, to Target.
None of the Landec Companies is in violation of any of the provisions of its
Articles of Incorporation or Bylaws or equivalent organizational documents.
Except as described in the Landec SEC Documents (as hereinafter defined) Landec
is the owner of all outstanding shares of capital stock of each of the other
Landec Companies and all such shares are duly authorized, validly issued, fully
paid and nonassessable. All such outstanding shares of capital stock are owned
free and clear of all liens, charges, claim or encumbrances or rights of others.
Except as described in the Landec SEC Documents there are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any of
the Landec Companies, or otherwise obligating any of the Landec Companies to
transfer, sell, purchase, redeem or otherwise acquire any of the Landec
Companies. Except as disclosed in the Landec SEC Documents, Landec does not
directly or indirectly own any equity or similar interest in, or any interest
convertible or exchangeable or exercisable for, any equity or similar interest
in, any corporation, partnership, joint venture or other business association or
entity.
3.2 Authority. The Landec Companies have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Landec Companies. This
Agreement has been duly executed and delivered by the Landec Companies and
constitutes the valid and binding obligations of the Landec Companies. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Articles of
Incorporation or Bylaws of the Landec Companies, as amended,
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or (ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Landec Companies
or their properties or assets. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to the Landec Companies in connection with the
execution and delivery of this Agreement by the Landec Companies or the
consummation by the Landec Companies of the transactions contemplated hereby,
except for (i) the filing of the Agreement of Merger, together with the required
officers' certificates, as provided in Section 1.2, (ii) the filing of a Form
8-K with the Securities and Exchange Commission ("SEC") and National Association
of Securities Dealers ("NASD") within 15 days after the Closing Date, (iii) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (iv) the filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect to
the shares of Landec Common Stock issuable upon conversion of the Target Common
Stock in the Merger, and (v) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Landec and would not prevent, materially alter or
delay any the transactions contemplated by this Agreement.
3.3 SEC Documents; Financial Statements. Landec has made available to
Target and Shareholder a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Landec since February 15, 1996, and, prior to the Closing
Date, Landec will have furnished Target and Shareholder with true and complete
copies of any additional documents filed with the SEC by Landec prior to the
Closing Date (collectively, the "Landec SEC Documents"). In addition, Landec has
made available to Target and Shareholder all exhibits to the Landec SEC
Documents filed prior to the date hereof, and will promptly make available to
Target and Shareholder all exhibits to any additional Landec SEC Documents filed
prior to the Closing Date. As of their respective filing dates, the Landec SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended and the Securities Act, and none of
the Landec SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Landec SEC Document. The financial statements of Landec, including the
notes thereto, included in the Landec SEC Documents (the "Landec Financial
Statements") were complete and correct in all material respects as of their
respective dates, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Landec
Financial Statements fairly present the consolidated financial condition and
operating results of Landec and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no change in Landec
accounting policies except as described in the notes to the Landec Financial
Statements.
3.4 Representations Relating to Reorganization Status.
(a) Prior to the Effective Time, Landec will be in control of
Intellicoat within the meaning of Section 368(c)(1) of the Code.
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(b) Landec has no plan or intention to reacquire any of its
stock issued in the Merger, other than possible purchases in the ordinary course
of business of shares held by Target employees in connection with termination of
employment of such employees.
(c) Landec has no plan or intention to liquidate Intellicoat,
to merge Intellicoat with and into another corporation (other than Target
pursuant to the Merger), to sell or otherwise dispose of the stock of
Intellicoat, or to cause Intellicoat to sell or otherwise dispose of any of the
assets of Target acquired in the Merger, except for dispositions made in the
ordinary course of business, transfers described in Section 368(a)(2)(C) of the
Code, or sales or dispositions for which reasonable arm's-length consideration
is received for the assets sold or disposed of.
(d) Neither Landec nor Intellicoat is an investment company as
defined by Section 368(a)(2)(F)(iii) and (iv) of the Code.
(e) Landec and Intellicoat are participating in the Merger for
good and valid business reasons and not for tax purposes.
(f) Following the Merger, Intellicoat has no plan or intent to
issue additional shares of its stock that would result in Landec losing control
of Intellicoat within the meaning of Section 368(c)(1) of the Code and will not
do so prior to one year following the Effective Time..
