SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1996, 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of Class)
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 the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 505 of Regulation S-K is not contained herein, and will be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $58,635,000 as of January 8, 1997, based upon
the closing sales price on the NASDAQ National Market reported for such date.
Shares of Common Stock held by each officer and director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
Number of shares outstanding of the registrant's common stock, as of
January 8, 1997, 10,765,267 shares of common stock, par value $0.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement pursuant to
Regulation 14A, which statement will be filed not later than 120 days after the
end of the fiscal year covered by this report, are incorporated by reference in
Part III hereof.
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LANDEC CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Item No. Page
----
Part I
1. Business ................................................... 3
2. Properties ................................................. 22
3. Legal Proceedings ........................ ................. 22
4. Submission of Matters to a Vote of Security Holders ........ 22
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters ................................ 23
6. Selected Consolidated Financial Data ....................... 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operation ......................... 25
8. Financial Statements and Supplementary Data ................ 32
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........................ 32
Part III
10. Directors and Executive Officers of the Registrant.......... 33
11. Executive Compensation ..................................... 33
12. Security Ownership of Certain Beneficial Owner
and Management ............................................. 33
13. Certain Relationships and Related Transactions ............. 33
Part IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ........................................ 34
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PART I
Item 1. Business
Except for the historical information contained herein, the matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below.
General
Landec Corporation ("Landec" or the "Company") designs, develops,
manufactures and sells temperature-activated polymer products for a variety of
industrial, medical and agricultural applications. The Company's products are
based on its proprietary Intelimer(R) polymers, which differ from other polymers
in that they can be customized to abruptly change their physical characteristics
when heated or cooled through a pre-set temperature switch. For instance,
Intelimer polymers can change within the space of one or two degrees Celsius
from a slick, non-adhesive state to a highly tacky, adhesive state; from an
impermeable state to a highly permeable state; or from a solid state to a
viscous state. These abrupt changes are repeatedly reversible and can be
tailored by Landec to occur at specific temperatures, thereby offering
substantial competitive advantages in the Company's target markets. The Company
believes its enabling Intelimer technology provides for differentiated,
high-value products that address a wide variety of applications in large,
commercial markets.
The Company has launched and is marketing its first two product lines.
The first product line, QuickCast(TM) splints and casts, was launched in the
United States in mid-1994 and in Europe and selected Asian countries through its
partner Smith & Nephew Medical Limited ("Smith & Nephew") in the fall of 1994.
The Company introduced its second product line, Intellipac(TM) breathable
membranes for use in fresh-cut produce packaging, in the fall of 1995.
The Company is developing and intends to launch additional products
during 1997 and 1998. Products under development include: Intelimer polymer
systems for use with industrial coatings, adhesives, sealants and composites;
temperature-activated, pressure-sensitive adhesives; PORT(TM) ophthalmic devices
for the treatment of dry eye; and Intellicoat(TM) agricultural seed coatings.
The Company is developing products in collaboration with or for sale to
Physician Sales & Services, Inc. ("Physician Sales & Services"), North Coast
Medical, Inc. ("North Coast Medical"), Sammons Preston, Inc. ("Sammons
Preston"), Fresh Express Farms ("Fresh Express"), Printpack, Inc. ("Printpack"),
Hitachi Chemical Co., Ltd. ("Hitachi"), The BFGoodrich Company ("BFGoodrich"),
and Nitta Corporation ("Nitta").
The Company was incorporated in California on October 31, 1986. The
Company's principal executive offices are located at 3603 Haven Avenue, Menlo
Park, California 94025 and its telephone number is (415) 306-1650.
Technology Overview
Polymers are important and versatile materials found in many of the
products of modern life. Man-made polymers include nylon fibers used in
carpeting and clothing, coatings such as paints and finishes, plastics such as
polyethylene, and elastomers used in automobile tires and latex gloves. Natural
polymers include cellulose and natural rubber. Historically, synthetic polymers
have been designed and developed primarily for improved mechanical and physical
properties, such as strength and the ability to withstand high temperatures.
Improvements in these and other properties and the ease of manufacturing of
synthetic polymers over the last 40 years have allowed these materials to
replace wood, metal and natural fibers in many applications. More recently,
scientists have focused their efforts on identifying and developing
sophisticated polymers with novel properties for a variety of commercial
applications.
Landec's Intelimer polymers are a proprietary class of synthetic
polymeric materials that respond to temperature changes in a controllable,
predictable way. Typically, polymers gradually change in adhesion, permeability
and viscosity over broad temperature ranges. Landec's Intelimer materials, in
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contrast, can be designed to exhibit abrupt changes in permeability, adhesion
and/or viscosity over temperature ranges as narrow as 1(Degree)C to 2(Degree)C.
These changes can be designed to occur at relatively low temperatures
(0(Degree)C to 100(Degree)C) that fall within temperature ranges compatible with
most biological applications. Figure 1 illustrates the effect of temperature on
Intelimer materials as compared to typical polymers.
[GRAPHIC OMITTED]
Landec's proprietary polymer technology is based on the structure and
phase behavior of Intelimer materials. The abrupt thermal transitions of
specific Intelimer materials are achieved through the use of chemically precise
hydrocarbon side chains that are attached to a polymer backbone. Below a
pre-determined switch temperature, the polymer's side chains align through weak
hydrophobic interactions resulting in a crystalline structure. When this side
chain crystallizable polymer is heated to, or above, this switch temperature,
these interactions are disrupted and the polymer is transformed into an
amorphous, viscous state. Because this transformation involves a physical and
not a chemical change, this process is repeatedly reversible. Landec can set the
polymer switch temperature anywhere between 0(Degree)C to 100(Degree)C by
varying the length of the side chains. The reversible transitions between
crystalline and amorphous states are illustrated in Figure 2 below.
[GRAPHIC OMITTED]
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Side chain crystallizable polymers were first discovered by academic
researchers in the mid-1950's. These polymers were initially considered to be
merely of scientific curiosity from a polymer physics perspective, and, to the
Company's knowledge, no significant commercial applications were pursued. In the
mid-1980's, Dr. Ray Stewart, the Company's founder, became interested in the
idea of using the temperature-activated permeability properties of these
polymers to deliver various materials such as drugs and pesticides. After
forming Landec in 1986, Dr. Stewart subsequently discovered broader utility of
these polymers. After several years of basic research, commercial development
efforts began in the early 1990's, resulting in initial products in mid-1994.
Landec's Intelimer materials are generally synthesized from long chain
acrylic monomers that are derived primarily from natural materials such as
soybean and corn oils, and are highly purifiable and designed to be manufactured
economically through known polymerization processes. Intelimer materials can be
made into many different forms, including films, coatings, microcapsules and
plugs.
Business Strategy
Landec's objective is to become the leader in temperature-activated
specialty polymer products by capitalizing on its enabling Intelimer technology.
The principal elements of Landec's strategy to achieve this objective are (i) to
select commercially attractive product opportunities, (ii) to leverage
established distribution channels through distribution agreements or corporate
partnerships with market leaders and (iii) to fully exploit the Intelimer
technology by retaining an economic interest in joint ventures, spinouts and
other vehicles created by the Company to develop non-core applications of the
Company's technology.
Product Selection
The Company believes that its Intelimer technology has the potential to
reach a broad range of markets beyond the current scope of the Company's
resources. As a result, the Company seeks to commercialize selected
Intelimer-based products that exhibit the following characteristics:
Large, Established, Growing Markets. The Company focuses on supplying
products to established, growing markets with a minimum of $500 million to $2
billion in annual, world-wide sales and the potential to further expand due to
Landec's products.
Attractive Margins/Low Capital Intensity. Landec develops products that
it believes can generate attractive margins when competitively priced. In
addition, the Company generally focuses on products which can be developed,
manufactured and marketed without large capital investments.
Significant Unmet Market Needs. Landec seeks to use its temperature
switch technology to develop differentiated products that address significant
market needs not fulfilled by existing products on the market. The Company
intends to develop new products with substantial functional benefits relative to
existing products that are designed to gain market acceptance more readily and
to be sold at attractive price levels.
Strong Proprietary Position. Landec seeks to develop products that fall
within, and can expand, the Company's proprietary position. Currently, Landec
has eight issued patents and numerous additional patent applications covering
methods, compositions and applications of Landec's Intelimer technology. In
addition, the Company has developed considerable technological know-how, trade
secrets and registered trademarks in order to establish a broad proprietary
position in the market.
Minimal Regulatory Risk. Landec generally selects products that are not
likely to undergo lengthy regulatory review processes that could both increase
costs and substantially delay commercialization. For example, the Company is
targeting medical products that can obtain FDA clearance through filing a 510(k)
notification, rather than products that must be submitted under the
substantially longer PMA process.
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Established Distribution Channels
With respect to product commercialization, Landec's strategy is to
establish distribution arrangements or corporate partnerships with market
leaders. The Company currently is collaborating with and intends to sell
products to Hitachi and Nitta in the industrial polymers area. The Company also
has distribution agreements in the splint and casting area in the U.S. with
Physician Sales & Services, a large national distributor of doctor-office
products and North Coast Medical and Sammons Preston, companies focused on the
physical and occupational therapy markets. In certain highly focused markets,
such as the fresh-cut produce market, Landec markets products through its own
sales force. The Company believes that this approach will allow it to focus its
resources on further development of products based on its Intelimer materials
while leveraging the established sales and marketing organizations of its
partners.
Joint Ventures and Spinouts
Another aspect of Landec's strategy is to fully exploit the commercial
applications of the Company's Intelimer technology by retaining an economic
interest in joint ventures, spinouts and other vehicles created by the Company
to develop non-core applications of the Company's technology. For instance, the
Company believes that its seed coating business represents a large commercial
opportunity that will require substantial management time to develop. Therefore,
Landec established a subsidiary, Intellicoat Corporation ("Intellicoat"), in
1995 and hired a president and chief executive officer, Thomas Crowley, in
November 1996 to develop the seed coating business. The Company believes that
commercialization of certain products outside of Landec will enable the Company
to better leverage its resources and more successfully exploit the potential of
its internal programs while retaining an economic interest in Intelimer-based
products.
Products
The Company is developing products based on its Intelimer technology in
three product areas: industrial membranes and polymers, medical devices and
agricultural seed coatings. The Company currently has two product lines on the
market and expects to introduce additional product lines during 1997. The
following table sets forth the Company's current product areas, their principal
applications, the attribute of the Intelimer materials utilized by the product,
the commercial status of the products and corporate partners.
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Intelimer
Principal Materials Corporate
Product Area Applications Attribute Status Partners
- ------------ ------------ --------- ------ ---------
<S> <C> <C> <C> <C>
Industrial Membranes
and Polymers
Intellipac Breathable Fresh-cut Produce Permeability On Market Fresh Express
Membranes Packaging Printpack
Intelimer Polymer Epoxy and Other Permeability Field Trials BFGoodrich
Systems Thermosets Hitachi
Adhesives Industrial Uses Adhesion In Development Hitachi
Nitta
Medical Uses Adhesion In Development Nitta
Medical Devices
QuickCast Splints and Casts Viscosity On Market Smith & Nephew
Orthopedics Physician Sales
& Services
North Coast Medical
Sammons Preston
PORT Ophthalmic Dry Eye Viscosity Clinical Trials --
Devices Contact Lens Wear Viscosity In Development --
Agricultural Seed
Coatings
Intellicoat Coatings Corn, Soybean, Permeability Field Trials --
Canola, Cotton
and Sugarbeet
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Industrial Membranes and Polymers
The Company's main focus is on industrial applications for its
Intelimer materials. To date, these products consist of Intellipac breathable
membranes, Intelimer polymer systems and adhesives.
Intellipac Breathable Membranes
Landec began marketing its Intelimer-based breathable membranes for use
in fresh-cut produce packaging in September 1995. Certain types of fresh-cut
produce can spoil or discolor rapidly when packaged in conventional materials
and therefore are not widely available for commercial sale. The Company believes
its Intellipac breathable membranes facilitate the packaging of these types of
produce.