(g) Following the Merger, Intellicoat (or a transferee of
Intellicoat in a transaction described in Section 368(a)(2)(C) of the Code) will
continue the historic business of Target or use a significant portion of
Target's business assets in a business.
3.5 Representations Complete. None of the representations or warranties
made by Landec herein or in any Schedule hereto, including the Landec Disclosure
Schedule and the Landec SEC Documents, or certificate furnished by Landec
pursuant to this Agreement, when all such documents are read together in their
entirety as of the date hereof contains or is reasonably expected to contain at
the Closing Date any untrue statement of a material fact, or as of the date
hereof omits or is reasonably expected to omit at the Closing Date to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target. Between the date hereof and the
Effective Time, Target will conduct its business, and Shareholder will operate
the Transferred Assets, in the ordinary course consistent with past practice,
and neither Shareholder nor Target will, except as provided in this Agreement,
including attached Schedule 4.1 or otherwise with the prior written approval of
Landec:
(a) Charter Documents. Cause or permit any amendments to
Target's Articles of Incorporation or Bylaws;
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(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of Target's capital stock, or split, combine or
reclassify any of Target's capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
Target's capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of Target's capital stock;
(c) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of Target's material contracts, other than in the ordinary course of
business consistent with past practice;
(d) Issuance of Securities. Other than pursuant to the
Permitted Issuances, issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of Target's capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(e) Intellectual Property. Transfer to any person or entity
any rights to Target's Intellectual Property other than in the ordinary course
of business consistent with past practice;
(f) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Target's products
or technology;
(g) Dispositions. Other than pursuant to the Property Swap,
sell, lease, license or otherwise dispose of or encumber any of Target's
properties or assets which are material, individually or in the aggregate, to
Target's business, taken as a whole;
(h) Indebtedness. Incur any indebtedness for borrowed money on
behalf of Target or cause Target to guarantee any indebtedness or issue or sell
any debt securities or guarantee any debt securities of others, provided
however, that Target may incur up to $300,000 in debt under that certain
Business Loan Agreement between First of America Bank-Indiana and Target dated
November 16, 1996, as amended July 28, 1997 in order to satisfy working capital
obligations of Target consistent with the operation of Target in the ordinary
course, including but not limited to, as described in this Section 4.1;
(i) Leases. Cause Target to enter into an operating lease with
aggregate expected payments in excess of $20,000;
(j) Payment of Obligations. Cause Target to pay, discharge or
satisfy in an amount in excess of $10,000 in any one case or $50,000 in the
aggregate, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) arising other than in the ordinary course
of business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Financial Statements;
(k) Capital Expenditures. Cause Target to make any capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and consistent with past practice;
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(l) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies relating to the
business, assets or liabilities of Target;
(m) Termination or Waiver. Terminate or waive any right of
substantial value to Target;
(n) New Hires; Pay Increases. Cause Target to adopt or amend
any employee benefit or stock purchase or option plan, or hire any new director
level or officer level employee, pay any special bonus or special remuneration
to any employee or director, or increase the salaries or wage rates of Target's
employees;
(o) Severance Arrangements. Cause Target to grant any
severance or termination pay (i) to any director or officer of Target or (ii) to
any other employee of Target except grants which are made in the ordinary course
of business in accordance with Target's standard past practice;
(p) Lawsuits. Commence a lawsuit relating to Target other than
for the routine collection of bills;
(q) Acquisitions. Cause Target to acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to Target's business, taken as a whole;
(r) Taxes. Other than in the ordinary course of business, make
or change any material election in respect of Taxes relating to Target, adopt or
change any accounting method in respect of Taxes relating to Target or consent
to any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes relating to Target;
(s) Revaluation. Revalue any of Target's assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(t) Other. Agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (s) above, or any action which
would make any of Target's or Shareholder's representations or warranties
contained in this Agreement untrue or incorrect in any material respect, or
prevent it from performing or cause it not to perform Target's or Shareholder's
covenants hereunder.
4.2 No Solicitation. Target and the officers, directors, employees or
other agents of Target will not, directly or indirectly, (i) take any action to
solicit, initiate or encourage any Takeover Proposal (defined below) or (ii)
subject to the terms of the immediately following sentence, engage in
negotiations with, or disclose any nonpublic information relating to Target to,
or afford access to the properties, books or records of Target to, any person
that has advised Target that it may be considering making, or that has made, a
Takeover Proposal. "Takeover Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Target or the acquisition of any significant equity interest in, or a
significant portion of the assets of Target, other than the transactions
contemplated by this Agreement.
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4.3 Access to Information.
(a) Target shall afford Landec and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Target and its subsidiaries as Landec
may reasonably request. Target agrees to provide to Landec and its accountants,
counsel and other representatives copies of internal financial statements
promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Landec and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 4.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
4.4 Confidentiality. The parties acknowledge that Landec and Target
have previously executed a Non-Disclosure and Non-Solicitation Agreement dated
June 16, 1997 (the "Confidentiality Agreement"), which Confidentiality Agreement
shall continue in full force and effect in accordance with its terms.
4.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Landec and Target shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.
4.6 Consents; Cooperation.
(a) Each of Landec and Target shall promptly apply for or
otherwise seek, and use commercially reasonable efforts to obtain, all consents
and approvals required to be obtained by it for the consummation of the Merger,
and shall use commercially reasonable efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts in connection with the
Merger for the assignment thereof or otherwise. The parties hereto will consult
and cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on behalf of
any party hereto in connection with proceedings under or relating to any federal
or state law.
(b) Each of Landec and Target shall use all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the Merger. In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any law, each of Landec and Target shall cooperate and use all
reasonable efforts vigorously to contest and resist any such action or
proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or permanent
(each an "Order"), that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any such other transactions, unless by mutual
agreement Landec and Target decide that litigation is not in their respective
best interests. Notwithstanding the provisions of the immediately
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preceding sentence, it is expressly understood and agreed that Landec and Target
shall have no obligation to litigate or contest any administrative or judicial
action or proceeding or any Order beyond September 30, 1997.
(c) Notwithstanding anything to the contrary in Section 4.6(a)
or (b), (i) neither Landec nor any of its subsidiaries shall be required to
divest any of their respective businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation that could
reasonably be expected to have a Material Adverse Effect on Landec or on Landec
combined with the Surviving Corporation after the Effective Time or (ii) Target
shall not be required to divest any of its businesses, product lines or assets,
or to take or agree to take any other action or agree to any limitation that
could reasonably be expected to have a Material Adverse Effect on Target.
(d) Notwithstanding anything to the contrary in this Section
4.6, the parties shall use commercially reasonable efforts from and after the
date hereof, including if necessary such efforts subsequent to the Closing, to
(i) release Shareholder and his wife from any and all liabilities and
obligations relating to the Transferred Liabilities, except to the extent
relating to periods prior to the Property Swap, and substitute the Surviving
Corporation as the obligor under the Transferred Liabilities; (ii) release the
Surviving Corporation from and against any and all liabilities and obligations
relating to the Assumed Liabilities, and substitute Shareholder as the obligor
under the Assumed Liabilities; and (iii) release Shareholder and his wife from
and against any and all obligations, including but not limited to guarantees,
pledges, security interests and mortgages in any way relating to the $700,000
line of credit provided under the Business Loan Agreement described in Section
4.1 (h) hereof (the "Line of Credit"). In the event that the parties, after
using the commercially reasonable efforts described above, are unable to effect
the releases described in clauses (i), (ii) and (iii) above, then (x) Landec and
the Surviving Corporation shall pay any and all Transferred Liabilities when due
and indemnify and hold Shareholder and his wife harmless from and against any
obligations or liabilities under the Transferred Liabilities (except with
respect to periods prior to the Property Swap); (y) Shareholder shall pay any
and all Assumed Liabilities when due and indemnify and hold the Landec Companies
harmless from and against any obligations or liabilities under the Assumed
Liabilities; and (z) Landec and the Surviving Corporation shall pay any and all
obligations and liabilities under the Line of Credit when due and indemnify and
hold Shareholder and his wife harmless from and against any and all obligations
and liabilities, including but not limited to guarantees, pledges, security
interests, and mortgages relating to the Line of Credit, including but not
limited to (promptly upon request of Shareholder) paying all balances due under
the Line of Credit and terminating the Line of Credit.