Fresh-cut produce is pre-washed, cut and packaged in a form that is
ready to use by the consumer and is thus typically sold at premium price levels.
According to the International Fresh Cut Produce Association ("IFPA"), sales of
fresh-cut salads were estimated to be $82 million in 1989 and increased to $600
million in 1994. The Company believes that this growth has been driven by
consumer demand and willingness to pay for convenience. In addition, many
institutional food suppliers purchase fresh-cut produce due to its greater
convenience and uniform quality relative to produce prepared at the point of
sale.
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Although fresh-cut produce companies have had success in the salad
market, the industry has been slow to expand to other fresh-cut vegetables or
fruits due to limitations in the conventional materials used to package the cut
produce. After harvesting, vegetables and fruits continue to respire, consuming
oxygen and releasing carbon dioxide. Too much or too little oxygen can result in
premature spoilage and decay and/or the growth of harmful bacteria. Conventional
packaging films used today, such as polyethylene and polypropylene, can be made
somewhat permeable to oxygen and carbon dioxide, but often do not allow for the
optimal atmospheric needs of the produce. In addition to having poor
permeability characteristics, these current packages often have less than
desirable strength, clarity, aesthetics and durability. These shortcomings have
not significantly hindered the growth in the fresh-cut salad market because
lettuce, unlike many other vegetables and fruits, respires relatively slowly and
can tolerate less than optimal packaging.
The respiration rate of fresh-cut produce varies from vegetable to
vegetable and from fruit to fruit. The challenge facing the industry is to
develop packaging for a wide variety of fruits and vegetables that can
automatically adjust the transmission rates of oxygen and carbon dioxide.
Today's conventional packaging films are not able to adjust to meet the varying
needs of different vegetables and fruits. To mirror the growth experienced in
the fresh-cut salad market, the markets for high respiring vegetables and fruits
such as broccoli, cauliflower, melons and stone fruit (peaches, apricots,
nectarines) require a better packaging solution.
The respiration rate of fresh-cut produce also varies with fluctuations
in temperature. As temperature increases, fresh-cut produce generally respires
at a higher rate, which speeds up the decaying process, reduces the shelf life
of the produce and increases the potential for the growth of harmful bacteria.
As fresh-cut produce is transported from the processing plant through multiple
distribution steps to the food service or retail store location, and finally to
the ultimate consumer, temperatures can fluctuate significantly. Therefore,
managing the "cold-chain," or the refrigerated environment, throughout the
distribution process presents a significant challenge and cost factor. The
Company believes that conventional food packaging films are unable to adjust to
changes in temperature that exist in the fresh-cut produce distribution process.
Using its Intelimer technology, Landec has developed and is developing
Intellipac breathable membranes that it believes address many of the
shortcomings of conventional materials. A membrane is applied over a small
cut-out section of a standard bag. This highly permeable window acts as a
breathable "valve" supplying most, if not all, of the gas transmission
properties of the entire package. These membranes can be designed with the
following characteristics:
o Super Permeability. Landec's Intellipac breathable membranes are
designed to permit transmission of oxygen and carbon dioxide at
several thousand times the rate of conventional packaging films.
These higher permeability levels facilitate the packaging of many
types of fresh-cut produce.
o Ability to Selectively Transmit Oxygen and Carbon Dioxide. Landec's
Intellipac breathable membranes are designed to selectively permit
the transmission of oxygen and carbon dioxide at two separate rates
that can create a more optimal environment for the produce.
o Temperature Responsiveness. Landec is developing breathable
membranes that can be designed to increase or decrease in
permeability in response to environmental temperature changes. The
Company is developing Intellipac breathable membranes with
permeability characteristics tailored to mimic the changes in
respiration rate that are brought on by changes in temperature for
specific vegetables and fruits.
Landec launched its first Intellipac breathable membrane, a label for
fresh-cut broccoli packages, in September 1995. This membrane incorporates super
permeability and selective oxygen and carbon-dioxide transmission capabilities,
but not temperature responsiveness. The Company launched a second Intellipac
breathable membrane for fresh-cut cauliflower in June 1996. The Company intends
to
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introduce additional membranes tailored for different types of vegetables during
1997. Further membranes may incorporate temperature responsiveness.
The Company believes it can facilitate the packaging of high respiring
produce such as broccoli, cauliflower and fruit with its Intellipac breathable
membranes, thus addressing currently unmet market needs. These breathable
membranes also enable producers to select packaging films that are more cost
effective, easier to process (e.g. stronger, clearer, printable) and more
aesthetically pleasing to consumers. With the proprietary Intelimer polymer
temperature switch, Landec's Intellipac breathable membranes could also provide
protection against breaks in the cold chain, thereby extending shelf life and
product quality and protecting against the growth of harmful bacteria.
Landec believes that growth of the overall produce market will be
driven by the increasing demand for the convenience of fresh-cut produce as well
as by expansion of the number of produce products that may be effectively
packaged. The Company believes that in the future its Intellipac breathable
membranes may be useful for packaging a wide range of fresh-cut produce
products. According to the IFPA, sales of fresh-cut produce, which in 1994
represented 9% of the total produce market, are projected to increase to 25% of
the total produce market by 1999. Potential opportunities for using Landec's
technology outside of the fresh-cut produce market exist in cut flowers and in
other food products.
In January 1995, Landec entered into a non-exclusive supply agreement
with Fresh Express, the market leader in fresh-cut salad. Under this agreement,
Fresh Express is initially purchasing Landec's Intellipac breathable membranes
for fresh-cut produce sold to the institutional food service market. In June
1996, Landec entered into a co-development and marketing agreement with
Printpack, which specializes in flexible packaging for the food industry. Under
this agreement, Landec and Printpack will focus on developing integrated
membrane/film products for low cost, high-throughput, fresh-cut produce market
applications such as retail packaging using Landec's proprietary membrane
technology and Printpack's large-scale printing and film covering expertise.
Landec manufactures its Intellipac breathable membranes in-house and
with selected outside contract manufacturers and markets Intellipac breathable
membranes to the limited number of large fresh-cut produce suppliers through its
own sales force.
Intelimer Polymer Systems
The Company is developing and currently conducting field trials of a
catalyst system incorporating its Intelimer polymer technology for industrial
thermoset applications. Thermosets are plastics that, through a curing process,
undergo a chemical reaction to form a structure that cannot be reshaped through
heating. For example, epoxy glue is a thermoset. The majority of thermosets are
configured in "two-package" systems in which one or more resins are packaged
separately from a curing agent catalyst. When the catalyst is mixed with the
resin, the thermoset materials cure, or "set." The period of time after the two
components are mixed until the mixture has doubled in viscosity is referred to
as its "pot life."
Epoxies, polyurethanes and unsaturated polyesters represent three
significant classes of thermosets. According to the January 1995 edition of
Modern Plastics, a trade publication, the U.S. market in 1994 for epoxy,
polyurethane and unsaturated polyester thermoset products was 0.6 billion
pounds, 3.8 billion pounds and 1.5 billion pounds, respectively, and the Company
believes that the world-wide market size is approximately double the U.S. market
size. Because of their hardness and corrosion resistant properties, epoxy
thermosets are widely used in surface coatings for industrial primers and
maintenance finishes, in fiber-reinforced composites for printed circuit boards
and in high performance adhesives in value-added automotive and aerospace
applications. Polyurethane thermosets consist of a variety of flexible and rigid
foam materials essential for inplace insulation (e.g., for refrigeration
applications), molded automobile bumpers, mattresses and furniture cushions and
automotive seating. Polyurethane coatings are also used for abrasion resistance
in floor finishing and durability in transportation and aerospace applications.
Unsaturated polyesters, a third thermoset category, are fast-curing with
excellent hardness characteristics and are primarily used as fiberglass-
reinforced
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composites. Principal applications for unsaturated polyesters are housing
construction (shower modules, bathtub and sink constructions), marine
construction (boats) and transportation products (truck bodies and panels and
automotive trim).
Two-package thermoset systems suffer from a number of drawbacks. These
systems require extensive mixing equipment to ensure proper mixing ratios to
provide expected product performance at the time of use. The thermoset resins
and catalysts must be kept in separate packages until the time of use to prevent
them from pre-reacting with each other. A finite pot life results in significant
waste when the thermoset reacts or cures prior to application. Two-package
thermoset systems frequently result in limited control of reaction time (the
time between the initiation and completion of the curing process) causing
incomplete mold fills and waste. While a limited number of currently available
single package thermoset systems offer the potential for addressing many of
these drawbacks, these systems typically must be refrigerated to prevent curing,
must be used very quickly once activated and/or must be cured at very high
temperatures. These limitations have hindered market acceptance of these
systems.
The Company is developing catalyst systems based on its Intelimer
technology for use in one-package thermoset systems. These systems can
incorporate catalysts, accelerators and curing agents in a way that prevents
interaction by these agents with the resin while the polymer is in its
impermeable state. This characteristic allows all components of the Intelimer
thermoset to be pre-mixed and have a longer shelf life. For example, some Landec
thermoset systems are storage-stable for up to one year. Landec's one-package
system can be designed with a pre-set temperature switch to correspond with
elevated temperatures applied during standard manufacturing processes. When the
thermoset is exposed to the pre-set switch temperature, the Intelimer polymer
abruptly changes to its permeable state, exposing the catalyst to the resin and
initiating the curing process. In addition, the Intelimer polymer can be
designed to change state over a predetermined temperature range in order to
achieve a desired reaction time.
The Company believes that its thermoset catalyst systems will eliminate
the need for costly on-site mixing equipment and, because thermosets can be
pre-mixed by the manufacturer, will minimize sub-optimal product performance due
to incorrect component mixing ratios. Furthermore, since the thermosets will not
cure until exposed to elevated temperatures, pot life should be extended,
resulting in significantly reduced waste and labor expense. The Company believes
that the ability to control reaction time also provides advantages over existing
thermoset systems.
Landec is targeting epoxies for its first thermoset catalyst system
because epoxies are typically used in high-value industrial applications, such
as in the electronic, aerospace and automotive industries. In addition, epoxies
are generally used in applications involving elevated temperature curing;
consequently, curing an epoxy thermoset using the Company's product would not
add steps to the end-user's production process. The Company believes that this
product will also have broad applicability for use with polyurethane and
unsaturated polyester thermosets.
The Company's thermoset catalyst systems address the different
drawbacks of existing epoxy, polyurethane and unsaturated polyester thermoset
systems. Shelf life is the most significant limitation for epoxy systems.
Polyurethane systems are often used in applications for which reaction time is
critical. Currently available unsaturated polyester systems exhibit significant
drawbacks in both shelf life and pot life. The Company believes its one-package
catalyst systems address the main limitations in each of these types of
thermoset systems.
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<TABLE>
Thermoset Market Opportunity
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Area 1994 U.S. Market (Lbs.)* Typical Application Landec Benefits
- ---- ------------------------ ------------------- ---------------
<S> <C> <C> <C>
Epoxies 602 million Adhesives and coatings for o Improved shelf life
electronics, auto and aerospace o Pre-mixed formulas
o Lower cost of labor and waste
Polyurethanes 3,755 million Foams for auto, aerospace and o Controlled reaction times
furniture. Coatings, adhesives o Better mold filling
and elastomers o Lower cost of labor and waste
Unsaturated 1,496 million Composites and molded products o Improved pot life
Polyesters for auto, boat and construction o Lower cost of labor and waste
<FN>
*Source: Modern Plastics, January 1995
- -------------------------------------------------------------------------------------------------------------------------
</FN>
</TABLE>
Landec has entered into licensing and distribution agreements for
one-package thermoset catalyst systems exclusively with Hitachi and
non-exclusively with BFGoodrich. Both of these companies are large specialty
chemical companies with strengths in the electronics, automotive and aerospace
markets for thermoset systems. BFGoodrich has in the past and Hitachi is
currently sponsoring research and development activities with respect to
Intelimer technology. The Company's agreement with Hitachi contemplates that
Hitachi, upon successful completion of field testing, will purchase materials
from Landec for resale or for incorporation into fully formulated products.