4.7 Legal Requirements. Each of Landec, Intellicoat, Shareholder and
Target will, and will cause their respective subsidiaries (if any) to, take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
4.8 Blue Sky Laws. Landec shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Landec Common Stock in connection with the
Merger. Target shall use commercially reasonable efforts, at the expense of
Landec, to assist Landec as may be necessary to comply with the securities and
blue sky laws of all jurisdictions which are applicable in connection with the
issuance of Landec Common Stock in connection with the Merger.
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4.9 Listing of Additional Shares. Prior to the Effective Time, if
required, Landec shall file with the Nasdaq National Market a Notification Form
for Listing of Additional Shares with respect to the shares of Landec Common
Stock issuable upon conversion of the Target Common Stock in the Merger.
4.10 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the Agreement of Merger and
the transactions contemplated hereby and thereby shall be paid by the party
incurring such expense; provided, however, that any out-of-pocket expenses
incurred by Target (including, without limitation, fees and expenses of legal
counsel, financial advisors and accountants) in excess of $50,000 shall be paid
directly by Shareholder, but provided further, that, in addition to the above,
Landec shall pay the reasonable fees and expenses of Katz, Sapper, & Miller LLP
up to $20,000, which were incurred in connection with their performance of the
audit of the annual financial statements of Target for the fiscal years ended
October 31, 1995 and October 31, 1996.
4.11 Employee Matters.
(a) Stock Option Plan. Within six (6) months of the Closing,
each full time employee of the Surviving Corporation will be permitted to
participate in Intellicoat's 1996 Stock Option Plan.
(b) Stock Purchase Plan. Each full time employee of the
Surviving Corporation as of the first enrollment date under the Landec 1996
Employee Stock Purchase Plan following the date six (6) months from the Closing,
will be permitted to participate in the Landec 1996 Employee Stock Purchase
Plan, on the same terms as other Employees of Intellicoat.
4.12 Further Assurances. Each of the parties to this Agreement shall
use commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and use commercially
reasonable efforts to do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE V
CONDITIONS TO THE MERGER
5.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(b) Governmental Approval. Landec, Target, Shareholder and
Intellicoat and their respective subsidiaries (if any) shall have timely
obtained from each Governmental Entity all approvals, waivers
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and consents, if any, necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby, including such
approvals, waivers and consents as may be required under the Securities Act and
under state Blue Sky laws.
(c) Listing of Additional Shares. If required, the filing by
Landec with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Landec Common Stock issuable
upon conversion of the Target Common Stock in the Merger shall have been made.
5.2 Additional Conditions to Obligations of Target. The obligations of
Shareholder and Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) Certificate of Landec. Target shall have been provided
with a certificate executed on behalf of Landec by its President and its Chief
Financial Officer to the effect that, as of the Effective Time all covenants,
obligations and conditions of this Agreement to be performed by the Landec
Companies on or before such date have been so performed in all material
respects.
(b) Legal Opinion. Target shall have received a legal opinion
from Landec's legal counsel substantially in the form of Exhibit C hereto.
(c) Employment Agreement. Landec, the Surviving Corporation
and Shareholder shall have entered into an Employment Agreement in substantially
the form attached hereto as Exhibit D.
5.3 Additional Conditions to the Obligations of Landec Companies. The
obligations of the Landec Companies to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Landec:
(a) Certificate of Target. Landec shall have been provided
with a certificate executed on behalf of Target by its President and Chief
Financial Officer to the effect that, as of the Effective Time, all covenants,
obligations and conditions of this Agreement to be performed by Target on or
before such date have been so performed in all material respects.