Landec has retained manufacturing rights in both of these collaborations and has
granted exclusive marketing rights in Asia to Hitachi and non-exclusive rights
in the United States and other territories outside of Asia to BFGoodrich. See
"Corporate Collaborations."
Adhesives
Landec is utilizing its Intelimer technology to develop
temperature-activated, pressure-sensitive adhesive ("PSA") materials for
industrial applications. PSA materials are used for applications such as
adhering the component parts of silicon devices, applying automotive side
moldings and trim, assembling appliances and adhering labels to various
surfaces. According to Adhesives Age, the U.S. market for PSA industrial tape
products was $2.7 billion in 1994. Typically, the removal of PSA materials
damages or tears the adhered surface and leaves a resin residue. To avoid
tearing or resin residue, traditional removal methods involve the use of toxic
solvents and/or labor-intensive washing steps.
The Company is developing PSA materials based on its Intelimer
technology that have demonstrated the capability to have adhesion levels reduced
by over 70% with cooling or heating. This capability can be used in a wide
variety of applications to adhere metals, woods, composites and plastics to
surfaces and then easily remove these materials with changes in temperature. For
example, two surfaces that are adhered together using Landec's PSA materials
during a silicon wafer mounting process for the production of electronic
components can be easily separated without toxic solvents or multiple washing
steps by running the bonded parts through a heating or cooling process.
Landec's PSA materials are currently in development. The Company
entered into a non-exclusive license agreement with Hitachi in October 1994 and
a co-exclusive license agreement with Nitta, a specialty materials company, in
March 1995, both with a focus on industrial applications. These agreements
provide Hitachi and Nitta with the right to manufacture and distribute Landec's
adhesive products for industrial applications in Asia in exchange for license
fees and royalties on future product sales. Landec has retained manufacturing
and distribution rights elsewhere in the world. First commercial sales are
expected to build on the strength of Landec's partners in the electronics and
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automotive industries. The Company believes that additional growth opportunities
for Landec's adhesives technology exist in medical applications. In February of
1996, the Company extended its agreement with Nitta to include exclusive rights
for adhesive medical applications in Asia in return for license fees, research
and development payments and royalties.
Medical Devices
In addition to industrial applications, the Company is currently
developing or commercializing medical devices based on its Intelimer technology.
These products consist of QuickCast splints and casts and PORT ophthalmic
devices.
QuickCast Splints and Casts
Landec has developed and is currently marketing splints and casts
incorporating its Intelimer polymer technology. According to Frost & Sullivan, a
market research organization, the U.S. market for orthopedic soft goods and cast
room products was estimated to be approximately $818 million in 1994. The growth
in the market for orthopedic soft goods and cast room products is being driven
by a number of factors, including an increase in participation in sports and
recreational activities and the aging of the U.S. population. In addition, the
trend towards managed care has increased the need for cost-effective treatment.
Managed care has also resulted in occupational and physical therapists, and
primary care physicians and other non-specialists performing an increasing range
of procedures, including the treatment of selected orthopedic injuries. The
Company believes the simplicity of the application of its QuickCast splints and
casts is especially attractive to non-specialists.
Traditional casting and splinting methods suffer from several
drawbacks. Casts made from plaster of Paris or synthetic cast tape generally
require specialized training. In addition, these casts require a "cast room," as
the preparation and application of plaster of Paris or synthetic cast tape is
messy. Traditional casts must also be cut off and replaced as the muscles in the
casted limb atrophy or as a particular therapy procedure requires a new cast
position. Splints using conventional thermoplastic sheets must be cut to conform
to varying limb sizes. The nature of the materials used in traditional casts and
splints make them difficult to properly conform to the patient's anatomy,
resulting in the possibility of an incorrect cast or splint fit. In addition,
the application of casts and splints are usually performed by two different
groups of specialists. Casts are generally applied by orthopedic surgeons while
splints are typically applied by occupational and physical therapists.
The Company's QuickCast splints and casts shrink to fit injured limbs
upon the application of heat from a hair dryer. These splints and casts are made
from an elastic fiberglass mesh coated with Landec's temperature-activated
materials. This material is made into pre-formed tubular devices that are placed
on injured hands, wrists, arms and legs. The heat from the hair dryer softens
the polymer and allows the device to relax and conform to the patient's anatomy
in approximately two minutes. QuickCast splints and casts are pliable when warm,
allowing the clinician to mold and form the splint or cast and to reshrink or
reposition the splints or casts as needed. Upon removal of the heat, the
products cool and harden. The Company believes that QuickCast splints and casts
provide the following advantages over traditional methods:
o Help ensure a proper therapeutic cast or splint fit
o Allow for easy removal of the splint or cast using scissors, as
compared to the necessity of sawing off a plaster of Paris or
synthetic cast
o Allow for reheating, remolding or reshrinking to change the shape or
position of the device as required by therapy or to accommodate a
reduction in limb size due to muscle atrophy, reducing the wasteful
discarding of casts and splints that can increase overall treatment
costs
o Enable primary care physicians and other non-specialists to perform
both splinting and casting
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o Permit easy conversion of QuickCast casts to splints
o Allow the cast to be applied in any exam room, physician office or
rehabilitation facility or at the patient's bedside, thus eliminating
the need for a special "cast room"
The QuickCast products received 510(k) clearance by the FDA in February
1994, and the Company commenced sales of QuickCast products to regional U.S.
orthopedic distributors in April 1994. In early 1996, Landec entered into
distribution relationships with Physician Sales & Services in the area of
orthopedic and primary care physicians sales. Physician Sales & Services has
over 700 sales representatives in 50 states. In addition, in 1996, Landec
entered into non-exclusive distribution relationships with North Coast Medical
and Sammons Preston, distributors of medical products to occupational and
physical therapists. The addition of the distribution partners broadens the
market access for the Company's QuickCast products. Outside of the United
States, Smith & Nephew has been the exclusive distributor of Landec's
heat-shrinkable casting and splinting products in approximately 25 countries.
The Company anticipates that it will terminate its relationship with Smith &
Nephew in early 1997 and, as a result, the Company is currently in the process
of initiating distribution relationships with other independent distributors in
selected countries. In addition, QuickCast products are sold through independent
distributors in approximately nine other countries.
Landec received a 1995 R&D 100 Award in recognition of QuickCast's
innovative features and benefits. This award is given annually by R&D Magazine
to selected companies with new products that represent significant new
innovations in America. Landec is working with leaders in orthopedics, primary
care and rehabilitation to assist the Company in developing new product and
application ideas. In early 1996, Landec introduced several QuickCast products
for lower leg fractures and sprains, which complement the company's existing
QuickCast product line for upper extremity fractures and sprains.
PORT Ophthalmic Device
Landec is developing a PORT (Punctal Occluder for the Retention of
Tears) ophthalmic device that is designed to allow the eye to retain its natural
tear fluids. The Company is targeting patients with a condition known as dry eye
for the first PORT application. In patients suffering from dry eye, either the
lacrimal gland produces an insufficient volume of tears or the lacrimal drainage
duct clears the tears too quickly from the eye. Either condition may result in
blurred vision, intolerance to bright light, grittiness, redness, burning and,
in some cases, damage to the corneal surface.
Dry eye syndrome is a common yet poorly diagnosed condition that is
estimated to affect 30 million Americans, primarily patients over 50 years of
age. According to the American Academy of Ophthalmology, approximately 25% of
the general population suffers from dry eye syndrome at some time. Approximately
7.5 million cases can be classified as severe or moderate. Landec is initially
targeting this market. According to the Dry Eye and Tear Research Center,
approximately 175,000 dry eye patients in the United States undergo some type of
corrective procedure each year. The Company believes that the opportunity for
dry eye products will expand due to factors such as increased physician
awareness of dry eye, an aging population, poor air quality, improved and
standardized diagnostic techniques, and recent changes allowing reimbursement
for punctum plug procedures and products.
Existing methods for treating dry eye have significant drawbacks.
Silicone punctum plugs often do not provide complete obstruction of the drainage
duct and may not conform to the contours of a particular patient's drainage
duct. In addition, punctum plugs either must be inserted deep into the drainage
duct or rest at the top of the drainage duct, where they are susceptible to
coming loose. Collagen plugs and artificial tear solutions offer only temporary
relief. Laser surgery, which is used to close the drainage duct, is expensive
and difficult to reverse.
Using the PORT product, a physician introduces Intelimer polymer into
the lacrimal drainage duct in a fluid state where it quickly solidifies into a
form-fitting, solid plug. Occlusion of the lacrimal drainage duct allows the
patient to retain tear fluid. The Company has developed an applicator containing
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sterile, solid Intelimer material that will transform into a flowable, viscous
state when heated slightly above body temperature. A physician activates the
battery powered PORT applicator that heats the Intelimer material, inserts the
applicator tip directly into the locally anesthetized punctal eye opening of the
lacrimal drainage duct and dispenses the Intelimer material. This entire
treatment can be completed on an out-patient basis in five to ten minutes.
Subsequently, if the physician believes that occlusion is no longer necessary,
the PORT plug can be removed using a warm saline flush, which activates the
temperature switch, causing the polymer to return to its viscous state and be
flushed from the patient's drainage duct.
The Company has conducted animal tests to assess the safety of PORT
plugs to treat dry eye patients by intentionally obstructing the eye's lacrimal
drainage duct. Human clinical studies are currently underway in San Francisco
and Boston where approximately 25 patients will be enrolled by the middle of
fiscal year 1997. Subsequently, a larger multi-center study will be conducted
with about 90 patients at some ten centers nationwide. The Company is currently
in discussions regarding marketing rights with selected leading ophthalmic
companies. The Company intends to retain manufacturing rights with respect to
the PORT applicator.
The Company believes that PORT plugs will have additional ophthalmic
applications beyond the dry eye market, including people who cannot wear contact
lenses due to limited tear fluid retention, and patients receiving therapeutic
drugs via eye drops that require longer retention in the eye.
Agricultural Seed Coatings
Landec has developed and is conducting field trials of its Intellicoat
seed coating, an Intelimer-based agricultural material designed to increase crop
yields and extend the crop planting window. These coatings are initially being
applied to corn and soybean seeds. According to the U.S. Agricultural Statistics
Board, the total planted acreage in 1994 in the United States was 79.2 million
for corn and 61.9 million for soybean.
Currently, farmers are required to guess the proper time to plant
seeds. If the seeds are planted too early, they may rot or suffer chilling
injury due to the absorption of water at cold soil temperatures. If they are
planted too late, the growing season may end prior to the plants reaching full
maturity. In either case, the resulting crop yields are suboptimal. Moreover,
the planting window can be fairly brief, requiring the farmer to focus almost
exclusively on planting during this time. Seeds also germinate at different
times due to variations in absorption of water, thus providing for variations in
the growth rate of the crops.
The Company's Intellicoat seed coating prevents planted seeds from
absorbing water when the ground temperature is below the coating's pre-set
switch temperature. Intellicoat seed coatings are designed to enable coated
seeds to be planted early without risk of chilling damage caused by the
absorption of water at cold soil temperatures. As spring advances and soil
temperatures rise to the pre-determined switch temperature, the polymer's
permeability increases and the coated seeds absorb water and begin to germinate.
The Company believes that Intellicoat seed coatings provide the following
advantages:
o More flexible timing for planting
o Avoidance of chilling injury
o Uniform germination and crop growth
o Protection against harmful fungi
As a result, the Company believes that Intellicoat seed coatings offer
the potential for significant improvements in crop yields.
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In the seed industry, yield increases of 4% to 5% are considered
significant because of their impact on per acre profitability. Field trials of
Intellicoat seed coatings on corn and soybean crops during the past four years
have resulted in yield increases of as much as 5% to 20%. The Company plans to
initially develop seed coating products for corn and soybean markets for
distribution through regional seed companies in the United States in parallel
with continued field evaluations with global seed companies. The Company
believes that with larger seed companies, an additional one to two years of
field trials will be needed to support initiation of commercial sales. In
addition, Intellicoat seed coatings are being independently tested by seed
companies and universities. Future crops under consideration include cotton,
canola, sugar beet and other vegetables.