(b) Third Party Consents. Landec shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
any material contract of Target. Notwithstanding the above, however, if any such
consent or approval is not obtained prior to the Closing, then the Landec
Companies will cooperate with Shareholder in any reasonable arrangement
necessary or desirable to afford the Landec Companies with the practical
benefits and obligations under such contract for periods subsequent to Closing
consistent with the terms of this Agreement, and in this event this condition
shall be deemed satisfied notwithstanding that third-party consent or approval
shall not have been obtained. These conditions shall not apply with respect to
obtaining the consents relating to the Transferred Liabilities, Assumed
Liabilities and Line of Credit, which shall be subject to and governed by
Section 4.6(d).
(c) Injunctions or Restraints on Merger and Conduct of
Business. No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint provision limiting or restricting Landec's conduct or
operation of the business of Target or ownership or use of the Transferred
Assets following the Merger shall be in effect, nor shall any
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proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(d) Legal Opinion. Landec shall have received a legal opinion
from Target's legal counsel, in substantially the form of Exhibit E.
(e) FIRPTA Certificate. Target shall have provided Landec with
the FIRPTA Notification Letter and other documents attached hereto as Exhibit F.
(f) Non-Competition Agreement.The Shareholder shall have
accepted employment with the Surviving Corporation and have entered into the
Non-Competition Agreement in substantially the form attached hereto as Exhibit
B.
(g) Shareholder Agreement. The Shareholder shall have executed
and delivered a Shareholder Agreement in substantially the form attached hereto
as Exhibit G to Landec.
(h) Expense Statement. Landec shall have received from Target
a statement of all out-of-pocket expenses billed to Target as of the Closing
Date which are subject to the limitation described in Section 5.3(h) hereto.
(i) Property Swap. The Property Swap shall have been
consummated in accordance with the description set forth in Section 2.3 hereof.
(j) Termination of Bonus Arrangement. Any bonus arrangement
relating to the profitability of Target entered into between the Shareholder,
Target and Michael L. Godlove and Martin J. Huseman, respectively, shall have
been terminated with respect to periods after the Closing, and shall be of no
further force and effect. All of the payment obligations of Target (if any)
thereunder for periods prior to the Closing shall have been satisfied.
(l) Shareholder Vote. Holders of one hundred percent (100%) of
the outstanding shares of the capital stock of Target shall have approved the
Merger.
ARTICLE VI
TERMINATION; INDEMNIFICATION
6.1 Termination. At any time prior to the Effective Time, this
Agreement may be terminated:
(a) by mutual consent of Landec and Target;
(b) by either Landec or Target, if, without breach of (i)
Landec or (ii) Target or Shareholder, respectively, the Closing shall not have
occurred on or before September 30, 1997 (or such later date as may be agreed
upon in writing by the parties hereto);
(c) by Landec, if Target shall breach any of the covenants and
agreements of Target contained in Article IV hereunder and such breach shall not
have been cured within ten (10) business days of receipt by Target of written
notice of such breach;
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(d) by Target, if any of the Landec Companies shall breach any
of their respective covenants and agreements contained in Article IV hereunder
and such breach shall not have been cured within ten (10) days following receipt
by Landec of written notice of such breach; or
(e) by either Landec or Target if any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the transactions contemplated hereby shall have become final and
nonappealable.
6.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 6.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Landec,
Intellicoat, Target, Shareholder or their respective officers, directors,
shareholders or affiliates, except to the extent that such termination results
from the material breach by a party hereto of any of its covenants and
agreements set forth in Article IV of this Agreement; provided that, the
provisions of Section 5.4 (Confidentiality), shall remain in full force and
effect and survive any termination of this Agreement.
6.3 Expenses and Termination Fees. Whether or not the transactions
contemplated hereby are consummated, subject to the provisions of Section 4.10
hereof, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby (including, without limitation, the fees
and expenses of its advisers, accountants and legal counsel) shall be paid by
the party incurring such expense.
6.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
6.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
6.6 Indemnification by Shareholder.
(a) Indemnity. From and after the Closing, the Shareholder
(the "Indemnitor") hereby agrees to indemnify and hold harmless the Landec
Companies and their respective officers, directors, agents and employees, and
each person, if any, who controls or may control the Landec Companies within the
meaning of the Securities Act (each an "Indemnitee") from and against any and
all losses, costs, damages, liabilities and expenses arising from claims,
demands, actions, causes of action, including, without limitation, reasonable
legal fees, net of any recoveries under existing insurance policies or
indemnities from third parties (collectively, "Damages") arising out of:
(i) any misrepresentation or breach of or default in
connection with any of the representations, warranties, covenants and agreements
given or made by Target and Shareholder in this Agreement, the Target Disclosure
Schedule or any exhibit or schedule to this Agreement,
(ii) any acts or omissions of Target prior to the
Closing Date, or Shareholder, whether prior to or after the Closing Date, that
cause the Merger to fail to be treated as a reorganization within the meaning of
Section 368 of the Code including without limitation, (A) any transfers by
Shareholder of Target Common Stock in anticipation of the Merger or Landec
Common Stock
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following the Merger which separately or collectively cause the Merger to fail
to satisfy the "continuity of interest" requirement for qualification as a
reorganization, or (B) any transfers of assets of Target prior to the Closing
Date which cause the Merger to fail to satisfy the "substantially all"
requirement of Section 368(a)(2)(D) of the Code,
(iii) any Taxes (including any obligations arising
under Bulk Sales Laws) levied on Target or the Transferred Assets whether
imposed before, on or after the Closing Date, attributable to transfers of
assets by or to Target in connection with the Merger;
(b) Threshold. The Landec Companies shall not be entitled to
indemnification hereunder with respect to claims made by the Landec Companies
under Section 6.6(a) above unless and until the aggregate damages and expenses
actually paid or incurred by the Landec Companies in connection with all claims
made thereunder actually paid or incurred by the Landec Companies exceeds
$100,000 and then only the amount of such excess.
(c) Termination of Indemnification. The right to indemnity
under Section 6.6(a) above shall terminate thirty (30) months after the
Effective Date, except that (i) with respect to any Claim relating to Taxes,
including without limitation, Claims made for breaches of representations set
forth in Section 2.16 and under clauses (ii) or (iii) of Section 6.6(a) above,
such right shall terminate thirty (30) days after the expiration of all
applicable statutes of limitations, and (ii) with respect to any claim for
indemnity hereunder which shall have been made in accordance with the terms of
this Agreement during the appropriate period set forth hereinabove, until the
final determination and satisfaction of such claim.
6.7 Indemnification by Landec.
(a) Indemnity. From and after the Closing, Landec (the
"Indemnitor") hereby agrees to indemnify and hold harmless the Shareholder (the
"Indemnitee") against any and all losses, costs, damages, liabilities and
expenses arising from claims, demands, actions, causes of action, including,
without limitation, reasonable legal fees, net of any recoveries under existing
insurance policies or indemnities from third parties (collectively, "Damages")
arising out of:
(i) any misrepresentation or breach of or default in
connection with any of the representations, warranties, covenants and agreements
given or made by the Landec Companies in this Agreement, the Landec Disclosure
Schedule or any exhibit or schedule to this Agreement, and
(ii) any acts or omissions of the Landec Companies
prior to or subsequent to the Closing Date that cause the Merger to fail to be
treated as a reorganization within the meaning of Section 368 of the Code; and
(iii) any liabilities, payments or obligations
arising out of acts or omissions of the Landec Companies following the Closing
Date with respect to the Transferred Liabilities.
(b) Threshold. The Shareholder shall not be entitled to
indemnification hereunder with respect to claims made by the Shareholder under
Section 6.7(a) above unless and until the aggregate damages and expenses
actually paid or incurred by the Shareholder in connection with all claims made
thereunder actually paid or incurred by the Shareholder exceeds $100,000 and
then only
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the amount of such excess. This Section 6.7(b) shall not apply to any obligation
of the Landec Companies to pay Merger Consideration under this Agreement.
(c) Termination of Indemnification. The right to indemnity
under Section 6.6(a) above shall terminate thirty (30) months after the
Effective Date, except that (i) with respect to any Claim relating to clause
(ii) of Section 6.7(a) above, such right shall terminate thirty (30) days after
the expiration of all applicable statutes of limitations, and (ii) with respect
to any claim for indemnity hereunder which shall have been made during the
appropriate period set forth hereinabove, until the final determination and
satisfaction of such claim.