Corporate Collaborations
The Company believes its technology has commercial potential in a wide
range of industrial, medical and agricultural applications. In order to exploit
these opportunities, the Company has entered into collaborative corporate
agreements for product development and/or distribution in certain fields. The
Company is currently engaged in discussions with potential new collaborative
partners.
To date, the Company has entered into collaborative arrangements with
BFGoodrich and Hitachi in connection with its Intelimer polymer systems, Fresh
Express and Printpack in connection with its Intellipac breathable membrane
products, Nitta and Hitachi in connection with its industrial adhesive products
and Smith & Nephew, Physician Sales & Services, North Coast Medical and Sammons
Preston in connection with its QuickCast orthopedic products. 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.
A significant portion of Landec's revenues to date have been derived
from commercial research and development collaborations and license agreements.
In fiscal year 1996, development funding from these collaborative arrangements
comprised approximately 62% of the Company's total revenues and in fiscal year
1995, comprised approximately 82% of the Company's revenues. Development funding
and license fees from and product sales to Hitachi, BFGoodrich, Nitta, and Smith
& Nephew represented approximately 65% and 91% of the Company's revenues for
fiscal years 1996 and 1995, respectively. Moreover, research and development
revenue and license fees from Hitachi and Nitta each accounted for more than 10%
of the Company's revenues for fiscal years 1996 and 1995.
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 circumstances. There can be no assurance that the
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. See "Additional Factors That May Affect Future Results -- Dependence
on Collaborative Partners".
Hitachi. The Company has entered into two separate collaborations with
Hitachi in the areas of industrial adhesives and Intelimer polymer systems. On
October 1, 1994, the Company entered into a non-exclusive license agreement with
Hitachi in the industrial adhesives area. The agreement provides Hitachi with a
non-exclusive license to manufacture and sell products using Landec's Intelimer
materials
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in certain Asian countries. Landec received up-front license fees upon signing
the agreement and is entitled to future royalties based on net sales by Hitachi
of the licensed products. Any fees paid to the Company are non-refundable.
On August 10, 1995, the Company entered into the second collaboration
with Hitachi in the Intelimer polymer systems area. The agreement provides
Hitachi with an exclusive license to use and sell Landec's Intelimer polymer
systems in industrial latent curing products in certain Asian countries. Landec
is entitled to be the exclusive supplier of Intelimer polymer systems to Hitachi
for at least seven years. In addition, Hitachi also received limited options and
rights for certain other technology applications in its Asian territory. Landec
received an up-front license payment upon signing this agreement and is entitled
to receive research and development funding over three years and future
royalties based on net sales by Hitachi of the licensed products. Any fees paid
to the Company are non-refundable. This agreement is terminable at Hitachi's
option. In conjunction with this agreement, Hitachi purchased Series E Preferred
Stock for $1.5 million which converted to common stock on the Company's initial
public offering.
BFGoodrich. On October 13, 1993, the Company entered into a
collaboration with BFGoodrich. On March 29, 1996, the Company and BFGoodrich
decided to amend their license, development and manufacturing agreement to a
non-exclusive agreement. The agreement provides BFGoodrich with a non-exclusive
worldwide (excluding Asia) license to use and sell Landec's Intelimer polymer
systems in industrial latent curing products. Landec is entitled to be the
exclusive supplier of Intelimer polymer systems to BFGoodrich during the term of
the agreement. BFGoodrich must meet certain requirements to maintain
non-exclusive rights to fields of use. Landec received an up-front license
payment upon signing and additional license fees upon achieving certain
milestones. Under the agreement, development was funded by BFGoodrich for
several years and such funding was terminated as a result of the amended
agreement. The Company is also entitled to receive future royalties based on net
sales by BFGoodrich of the licensed products. Fees paid to the Company were
non-refundable. This agreement is terminable at BFGoodrich's option.
Nitta. On March 14, 1995, the Company entered into a license agreement
with Nitta in the industrial adhesives area. The agreement provides Nitta with a
co-exclusive license to manufacture and sell products using Landec's Intelimer
materials in certain Asian countries. Landec received up-front license fees upon
signing the agreement and is entitled to future royalties based on net sales by
Nitta of the licensed products. Any fees paid to the Company are non-refundable.
In addition, Nitta also received limited options for certain other technology
applications in its Asian territory. This agreement is terminable at Nitta's
option. Nitta and the Company entered into an additional exclusive license
arrangement in February, 1996 covering Landec's medical adhesives technology for
use in Asia. The Company received up-front license fees upon execution of the
agreement and is entitled to receive research and development payments and
royalties under this agreement. Any fees paid to the Company are non-refundable.
Fresh Express. On January 18, 1995, the Company entered into a
non-exclusive supply agreement with Fresh Express. Fresh Express collaborates
with the Company in biological product testing. Fresh Express has the right to
become a non-exclusive customer for certain future products.
Printpack. On June 21, 1996, the Company entered into an exclusive
co-development and marketing agreement with Printpack. Under the agreement,
Landec and Printpack will focus on developing integrated membrane film products
for low cost, high-throughput, fresh-cut product market applications, such as
retail packaging, using Landec's proprietary Intellipac breathable membrane
technology and Printpack's large-scale printing and film converting expertise.
Smith & Nephew. On September 30, 1994, the Company entered into an
exclusive distribution agreement with Smith & Nephew for QuickCast products in
certain European and Pacific Rim countries, Canada and South Africa. Products
distributed under this agreement are sold under Smith & Nephew's
"Dynacast*Rapide" tradename. As discussed above, the Company anticipates that it
will terminate this relationship in early 1997.
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Physician Sales & Services. On March 18, 1996, the Company entered into
a distribution agreement with Physician Sales & Services for QuickCast
orthopedic and splinting products. Under this agreement, Physician Sales &
Services is granted exclusive rights to distribute such products in the United
States to primary care physicians and co-exclusive rights to distribute such
products in the United States to orthopedic surgeons, cast technicians and
physician assistants. There are more than 83,000 primary care physicians in the
United States.
North Coast Medical. On January 3, 1996, the Company entered into a
distribution agreement with North Coast Medical for QuickCast orthopedic and
splinting products. Under the agreement, North Coast Medical is granted
non-exclusive rights to distribute such products in the United States to the
occupational and physical therapy market.
Sammons Preston. On June 18, 1996, the Company entered into a
distribution agreement with Sammons Preston for QuickCast orthopedic and
splinting products. Under the agreement, Sammons Preston is granted
non-exclusive rights to distribute such products in the United States to the
occupational and physical therapy market.
Sales and Marketing
The Company's products fall into two groups: those intended to be
marketed and sold by the Company and those expected to be marketed by
distributors and corporate partners. The Company intends to provide technical
support for all of its products, irrespective of the sales and marketing channel
of a particular product. With respect to the Company's Intellipac breathable
membrane products, the Company has entered into a non-exclusive supply agreement
with Fresh Express. Since there are a limited number of suppliers of fresh-cut
produce, the Company believes that a small sales force can successfully
introduce these products in this concentrated marketplace. The Company intends
to develop its internal sales capacity as more products progress toward
commercialization. The Company's other commercially available products,
QuickCast splints and casts, are sold in the United States through the Company's
national distribution partners, Physician Sales & Services, North Coast Medical
and Sammons Preston, in conjunction with the Company's internal sales force.
Manufacturing
Landec intends to manufacture its own products whenever possible, as it
believes that there is considerable manufacturing margin opportunity in its
products. In addition, the Company believes that know-how and trade secrets can
be better maintained through Landec retaining manufacturing capability in-house.
The Company currently manufactures its QuickCast and Intellipac
breathable membrane products at its facilities in Menlo Park, California and
with selected outside contract manufacturers. The manufacturing process for the
Company's initial Intellipac breathable membrane products is comprised of
polymer manufacturing, membrane coating and label conversion. Portions of this
process are done at the Company on pilot-scale equipment while the remainder is
performed by a third-party manufacturer. As volume increases, the Company plans
to have the entire process completed by third party manufacturers. Manufacture
of the Company's QuickCast products is performed by the Company. Components and
new materials for QuickCast are purchased from vendors. QuickCast products and
Intellipac breathable membranes are required to be manufactured under Good
Manufacturing Practices as required by the FDA and California Department of
Health Services.
Many of the raw materials used in manufacturing certain of the
Company's products are currently purchased from a single source, such as certain
monomers to synthesize Intelimer polymers and substrate materials for the
Company's Intellipac breathable membrane products. The Company believes,
however, that it currently has adequate inventories and that additional sources
of supply are available. Upon an increase in manufacturing capability, the
Company may enter into alternative supply arrangements. To date, the Company has
not experienced difficulty acquiring this material for the manufacture of its
products. However, no assurance can be given that interruptions in supplies will
not occur in the future, that the Company could obtain substitute vendors or
that the Company will be able to procure comparable
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raw materials 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 its products and, consequently, could materially and
adversely affect the Company's business, operating results and financial
condition.
The Company intends to build or acquire large-scale polymer
manufacturing facilities by 1998. In the interim, the Company believes that its
current facilities and readily available additional facilities will meet its
manufacturing needs. The Company believes that by 1998, in-house polymer
manufacturing capability will be necessary to support its polymer requirements.
Polymer manufacturing facilities will be separate from the QuickCast and
Intellipac breathable membrane manufacturing facilities.
Production in commercial-scale quantities may involve technical
challenges for the Company. Establishing its own manufacturing capabilities
would require significant scale-up expenses and additions to facilities and
personnel. There can be no assurance that the Company will be able to develop
commercial-scale manufacturing capabilities at acceptable costs or enter into
agreements with third parties with respect to these activities.
Research and Development
Landec is focusing its research and development resources both on
existing and new applications of its Intelimer technology. Examples of research
and development for product line extensions include QuickCast products for the
lower extremities, additional Intellipac breathable membranes for other
vegetables and fruits and flowers and new catalyst systems for latent curing
products. Landec is focusing additional research on new product forms such as
composites, films, and laminates. The Company intends to periodically seek funds
for applied materials research programs from U.S. government agencies such as
the National Institutes of Health, as well as from commercial entities. To date,
much of Landec's research has been funded by the U.S. Government and corporate
partners. As of January 8, 1997 Landec had 23 employees in research and
development (seven of whom have Ph.D.s) with experience in polymer, analytical
and formulation chemistry and chemical engineering.
Competition
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 many 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.
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. The Company has been granted eight U.S.
patents with expiration dates ranging from 2007 to 2012 and has filed
applications for additional U.S. patents, as well as certain corresponding
patent applications outside the United States, relating to the Company's
technology. The Company's issued patents include claims relating to
compositions, devices and use of a class of temperature sensitive polymers that
exhibit distinctive properties of permeability, adhesion and viscosity. There
can be no assurance that any of the 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. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate any of
the
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Company's products or if patents are issued to the Company, design around the
Company's patents. Any of the foregoing results could have a material adverse
effect on the Company's business, operating results and financial condition.
The commercial success of the Company also will depend, in part, on its
ability to avoid infringing patents issued to others. 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 received a letter in January 1996
alleging that the Company's 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. In addition,
if patents are issued to others which contain claims that compete or conflict
with those of the Company and such competing or conflicting claims are
ultimately determined to be valid, the Company may be required to pay damages,
to obtain licenses to these patents, to develop or obtain alternative technology
or to cease using such technology. 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. The Company's failure to obtain a
license to any technology that it may require to commercialize its products
could have a material adverse impact on the Company's business, operating
results and financial condition.
Litigation, which could result in substantial costs to 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. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to and diversion of effort by the Company, even if the eventual
outcome is favorable to the Company. 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.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technological advances which the Company seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.
FDA and Other Government Regulations
The Company's products and operations are subject to substantial
regulation in the United States and foreign countries.
Medical Products. The Company's medical products are subject to
stringent government regulation in the United States and other countries. In the
United States, the Food, Drug, and Cosmetic Act, as amended ("FDC Act"), and
other statutes and regulations govern or influence the testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion
of such products. Failure to comply with applicable requirements can result in
fines, recall or seizure of products, total or partial suspension of production,
withdrawal of existing product approvals or clearances, refusal to approve or
clear new applications or notices and criminal prosecution.
The regulatory process is lengthy, expensive and uncertain. Prior to
commercial sale in the United States, most medical devices, including the
Company's products, must be cleared or approved by
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the FDA. Securing FDA approvals and clearances may require the submission of
extensive clinical data and supporting information to the FDA.
Under the FDC Act, medical devices are classified into one of three
classes (i.e., class I, II or III) on the basis of the controls necessary to
reasonably ensure their safety and effectiveness. Safety and effectiveness can
reasonably be assured for class I devices through general controls (e.g.,
labeling, premarket notification and adherence to Good Manufacturing Practices)
and for class II devices through the use of general and special controls (e.g.,
performance standards, postmarket surveillance, patient registries and FDA
guidelines). Generally, class III devices are those which must receive premarket
approval by the FDA to ensure their safety and effectiveness (e.g.,
life-sustaining, life-supporting and implantable devices or new devices which
have been found not to be substantially equivalent to legally marketed devices.)
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a PMA. A 510(k) clearance will be granted if the submitted data
establishes that the proposed device is "substantially equivalent" to a legally
marketed class I or class II medical device, or to a class III medical device
for which the FDA has not called for PMAs. It generally takes from four to
twelve months from submission to obtain 510(k) premarket clearance, although it
may take longer. The FDA may determine that the proposed device is not
substantially equivalent, or that additional clinical data are needed before a
substantial equivalence determination can be made. Modifications or enhancements
to products that are cleared through the 510(k) process that could significantly
affect safety or effectiveness or effect a major change in the intended use of
the device require new 510(k) submissions. The Company is also required to
adhere to FDA Good Manufacturing Practices and similar regulation in other
countries, which include testing, control and documentation requirements
enforced by periodic inspections.
The Company's QuickCast products have received clearance through the
510(k) process and the Company intends to obtain clearance for its medical
products pursuant to Section 510(k) of the FDC Act whenever possible. The
Company plans to seek 510(k) clearance for its PORT ophthalmic device. The
Company is conducting clinical trials under an Investigational Device Exemption
("IDE") that is granted by the FDA to permit testing of a device in a limited
number of human beings in clinical trials conducted at a restricted group of
clinical sites. The Company has completed a pilot clinical study and anticipates
additional clinical studies with an expanded patient population. No assurance
can be given that the necessary clearances for its products will be obtained by
the Company on a timely basis, if at all, or that extensive clinical data and
supporting information or a PMA application will not be required. FDA clearance
is subject to continual review, and later discovery of previously unknown
problems may result in restrictions on a product's marketing or withdrawal of
the product from the market.
The Company understands that the FDA has recently been requiring a more
rigorous demonstration of substantial equivalence in connection with 510(k)
notifications and that in many cases the time periods required for product
approvals have increased. If additional data is requested by the FDA, it could
delay the Company's market introduction of its products. There can be no
assurance that the FDA will not require additional data or that the Company will
receive marketing clearance from the FDA for any of its products.
If a product is found to be not substantially equivalent to a legally
marketed device or if it is a class III device for which the FDA has called for
PMAs, a premarket approval application must be filed with the FDA. To obtain a
PMA, a device must undergo extensive clinical trials to establish its safety and
effectiveness. The PMA process can be expensive, uncertain and lengthy,
typically requiring several years, with no guarantee of ultimate approval.
Determination by the FDA that any of the Company's products or applications are
subject to the PMA process could have a material adverse effect on the Company's
business.
Food Packaging Products. The Company's food packaging products are also
subject to regulation under the FDC Act. The manufacture of food packaging
materials is subject to Good Manufacturing Practices regulations. In addition,
under the FDC Act any substance that when used as intended may reasonably be
expected to become, directly or indirectly, a component or otherwise affect the
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<PAGE>
characteristics of any food may be regulated as a food additive unless the
substance is generally recognized as safe ("GRAS"). Food additives may be
substances added directly to food, such as preservatives, or substances that
could indirectly become a component of food, such as waxes, adhesives and
packaging materials.
A food additive, whether direct or indirect, must be covered by a
specific food additive regulation issued by the FDA. The Company believes its
Intellipac breathable membrane products are not subject to regulation as food
additives because these products are not expected to become a component of food
under their expected conditions of use. If the FDA were to determine that the
Company's Intellipac breathable membrane products are food additives, the
Company may be required to submit a food additive petition. The food additive
petition process is lengthy, expensive and uncertain. A determination by the FDA
that a food additive petition is necessary would have a material adverse effect
on the Company.
Agricultural Products. The Company's agricultural products are subject
to regulations of the United States Department of Agriculture ("USDA") and the
EPA. The Company believes its current Intellicoat seed coatings are not
pesticides as defined in the Federal Insecticide, Fungicide and Rodenticide Act
("FIFRA") and are not subject to pesticide regulation requirements. The process
of meeting pesticide registration requirements is lengthy, expensive and
uncertain, and may require additional studies by the Company. There can be no
assurance that future products will not be regulated as pesticides. In addition,
the Company believes that its Intellicoat seed coatings will not become a
component of the agricultural products which are produced from the seeds to
which the coatings are applied and therefore are not subject to regulation by
the FDA as a food additive. While the Company believes that it will be able to
obtain approval from such agencies to distribute its products, there can be no
assurance that the Company will obtain necessary approvals without substantial
expense or delay, if at all.
Polymer Manufacture. The Company's manufacture of polymers is subject
to regulation by the EPA under the Toxic Substances Control Act ("TSCA").
Pursuant to TSCA, manufacturers of new chemical substances are required to
provide pre-manufacturing notice ("PMN") to the EPA which can then require
extensive testing to establish the safety of a new chemical or limit or prohibit
the manufacture, use or distribution of such chemical. The EPA has promulgated
an exemption from PMN requirements for certain polymers which it believes are of
low concern due to their lack of reactivity and their molecular structure. To
date, the Company's polymers have qualified for the exemption and the Company
believes any future polymers it plans to develop will also qualify. No assurance
can be given that future products will qualify for the exemption or that
additional studies or restrictions will not be required by the EPA.
Other. The Company and its products under development may also be
subject to other federal, state and local laws, regulations and recommendations.
Although Landec believes that it will be able to comply with all applicable
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
made by the FDA, EPA or other regulatory bodies, with possible retroactive
effect, relating to such matters as safe working conditions, laboratory and
manufacturing practices, environmental controls, fire hazard control, and
disposal of hazardous or potentially hazardous substances will not adversely
affect the Company's business. There can also 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 upon the Company's ability to do business. Furthermore,
the introduction of the Company's products in foreign markets might require
obtaining foreign regulatory clearances. There can be no assurance that the
Company will be able to obtain regulatory clearances for its products in such
foreign markets.
Employees
As of October 31, 1996, Landec had 52 full-time employees, of whom 33
were dedicated to research, development, manufacturing, quality control and
regulatory affairs and 19 were dedicated to sales, marketing and administrative
activities. Landec intends to recruit additional personnel in
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connection with the development, manufacturing and marketing of its products.
None of Landec's employees is represented by a union, and Landec believes
relationships with its employees are good.
Item 2. Properties
Landec leases and occupies approximately 30,000 square feet of office,
laboratory and manufacturing space in Menlo Park, California. Of these
facilities, approximately 21,000 square feet is leased through December 1997
with two three-year renewal options, 3,500 sq. feet of warehouse space is
subleased through December 1996 and the remaining manufacturing space is
subleased through December 1998. The Company believes that it will require
additional space in 1998.
Item 3. Legal Proceedings
The Company is currently not a party to any material legal proceedings.
In October 1995, a customer of the Company received a letter alleging
that the Company's Intellipac breathable membrane product infringes patents of
another party. The Company received a similar letter in January 1996. 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.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ending October 31, 1996.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Common Stock is traded in the over-the-counter market and is quoted
on the NASDAQ National Market under the symbol "LNDC". The Common Stock was
initially offered to the public on February 15, 1996 at a price of $12.00 per
share. The following table sets forth for each period indicated during 1996 the
high and low sales prices for the Common Stock as reported on the NASDAQ
National Market.
High Low
---- ---
4th Quarter ending October 31, 1996............. $16.00 $ 8.38
3rd Quarter ending July 31, 1996................ $20.75 $14.88
2nd Quarter ending April 30, 1996
(commencing February 15, 1996)................ $19.00 $12.00
There were approximately 112 holders of record of 10,753,711 shares of
outstanding Common Stock as of October 31, 1996. The Company has not paid any
dividends on the Common Stock since its inception. The Company presently intends
to retain all future earnings for its business and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future.
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<TABLE>
Item 6. Selected Consolidated Financial Data
The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with the
information contained in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements contained in Item 8 of
this report.
<CAPTION>
Year Ended October 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product sales............................ $ 755 $ 601 $ 335 $ -- $ --
License fees............................. 600 2,650 400 350 475
Research and development revenues........ 1,096 796 965 821 811
--------- --------- --------- ---------- ----------
Total revenues........................ 2,451 4,047 1,700 1,171 1,286
Operating costs and expenses:
Cost of product sales.................... 1,004 987 897 -- --
Research and development................. 3,808 3,715 3,283 3,740 2,846
Selling, general and administrative...... 3,288 2,236 2,067 1,598 987
--------- --------- --------- ---------- ----------
Total operating costs and expenses.... 8,100 6,938 6,247 5,338 3,833
--------- --------- --------- ---------- ----------
Operating loss.............................. (5,649) (2,891) (4,547) (4,167) (2,547)
Net interest income......................... 1,449 132 192 51 119
--------- --------- --------- ---------- ----------
Net loss.................................... $(4,200) $ (2,759) $ (4,355) $ (4,116) $ (2,428)
========= ========= ========= ========== ==========
Net loss per share.......................... $ (.55)
=========
Shares used in computation of net loss per
share....................................... 7,699
=========
Supplemental net loss per share (1)......... $ (.43) $ (.38)
========= =========
Shares used in computation of supplemental
net loss per share (1)................... 9,697 7,175
========= =========
</TABLE>
<TABLE>
<CAPTION>
October 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.............................. $36,510 $ 5,549 $ 5,706 $ 9,772 $ 1,975
Total assets................................ 38,358 7,347 7,521 11,253 2,786
Redeemable convertible preferred stock...... -- 31,276 27,656 25,567 11,881
Accumulated deficit......................... (31,278) (26,538) (21,658) (15,213) (9,804)
Total shareholders' equity (net capital
deficiency).............................. $36,640 $(26,429) $(21,584) $(15,159) $(9,766)
<FN>
(1) Computed on a supplemental basis as described in Note 1 of Notes to
Consolidated Financial Statements.
</FN>
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements contained in Item 8 of this report.
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".
Overview
Since its inception in October 1986, the Company has been primarily
engaged in the research and development of its Intelimer technology and related
products. The Company launched its first product line, QuickCast splints and
casts, in April 1994. The Company launched its second product line, Intellipac
breathable membranes for the fresh-cut produce packaging market, in September
1995. To date, the Company has recognized $1.7 million in total QuickCast
product and Intellipac breathable membrane sales. The balance of revenues from
inception through October 31, 1996 have resulted from license fees and
collaborative arrangements and, through October 31, 1994 have also resulted from
Small Business Innovative Research ("SBIR") government grants. 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 and
expenditures necessary to further develop its manufacturing and marketing
capabilities. From inception through October 31, 1996, the Company's accumulated
deficit was $31.3 million.
Results of Operations
Fiscal Year Ended October 31, 1996 Compared to Fiscal Year Ended
October 31, 1995
Total revenues were $2.5 million for fiscal year 1996 compared to $4.0
million for fiscal year 1995, a decrease of 39%. Revenues from research and
development funding increased to $1.1 million for fiscal year 1996 from $796,000
for fiscal year 1995 due to an increase in the effort spent on research and
development contracts in fiscal year 1996. Revenues from product sales increased
to $755,000 for fiscal year 1996 from $601,000 for fiscal year 1995 due to
increased sales volume of Intellipac breathable membrane products in the first
three quarters of fiscal year 1996. In August 1996, Fresh Express decided to
suspend orders of the Company's Intellipac breathable membranes for its
fresh-cut broccoli and cauliflower packaging primarily due to cost issues.