6.8 Indemnification Procedure.
(a) Whenever any Claim shall be asserted against or incurred
by an Indemnitee (as defined under Section 6.6 for a Claim thereunder and under
Section 6.7 for a Claim thereunder), the Indemnitee shall give written notice
thereof to Indemnitor (which shall be Shareholder or Landec for a Claim under
Section 6.6 or 6.7 respectively) within sixty (60) days of notice of such Claim.
Indemnitee shall furnish to Indemnitor in reasonable detail such information as
the Indemnitee may have with respect to the Claim (including in any case copies
of any summons, complaint or other pleading which may have been served on it and
any written claim, demand, invoice, billing or other document evidencing or
asserting the same). The failure to give such notice shall not relieve
Indemnitor of his indemnification obligations under this Agreement.
(b) Any controversy between Indemnitor and Indemnitee
regarding a Claim shall be settled by binding arbitration in accordance with
Section 7.9.
(c) If the Claim is based on a claim of a person that is not a
party to this Agreement, Indemnitor may, at its expense, undertake the defense
of such Claim with attorneys of its own choosing reasonably satisfactory to the
Indemnitees. In the event Indemnitor, within a reasonable time after receiving
notice of a Claim from the Indemnitees, fails to defend the Claim, the
Indemnitees may, at the expense of Indemnitor, undertake the defense of the
Claim and may compromise or settle the Claim, all for the account of Indemnitor.
After notice from Indemnitor to the Indemnitees of its election to assume the
defense of such Claim, Indemnitor shall not be liable to the Indemnitees under
this Section 6.8(c) for any legal expenses subsequently incurred by the
Indemnitees in connection with the defense thereof, except for such reasonable
expenses incurred in connection with cooperation with, or at the request of,
Indemnitor, provided, however, that the Indemnitees shall have the right to
employ, at their expense, counsel to represent them if, in the Indemnitees'
reasonable judgment, based upon the advice of counsel, it is advisable, in light
of the separate interests of the Indemnitees and Indemnitor, for the Indemnitees
to be represented by separate counsel. For purposes of this Section 6.8, in the
event that any of the Landec Companies is an Indemnitee, Bose McKinney & Evans
shall be deemed to be reasonably satisfactory attorneys for the defense of a
Claim on behalf of Shareholder as Indemnitor.
(d) Indemnitor shall not, except with the prior written
consent of the Indemnitees which shall not be unreasonably withheld, consent to
entry of any judgment or enter into any settlement.
(e) Except as otherwise provided above, all reasonable costs
incurred by the Indemnitees in connection with a Claim shall be paid by
Indemnitor.
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(f) Notwithstanding the foregoing provisions of this Section
6.8, any audit or other proceedings relating to Taxes for periods prior to the
Closing Date for which the Landec Companies may be entitled to indemnification
shall be controlled by Shareholder. Each party shall notify the other promptly
upon the commencement of any such proceedings. The Shareholder will allow the
Landec Companies to comment on any written submissions, will consult in good
faith with the Landec Companies regarding the conduct of such proceedings, and
will not settle or compromise any such proceedings, to the extent such
settlement or compromise would have an adverse consequence on the Landec
Companies, without the prior written consent of the Landec Companies, which
consent will not be unreasonably withheld or delayed.
ARTICLE VII
ADDITIONAL AGREEMENTS; GENERAL PROVISIONS
7.1 Tax Matters.
(a) Tax Periods Ending On or Prior to the Closing Date.
Shareholder shall prepare, or cause to be prepared, income tax returns for
Target for all periods ending on or prior to the Closing Date, and Shareholder
will file all such returns by their respective due dates. Shareholder shall
permit Landec or its designee to review and comment on each such income tax
return prior to filing. Shareholder shall pay all income taxes due with respect
to the periods covered by such tax returns. The Landec Companies shall not file
amendments to any Target tax returns filed by Shareholder with respect to
periods prior to Closing, except after consultation with Shareholder and
obtaining Shareholder's consent to any such amendment, which consent shall not
be unreasonably withheld.
(b) Cooperation on Tax Matters. Subject to Section 6.8(f),
Landec and Shareholder shall cooperate fully, as and to the extent reasonably
requested by the other party in connection with the filing of tax returns and
elections pursuant to this Section 7.1 and any audit, litigation or other
proceeding with respect to Taxes.