Subsequent to this decision, however, the Company worked with Fresh Express to
reduce costs, and as a result, in October 1996, Fresh Express resumed ordering
the Company's Intellipac breathable membranes. License fees decreased to
$600,000 for fiscal year 1996 from $2.7 million for fiscal year 1995 primarily
due to non-recurring license fee revenue recognized during the fourth quarter of
fiscal year 1995 under the Company's agreement with Hitachi. In consideration
for the license fees and research and development funding received from its
corporate partners, the Company granted certain licenses and product rights. See
"Business - Corporate Collaborations."
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $1.0 million for fiscal year 1996 compared to $987,000 for
fiscal year 1995, an increase of 2%. Cost of product sales as a percentage of
product sales decreased to 133% in fiscal year 1996 from 164% in fiscal year
1995. This decrease was primarily the result of the increased volume of the
Intellipac breathable membrane product sales and increased labor efficiencies in
both the QuickCast device and Intellipac breathable membrane product lines. The
Company has experienced negative gross margins for its product sales due to the
early stage of commercialization of the Company's products and related product
start-up costs. The Company anticipates that if revenues from product sales
increase, gross margins will improve as the fixed portion of the cost of product
sales will be allocated over higher sales. Improvements in gross margins due to
increased product sales, if any, may be offset in the future if the Company
increases the fixed portion of cost of product sales. Due to the early stage of
commercialization, however, the Company is unable to predict with any certainty
future gross margins.
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<PAGE>
Research and development expenses were $3.8 million for fiscal year
1996 compared to $3.7 million for fiscal year 1995, an increase of 3%. The
Company's research and development expenses arise from the development, process
scale-up and efforts to protect the intellectual property content of its
enabling side-chain crystallizable polymer technology, which is the basis of the
Company's products. 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 were $3.3 million for
fiscal year 1996 compared to $2.2 million for fiscal year 1995, an increase of
47%. Selling, general and administrative expenses consist primarily of sales and
marketing expenses associated with the Company's product sales, business
development and administrative expenses. Selling, general and administrative
expenses increased as a result of expenses associated with the Company's
withdrawal of a planned secondary public offering and business development
initiatives totaling $340,000 or $.04 per share, increased sales and marketing
expenses and the additional administrative costs associated with supporting a
public company. Sales and marketing expenses were $1.3 million for fiscal year
1996 compared to $905,000 for fiscal year 1995, an increase of 47%. The increase
in sales and marketing expenses was attributable to the costs to support the
market introduction of the breathable membrane products launched in late fiscal
year 1995 and the cost of launching three new national U.S. distributors for
QuickCast products in fiscal year 1996. The Company expects that selling,
general and administrative spending will continue to increase in absolute
dollars, although it may vary as a percentage of total revenues.
Net interest income was $1.4 million for fiscal year 1996 compared to
$132,000 for fiscal year 1995. Net interest income increased due to interest
income earned on the Company's initial public offering proceeds.
Fiscal Year Ended October 31, 1995 Compared to Fiscal Year Ended
October 31, 1994
Total revenues were $4.0 million for fiscal year 1995 compared to $1.7
million for fiscal year 1994, an increase of 138%. Revenues from research and
development funding increased to $796,000 for fiscal year 1995 from $680,000 for
fiscal year 1994. The Company received no revenues from SBIR government grant
funding for fiscal year 1995 compared to $285,000 for fiscal year 1994. Revenues
from product sales increased to $601,000 for fiscal year 1995 from $335,000 for
fiscal year 1994 primarily due to increased sales volume for QuickCast products
and a small increase in their average selling prices. License fees increased to
$2.7 million for fiscal year 1995 from $400,000 for fiscal year 1994.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $987,000 for fiscal year 1995 compared to $897,000 for fiscal
year 1994, an increase of 10%. Cost of product sales as a percentage of product
sales decreased to 164% in fiscal year 1995 from 268% in fiscal year 1994. This
decrease was primarily the result of increased volumes and manufacturing
efficiencies for the QuickCast products. The Company experienced negative gross
margins for its product sales due to the early stage of commercialization of the
Company's products and related product start-up costs. Cost of product sales did
not increase at the same rate as revenues from product sales due to these
start-up costs, and the fact that fiscal year 1995 was the first full year of
product sales.
Research and development expenses were $3.7 million for fiscal year
1995 compared to $3.3 million for fiscal year 1994, an increase of 13%. Research
and development expenses increased primarily as a result of increased process
development costs associated with the launch of the Company's Intellipac
breathable membrane products and development of the PORT ophthalmic device,
which were offset by a decline in development expenses associated with the
QuickCast product line launched in fiscal year 1994.
Selling, general and administrative expenses were $2.2 million for
fiscal year 1995 compared to $2.1 million for fiscal year 1994, an increase of
8%. Sales and marketing expenses increased to $905,000 for fiscal year 1995 from
$823,000 for fiscal year 1994, primarily due to marketing and sales activities
for the QuickCast product line.
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<PAGE>
Net interest income was $132,000 for fiscal year 1995 compared to
$192,000 for fiscal year 1994, a decrease of 31%. The decrease resulted
primarily from interest expense of $42,000 associated with the convertible
promissory notes issued in March 1995.
Liquidity and Capital Resources
The Company completed its initial public offering of common stock in
February 1996, raising approximately $35.0 million, net of underwriting
discounts and commissions, and issuance costs. Prior to the Company's initial
public offering, the Company financed its operations primarily through private
sales of its equity securities, issuances of convertible debt, equipment lease
financings and license and development fees. Through October 31, 1996 the
Company has received net offering proceeds of approximately $23.8 million from
private sales of equity securities, $700,000 from the issuance of convertible
notes in March 1995 and $1.1 million from lease financing.
Cash used in operating activities increased by $1.4 million to $3.6
million in fiscal year 1996 from $2.2 million in fiscal year 1995. The increase
is primarily due to an increase in the Company's net loss in fiscal year 1996
compared to fiscal year 1995.
The Company has not made significant outlays for capital expenditures
since inception. During fiscal year 1996 the Company spent approximately
$367,000 on capital expenditures. Capital expenditures to date have consisted
primarily of purchases of laboratory and manufacturing equipment, computers and
related peripheral equipment, furniture and fixtures and leasehold improvements.
The Company currently anticipates that capital expenditures in fiscal year 1997
will be approximately $1.0 million. Such expenditures will include purchases of
additional laboratory and manufacturing equipment, computers and related
peripheral equipment and leasehold improvements.
The Company believes that existing cash, cash equivalent and short-term
investments, which totaled $36.5 million at October 31, 1996, will be sufficient
to finance its capital requirements through at least the next twelve months.
However, the Company's future capital requirements will 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 arrangements and establish and maintain new
collaborative arrangements; payments received under research and development
agreements; the costs involved in preparing, filing, prosecuting, defending and
enforcing intellectual property rights; complying with regulatory requirements;
competing technological and market developments; the effectiveness of product
commercialization activities and arrangements; and other factors. If the
Company's currently available funds and internally generated cash flow, are not
sufficient to satisfy its financing needs, the Company would be required to seek
additional funding through other arrangements with collaborative partners,
through bank borrowings and through public or private sales of its securities,
including equity 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.
The Company has not generated taxable income to date. At October 31,
1996, the net operating losses available to offset future taxable income for
federal income tax purposes were approximately $17.7 million. Because the
Company has experienced ownership changes, future utilization of the
carryforwards may be limited in any one fiscal year pursuant to Internal Revenue
Code regulations. The carryforwards expire at various dates beginning in 2001
through 2011, if not utilized. As a result of the annual limitation, a portion
of these carryforwards may expire before ultimately becoming available to reduce
federal income tax liabilities.
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
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<PAGE>
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 net losses of
approximately $4.2 million and $2.8 million during fiscal years 1996 and 1995,
respectively, and the Company's accumulated deficit as of October 31, 1996
totaled $31.3 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.
Early Commercialization; Dependence on New Products and Technologies;
Uncertainty of Market Acceptance. While the Company recently commenced marketing
certain of its products, it is in the early stage of product commercialization
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.
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 Hitachi and
BFGoodrich in connection with its Intelimer polymer systems, Fresh Express and
Printpack in connection with its Intellipac breathable membrane products, Nitta
and Hitachi in connection with its industrial adhesive products and Smith &
Nephew, Physician Sales & Services, North Coast Medical and Sammons Preston in
connection with its QuickCast orthopedic products. 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. A significant
portion of Landec's revenues to date have been derived from commercial research
and development collaborations and license agreements. Development funding and
license fees from product sales to Hitachi, BFGoodrich, Nitta and Smith & Nephew
represented approximately 65% of the Company's revenues for fiscal year 1996.
Moreover, research and development revenue from Hitachi and Nitta each accounted
for more than 10% of the Company's total revenues for fiscal year 1996. 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
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<PAGE>
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 circumstances.
In March of 1996, the Company agreed to amend its research and
development collaboration with BFGoodrich in the Intelimer polymer systems area
by removing certain exclusivity restrictions. This amendment will allow Landec
to explore direct distribution and other licensing and product development
opportunities while continuing the collaboration with BFGoodrich on a
non-exclusive basis.
In August 1996, Fresh Express informed the Company that it had decided
to suspend orders of Landec's Intellipac breathable membranes for Fresh Express'
fresh-cut broccoli and cauliflower packaging primarily due to cost issues.
Subsequent to this decision, however, the Company worked with Fresh Express to
reduce these cost issues, and as a result, in October 1996 Fresh Express resumed
ordering the Company's Intellipac breathable membranes. In October 1996, the
Company also began shipping its Intellipac breathable membrane for fresh-cut
broccoli packaging to a second produce customer. However, there can be no
assurance that Fresh Express will continue to order Landec's Intellipac
breathable membranes or that other customers will order such products.
The Company anticipates that it will terminate its relationship with
Smith & Nephew in early 1997 for QuickCast products in certain European and
Pacific Rim countries, Canada and South Africa, and, as a result, the Company is
currently in the process of initiating distribution relationships with other
independent distributors in selected countries.
There can be no assurance that the 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.
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 for its product
sales to date. The Company intends to build or acquire large-scale polymer
manufacturing and formulations facilities by 1998. Production in
commercial-scale quantities may involve technical challenges for the Company.
Establishing its own manufacturing capabilities would require significant
scale-up expenses and additions to facilities and personnel. The Company may
also consider seeking collaborative arrangements with other companies to
manufacture certain of its products. If the Company is 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
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<PAGE>
material adverse effect on the Company's business, operating results and
financial condition. 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 Intellipac breathable
membrane products. Upon manufacturing scale-up, 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,
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 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 its products and,
consequently, could materially and adversely affect the Company's business,
operating results and financial condition.
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 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 received
within the past year a letter alleging that the Company's 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
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.
-30-
<PAGE>
Limited Sales or Marketing Experience. The Company has only limited
experience marketing and selling its products. While the Company intends to
distribute certain of its products through its corporate partners and other
distributors, the Company intends 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. In fiscal
year 1996, the Company changed its distribution approach with respect to the
QuickCast product line in the United States to include several national
distributors. The Company has entered into distribution agreements with
Physician Sales & Services, North Coast Medical, and Sammons Preston. Each of
the Company's distributors can cease marketing the Company's products with
limited notice and with little or no penalty. There can be no assurance the
Company's distributors will continue to offer the Company's products or that the
Company will be able to recruit additional or replacement distributors. The loss
of one or more of the Company's major distributors would have a material adverse
effect on the Company's business, operating results and financial condition.
International Operations and Sales. During fiscal years 1996 and 1995,
approximately 60% and 73%, 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 will continue to
account for a significant portion 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 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. The Company's results of
operations have varied significantly from quarter to quarter. 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. In addition,
the Company cannot predict rates of licensing fees and royalties received from
its partners or ordering rates by its distributors, some of which place
infrequent stocking orders, while others order at regular intervals. 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 product liability insurance
in the minimum amount of $2.0 million per occurrence with a minimum annual
aggregate limit of $2.0 million and non-medical product liability insurance in
the minimum amount of $5.0 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 recall or other claim with respect to
-31-
<PAGE>
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, 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.
Item 8. Financial Statements and Supplementing Data
See Item 14 of Part IV of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
-32-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
This information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant will
file with the Commission no later than February 28, 1997 (120 days
after the Registrant's fiscal year end covered by this Report) and
is incorporated herein by reference.
Item 11. Executive Compensation
This information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant will
file with the Commission no later than February 28, 1997 (120 days
after the Registrant's fiscal year end covered by this Report) and
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant will
file with the Commission no later than February 28, 1997 (120 days
after the Registrant's fiscal year end covered by this Report) and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This information required by this item is contained in the
Registrant's definitive proxy statement which the Registrant will
file with the Commission no later than February 28, 1997 (120 days
after the Registrant's fiscal year end covered by this Report) and
is incorporated herein by reference.
-33-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1(a) Consolidated Financial Statements and Schedules of Landec
Corporation and Subsidiaries
Page
----
Independent Auditors' Report 35
Consolidated Balance Sheets at October 31, 1996 and 1995 36
Consolidated Statements of Operations for the Years Ended 37
October 31, 1996, 1995 and 1994
Consolidated Statement of Changes in Redeemable Convertible 38
Preferred Stock and Shareholders' Equity (Net Capital Deficiency)
for the Years Ended October 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended 39
October 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements 40
Schedules:
II Valuation and Qualifying Account for the Years Ended 50
October 31, 1996, 1995 and 1994
-34-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Landec Corporation
We have audited the accompanying consolidated balance sheets of Landec
Corporation as of October 31, 1996 and 1995, and the related consolidated
statements of operations, changes in redeemable convertible preferred stock and
shareholders' equity (net capital deficiency) and cash flows for each of the
three years in the period ended October 31, 1996. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Landec
Corporation at October 31, 1996 and 1995 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Palo Alto, California
December 6, 1996
-35-
<PAGE>
<TABLE>
LANDEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<CAPTION>
October 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 14,185 $ 3,585
Short-term investments ....................................................... 22,325 1,964
Accounts receivable, less allowance for doubtful accounts of $32
at October 31, 1996 and 1995 .............................................. 23 53
Inventory .................................................................... 549 488
Prepaid expenses and other current assets .................................... 188 115
-------- --------
Total current assets ..................................................... 37,270 6,205
Property and equipment, net .................................................. 963 993
Other assets ................................................................. 125 149
-------- --------
$ 38,358 $ 7,347
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Convertible notes payable .................................................... $ -- $ 700
Accounts payable ............................................................. 484 291
Accrued compensation ......................................................... 250 302
Other accrued liabilities .................................................... 259 281
Current portion of capital lease obligations ................................. 229 239
Deferred revenue ............................................................. 166 129
-------- --------
Total current liabilities ................................................ 1,388 1,942
Noncurrent portion of capital lease obligations ................................. 330 558
Commitments
Redeemable convertible preferred stock at accreted value; none
and 6,674,415 shares issued and outstanding at October 31, 1996 and
1995, respectively ........................................................... -- 31,276
Shareholders' equity (net capital deficiency):
Preferred stock, $0.001 par value; 2,000,000 shares authorized,
issuable in series ........................................................ -- --
Common stock, $0.001 par value; 50,000,000 shares authorized;
10,753,711 and 547,678 shares issued and outstanding at
October 31, 1996 and 1995, respectively ................................... 68,242 536
Notes receivable from shareholders ........................................... (13) (20)
Deferred compensation ........................................................ (311) (407)
Accumulated deficit .......................................................... (31,278) (26,538)
-------- --------
Total shareholders' equity (net capital deficiency) ...................... 36,640 (26,429)
-------- --------
$ 38,358 $ 7,347
======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
-36-
<PAGE>
<TABLE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<CAPTION>
Year Ended October 31,
------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product sales.................................................... $ 755 $ 601 $ 335
License fees .................................................... 600 2,650 400
Research and development revenues ............................... 1,096 796 965
------- ------- -------
Total revenues ............................................... 2,451 4,047 1,700
Operating costs and expenses:
Cost of product sales ........................................... 1,004 987 897
Research and development ........................................ 3,808 3,715 3,283
Selling, general and administrative ............................. 3,288 2,236 2,067
------- ------- -------
8,100 6,938 6,247
------- ------- -------
Operating loss ..................................................... (5,649) (2,891) (4,547)
Interest income .................................................... 1,548 282 273
Interest expense ................................................... (99) (150) (81)
------- ------- -------
Net loss............................................................ $(4,200) $(2,759) $(4,355)
======= ======= =======
Net loss per share.................................................. $ (.55)
=======
Shares used in computation of net loss per share.................... 7,699
=======
Supplemental net loss per share..................................... $ (.43) $ (.38)
======= =======
Shares used in computation of supplemental net loss per share....... 9,697 7,175
======= =======
<FN>
See accompanying notes.
</FN>
</TABLE>
-37-
<PAGE>
<TABLE>
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(in thousands, except share and per share amounts)
<CAPTION>
Shareholders'
Equity (Net Capital Deficiency)
----------------------------------------
Notes
Redeemable Convertible Receivable
Preferred Stock Common Stock From Sale
----------------------- ------------------------- of Common
Shares Amount Shares Amount Stock
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balances at October 31, 1993 ............................ 6,484,692 $ 25,567 521,617 $ 86 $ (32)
Return of common stock and cancellation and
repayment of notes receivable ........................ -- -- (2,433) (1) 9
Issuance of common stock at $0.58 per share ............. -- -- 20,700 12 --
Accretion of redemption price differential on
redeemable convertible preferred stock ............... -- 2,089 -- -- --
Net loss ................................................ -- -- -- -- --
----------- ----------- ----------- -------- -------
Balances at October 31, 1994 ............................ 6,484,692 $ 27,656 539,884 $ 97 $ (23)
----------- ----------- ----------- -------- -------
Issuance of Series E redeemable convertible
preferred stock for cash at $7.91 per share .......... 189,723 1,500 -- -- --
Issuance of common stock at $0.58 to $0.86 per share .... -- -- 7,968 5 --
Return of common stock and cancellation and
repayment of notes receivable ........................ -- -- (174) -- 3
Accretion of redemption price differential on
redeemable convertible preferred stock ............... -- 2,120 -- -- --
Deferred compensation related to grant of stock
options .............................................. -- -- -- 434 --
Amortization of deferred compensation ................... -- -- -- -- --
Unrealized loss on available-for-sale securities ........ -- -- -- -- --
Net loss ................................................ -- -- -- -- --
----------- ----------- ----------- -------- -------
Balances at October 31, 1995 ............................ 6,674,415 $ 31,276 547,678 $ 536 $ (20)
----------- ----------- ----------- -------- -------
Initial Public Offering of common stock, $12.00 per
share, net of issuance costs ......................... -- -- 3,220,000 35,035 --
Accretion of redemption price differential on
redeemable convertible preferred stock ............... -- 556 -- -- --
Conversion of Series B, C, D and E redeemable
convertible preferred stock into common stock ........ (6,674,415) (31,832) 6,674,415 31,832 --
Conversion of convertible notes payable ................. -- -- 176,432 700 --
Deferred compensation related to grant of stock
options .............................................. -- -- -- 17 --
Issuance of common stock at $0.58 to $10.20 per share ... -- -- 135,186 122 --
Repayment of notes receivable ........................... -- -- -- -- 7
Amortization of deferred compensation ................... -- -- -- -- --
Unrealized gain on available-for-sale securities ........ -- -- -- -- --
Net loss ................................................ -- -- -- -- --
----------- ----------- ----------- -------- -------
Balance at October 31, 1996 ............................. -- $ -- 10,753,711 $ 68,242 $ (13)
=========== =========== =========== ======== =======
(Table continued on next page.)
</TABLE>
<PAGE>
<TABLE>
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)--(Continued)
(in thousands, except shares and per share amounts)
<CAPTION>
Shareholders' Equity (Net Capital Deficiency)
-------------------------------------------------
Total
Shareholders'
Equity (Net
Deferred Accumulated Capital
Compensation Deficit Deficiency)
------------ ------- -----------
<S> <C> <C> <C>
Balances at October 31, 1993 ........................ $ -- $(15,213) $(15,159)
Return of common stock and cancellation and
repayment of notes receivable .................... -- -- 8
Issuance of common stock at $0.58 per share ......... -- -- 12
Accretion of redemption price differential on
redeemable convertible preferred stock ........... -- (2,090) (2,090)
Net loss ............................................ -- (4,355) (4,355)
-------- -------- --------
Balances at October 31, 1994 ........................ $ -- $(21,658) $(21,584)
-------- -------- --------
Issuance of Series E redeemable convertible
preferred stock for cash at $7.91 per share ...... -- -- --
Issuance of common stock at $0.58 to $0.86 per share -- -- 5
Return of common stock and cancellation and
repayment of notes receivable .................... -- -- 3
Accretion of redemption price differential on
redeemable convertible preferred stock ........... -- (2,120) (2,120)
Deferred compensation related to grant of stock
options .......................................... (434) -- --
Amortization of deferred compensation ............... 27 -- 27
Unrealized loss on available-for-sale securities .... -- (1) (1)
Net loss ............................................ -- (2,759) (2,759)
-------- -------- --------
Balances at October 31, 1995 ........................ $ (407) $(26,538) $(26,429)
-------- -------- --------
Initial Public Offering of common stock, $12.00 per
share, net of issuance costs ..................... -- -- 35,035
Accretion of redemption price differential on
redeemable convertible preferred stock ........... -- (556) (556)
Conversion of Series B, C, D and E redeemable
convertible preferred stock into common stock .... -- -- 31,832
Conversion of convertible notes payable ............. -- -- 700
Deferred compensation related to grant of stock
options .......................................... (17) -- --
Issuance of common stock at $0.58 to $10.20 per share -- -- 122
Repayment of notes receivable ....................... -- -- 7
Amortization of deferred compensation ............... 113 -- 113
Unrealized gain on available-for-sale securities .... -- 16 16
Net loss ............................................ -- (4,200) (4,200)
-------- -------- --------
Balance at October 31, 1996 ......................... $ (311) $(31,278) $ 36,640
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
-38-
<PAGE>
<TABLE>
LANDEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended October 31,
---------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss ........................................................................... $ (4,200) $ (2,759) $ (4,355)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................... 397 378 362
Loss on disposal of fixed assets ................................................ -- 25 17
Amortization of deferred compensation ........................................... 113 27 --
Changes in assets and liabilities:
Accounts receivable ........................................................... 30 132 2
Inventory ..................................................................... (61) (288) (200)
Prepaid expenses and other current assets ..................................... (73) (16) 155
Accounts payable .............................................................. 193 (53) 25
Accrued compensation .......................................................... (52) 93 55
Other accrued liabilities ..................................................... (22) 89 49
Deferred revenue .............................................................. 37 129 --
-------- -------- --------
Total adjustments ....................................................... 562 516 465
-------- -------- --------
Net cash used in operating activities ................................................ (3,638) (2,243) (3,890)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................................ (367) (48) (84)
Decrease (increase) in other assets ................................................ 24 (28) (70)
Purchases of available-for-sale securities ......................................... (26,345) (6,470) (8,188)
Maturities of available-for-sale securities ........................................ 6,000 7,800 4,893
-------- -------- --------
Net cash provided by (used in) investing activities .................................. (20,688) 1,254 (3,449)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock, net of repurchases ............................. 35,157 5 10
Proceeds from sale of preferred stock .............................................. -- 1,500 --
Proceeds from repayment of notes receivable ........................................ 7 3 9
Payments on capital lease obligations .............................................. (238) (183) (223)
Proceeds from issuance of convertible notes payable ................................ -- 700 --
Proceeds from capital lease financing of prior year capital expenditures ........... -- 138 182
-------- -------- --------
Net cash provided by (used in) financing activities .................................. 34,926 2,163 (22)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................................. 10,600 1,174 (7,361)
Cash and cash equivalents at beginning of period ..................................... 3,585 2,411 9,772
-------- -------- --------
Cash and cash equivalents at end of period ........................................... $ 14,185 $ 3,585 $ 2,411
======== ======== ========
Supplemental disclosure of cash flows information:
Cash paid during the period for interest ........................................... $ 99 $ 108 $ 94
======== ======== ========
Supplemental schedule of noncash investing and financing activities:
Equipment acquired under capital leases ............................................ $ -- $ 154 $ 516
======== ======== ========
Conversion of convertible notes payable into common stock .......................... $ 700 $ -- $ --
======== ======== ========
<FN>
See accompanying notes.