(c) Payment of Taxes. Any sales, use, transfer and/or related
taxes and fees (including any penalties and interest) which may be incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by Shareholder from the consideration received hereunder when due, and
Shareholder will, at its own expense, file all such necessary tax returns and
other documentation with respect to any such sales, use, transfer and/or related
taxes and fees.
7.2 Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement or in any instrument delivered pursuant
to this Agreement shall survive the Effective Time of the Merger and (except to
the extent that survival is necessary to effectuate the intent of such
provisions) shall terminate on the date thirty (30) months following the
Effective Time of the Merger, except for any representations and warranties
relating to Taxes, which will survive the Effective Time of the Merger and shall
terminate thirty (30) days after the expiration of all applicable statutes of
limitations.
7.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
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(a) if to Landec or Intellicoat, to:
Landec Corporation
3603 Haven Avenue
Menlo Park, CA 94025
Attention: Gary T. Steele
Facsimile No.: (415) 306-1650
Telephone No.: (415) 261-3616
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Tae Hea Nahm
Facsimile No.: (415) 854-1121
Telephone No.: (415) 854-4488
(b) if to Target, to:
Michael L. Williams
306 N. Main Street
Monticello, IN 47960
Facsimile No.: (219) 583-2990
Telephone No.: (219) 583-2991
with a copy to:
Bose McKinney & Evans
135 N. Pennsylvania Street, Suite 2700
Indianapolis, IN 46204
Attention: Kendall C. Crook
Facsimile No.: (317) 684-5173
Telephone No.: (317) 684-5134
7.4 Headings. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.6 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Landec Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
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hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided or, with
respect to the payments due under Section 1.3 hereof, to the heirs or devisees
of Shareholder.
7.7 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
7.8 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
7.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without reference to the
conflicts of laws principles thereof. Any and all disputes between the parties
arising under this Agreement shall be resolved by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association as in
effect at the time of any such dispute, and the award of the arbitrator shall be
final and binding on the parties. The arbitration shall be conducted in Denver,
Colorado before a single arbitrator. Any award of the arbitrator may be enforced
in any court of competent jurisdiction. The prevailing party in any such
arbitration proceeding shall be entitled to recover its or his attorneys' fees,
all reasonable out-of-pocket expenses and disbursements, and any and all charges
which maybe made for the cost of the arbitration and the fees of the arbitrator.
7.10 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
[SIGNATURE PAGE TO FOLLOW]
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The parties hereto have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized, all as of the
date first written above.
LANDEC CORPORATION
/s/
------------------------------------
Gary T. Steele, President & CEO
INTELLICOAT CORPORATION
/s/
------------------------------------
Thomas Crowley, President & CEO
WILLIAMS & SUN, INC.
/s/
------------------------------------
Michael L. Williams, President & CEO
MICHAEL L. WILLIAMS
------------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
-61-
<PAGE>
Exhibits and Schedules
Exhibit A...................................................Agreement of Merger
Exhibit B.............................................Non-Competition Agreement
Exhibit C.............................................Opinion of Landec Counsel
Exhibit D..................................................Employment Agreement
Exhibit E...............................................Opinion of Target Legal
Exhibit F........................................................FIRPTA Notices
Exhibit G.................................................Shareholder Agreement
Exhibit H..........................................Consent and Voting Agreement
Exhibit I...................................................Guarantee of Landec
Schedule 1.3.................................................Target Price Range
Schedule 1.4(a).......................................Transferred Real Property
Schedule 1.4(c)................................................Leased Equipment
Schedule 2.2.............................................Shareholders of Target
Schedule 2.8(n).....................................Pay Increases and New Hires
Schedule 2.13...........................................Real Property of Target
Schedule 2.13(b).........................................Permitted Encumbrances
Schedule 2.14.............................................Intellectual Property
Schedule 2.15.............................................Environmental Notices
Schedule 2.17.....................................................Benefit Plans
Schedule 2.23...............................................Material Agreements
Schedule 4.1....................................Exceptions to Permitted Conduct
Target Disclosure Schedule
Landec Disclosure Schedule
-62-
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