</FN>
</TABLE>
-39-
<PAGE>
LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Landec Corporation (the "Company") was incorporated in the State of
California on October 31, 1986 for the purpose of designing, developing,
manufacturing and selling temperature-activated polymer and membrane products
for a variety of industrial, medical and agricultural applications.
The consolidated financial statements comprise the accounts of Landec
Corporation and its wholly owned subsidiary, Intellicoat Corporation
("Intellicoat"), which was incorporated in the State of Delaware in March 1995.
All intercompany transactions and balances have been eliminated.
Cash, Cash Equivalents and Investments
Effective November 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in
Debt and Equity Securities," the cumulative effect of which was immaterial.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. As of October 31, 1996 and 1995, the Company's debt securities are
carried at fair value and classified as available-for-sale, as the Company may
not hold these securities until maturity in order to take advantage of market
conditions. The Company records all highly liquid securities with three months
or less from date of purchase to maturity as cash equivalents. All other
available-for-sale securities are recorded as short-term investments. Unrealized
gains and losses are reported in shareholders' equity. The cost of debt
securities is adjusted for amortization of premiums and discounts to maturity.
This amortization is included in interest income. Realized gains and losses on
available-for-sale securities are also included in interest income. The cost of
securities sold is based on the specific identification method.
Concentrations of Credit Risk
Cash, cash equivalents and short-term investments are financial
instruments which potentially subject the Company to concentrations of risk.
Corporate policy limits, among other things, the amount of credit exposure to
any one issuer and to any one type of investment, other than securities issued
or guaranteed by the U.S. government.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market. As of October 31, 1996 and 1995 inventories consisted of (in
thousands):
October 31,
---------------
1996 1995
---- ----
Raw materials .............................. $149 $123
Work in process ............................ 245 169
Finished goods ............................. 155 196
---- ----
$549 $488
==== ====
-40-
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Net Loss Per Share
Except as noted below, net loss per share is computed using the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation as their effect is anti-dilutive, except that,
pursuant to the Securities and Exchange Commission ("SEC") Staff Accounting
Bulletins, common and common equivalent shares (stock options, warrants,
convertible notes payable and preferred stock) issued during the 12-month period
prior to the initial filing of an offering at prices below the public offering
price have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method for stock options).
<TABLE>
Net loss per share information is as follows (in thousands, except per
share data):
<CAPTION>
Year Ended October 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net loss per share................................ $ (.55) $(2.33) $(3.75)
Shares used in computing net loss per share....... 7,699 1,182 1,162
</TABLE>
Supplemental per share data is provided to show the calculation on a
consistent basis for the periods presented. It has been computed as described
above, but excludes the anti-dilutive effect of common equivalent shares from
stock options and warrants issued at prices substantially below the public
offering price during the 12-month period prior to the initial filing of the
public offering, and also gives retroactive effect from the date of issuance to
the conversion of preferred stock and promissory notes which automatically
converted to common shares upon the closing of the Company's initial public
offering.
Revenue Recognition
Revenues related to research contracts are recognized ratably over the
related funding periods for each contract, which is generally as research is
performed. Revenues related to license agreements with noncancelable,
nonrefundable terms and no significant future obligations are recognized upon
inception of the agreements. Product sales are recognized upon shipment.
Revenues from customers representing 10% or more of total revenue
during fiscal years 1996, 1995 and 1994 are as follows:
1996 1995 1994
---- ---- ----
Customer:
A 35% 11% 0%
B 20% 53% 15%
C 14% 0% 0%
D 8% 18% 21%
E 3% 2% 12%
F 0% 0% 14%
G 0% 2% 12%
Export product sales were approximately $136,000, $378,000 and $143,000
in the years ended October 31, 1996, 1995 and 1994, respectively.
-41-
<PAGE>
1. Organization and Summary of Significant Accounting Policies (continued)
Research and Development Expenses
Costs related to both research contracts and Company-funded research
are included in research and development expenses. Research and development
costs approximated the associated research and development revenues for the
three years ended October 31, 1996.
Property and Equipment
Furniture, fixtures and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives of
three to five years. Leasehold improvements are amortized over the lesser of the
economic life of the improvement or the life of the lease on a straight-line
basis.
In 1995, the Financial Accounting Standards Board released SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. SFAS No. 121 is
effective for fiscal years beginning after December 15, 1995. Adoption of SFAS
No. 121 is not expected to have a material impact on the Company's financial
position or results of operations.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans and its employee stock
purchase plans in accordance with the provisions of the Accounting Principles
Board Opinion No. 25 (APB 25) "Accounting for Stock Issued to Employees." In
1995, the Financial Accounting Standards Board released SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 provides an alternative
to APB 25 and is effective for fiscal years beginning after December 15, 1995.
The Company expects to continue to account for its employee stock plans in
accordance with the provision of APB 25. Accordingly, SFAS No. 123 is not
expected to have any material impact on the Company's financial position or
results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Collaborative Agreements
To facilitate the commercialization of its products, the Company has
established a number of strategic alliances in which the Company receives
license payments, research and development funding and/or future royalties in
exchange for certain technology or marketing rights.
Hitachi. The Company has entered into two separate collaborations with Hitachi
in the areas of industrial adhesives and Intelimer polymer systems. On October
1, 1994, the Company entered into a non-exclusive license agreement with Hitachi
in the industrial adhesives area.
-42-
<PAGE>
2. Collaborative Agreements (continued)
The agreement provides Hitachi with a non-exclusive license to manufacture and
sell products using Landec's Intelimer materials in certain Asian countries.
Landec received up-front license fees upon signing the agreement and is entitled
to future royalties based on net sales by Hitachi of the licensed products. Any
fees paid to the Company are non-refundable.
On August 10, 1995, the Company entered into a second collaboration
with Hitachi in the Intelimer polymer systems area. The agreement provides
Hitachi with an exclusive license to use and sell Landec's catalyst systems in
industrial Intelimer polymer systems products in certain Asian countries. In
addition, Hitachi also received limited options and rights for certain other
technology applications in its Asian territory. Landec received an up-front
license payment upon signing this agreement and is entitled to receive research
and development funding over three years and future royalties based on net sales
by Hitachi of the licensed products. Any fees paid to the Company are
non-refundable. This agreement is terminable at Hitachi's option. In conjunction
with this agreement, Hitachi purchased 189,723 shares of Series E Preferred
Stock for $1.5 million (which was converted into 189,723 shares of common stock
in connection with the Company's initial public offering).
BFGoodrich. On October 13, 1993, the Company entered into a collaboration with
BFGoodrich. The agreement was amended on July 29, 1995 and again in March 1996,
and provides BFGoodrich with a nonexclusive worldwide (excluding Asia) license
to use and sell Landec's catalyst systems in industrial Intelimer polymer
systems products. Landec is entitled to be the exclusive supplier of Intelimer
catalyst systems to BFGoodrich for at least seven years. Landec received an
up-front license payment upon signing and additional license fees upon achieving
certain milestones. Under the agreement, development was funded by BFGoodrich
for the first year, was extended to subsequent years, and was concluded during
the second quarter of fiscal year 1996. The Company is entitled to receive
future royalties based on net sales by BFGoodrich of the licensed products. Any
fees paid to the Company are non-refundable.
Nitta. On March 14, 1995, the Company entered into a license agreement with
Nitta in the industrial adhesives area. The agreement provides Nitta with a
co-exclusive license to manufacture and sell products using Landec's Intelimer
materials in certain Asian countries. Landec received up-front license fees upon
signing the agreement and is entitled to future royalties based on net sales by
Nitta of the licensed products. Any fees paid to the Company are non-refundable.
In addition, Nitta also received limited options for certain other technology
applications in its Asian territory. This agreement is terminable at Nitta's
option. In March 1996, this agreement was expanded to provide Nitta an exclusive
license to use and sell products using the Company's Intelimer materials in the
medical adhesives area in certain Asian countries. The Company received an up
front license fee upon signing the expanded agreement and is entitled to future
royalties based on net sales by Nitta of the licensed products.
The Company has also entered into several other collaborative
arrangements, principally to support research and development for its Intellipac
breathable membrane and ophthalmic products as well as other technologies being
pursued by the Company. Under the terms of these agreements, the Company
generally receives research and development funding and rights to future
royalties from product sales, in exchange for granting certain technology or
distribution rights.
In addition, the Company has entered into several distribution
agreements for its QuickCast orthopedic and splinting products. Under the terms
of these agreements, the Company has granted exclusive and non-exclusive rights
to have its QuickCast products distributed to orthopedic surgeons, cast
technicians, physical assistants and the occupational and physical therapists.
-43-
<PAGE>
<TABLE>
3. Available-for-Sale Securities
The following is a summary of available-for-sale securities (in
thousands):
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ----- ------ ----------
<S> <C> <C> <C> <C>
October 31, 1996
U.S. government and agency obligations ........................ $20,263 $ 9 $-- $20,272
Corporate bonds ............................................... 12,940 9 -- 12,949
Other corporate securities .................................... 2,027 -- (2) 2,025
------- --- --- -------
Total securities .............................................. $35,230 $18 $(2) $35,246
======= === === =======
Amounts included in:
Cash equivalents .............................................. $12,921 $-- $-- $12,921
Short-term investments ........................................ 22,309 18 (2) 22,325
------- --- --- -------
Total securities .............................................. $35,230 $18 $(2) $35,246
======= === === =======
October 31, 1995
U.S. government and agency obligations ........................ $ 4,959 $-- $(1) $ 4,958
======= === === =======
Amounts included in:
Cash equivalents .............................................. $ 2,994 $-- $-- $ 2,994
Short-term investments ........................................ 1,965 -- (1) 1,964
------- --- --- -------
Total securities .............................................. $ 4,959 $-- $(1) $ 4,958
======= === === =======
</TABLE>
The contractual maturities of debt securities included in temporary investments
at October 31, 1996 were as follows (in thousands):
Estimated
Amortized Cost Fair Value
-------------- ----------
Due within one year......................... $16,891 $16,895
Due within one to two years................. 5,418 5,430
------- -------
Total short-term investments............. $22,309 $22,325
======= =======
-44-
<PAGE>
4. Property and Equipment
Property and equipment consists of the following (in thousands):
October 31,
--------------------
1996 1995
---- ----
Laboratory and manufacturing equipment ............... $ 1,775 $ 1,530
Computer equipment ................................... 322 261
Furniture and fixtures ............................... 161 134
Leasehold improvements ............................... 990 986
------- -------
3,248 2,911
Less accumulated depreciation and amortization ...... (2,285) (1,918)
------- -------
$ 963 $ 993
======= =======
Property and equipment includes approximately $973,000 and $1.1 million
recorded under capital leases at October 31, 1996 and 1995, respectively.
Accumulated amortization related to leased assets total approximately $537,000
and $389,000 at October 31, 1996 and 1995, respectively.
5. Redeemable Convertible Preferred Stock and Warrants
Upon closing of the Company's initial public offering in February 1996,
all outstanding shares of redeemable convertible preferred stock (an aggregate
of 6,674,415 shares) were converted into 6,674,415 shares of common stock.
In connection with the sale of Series D preferred stock in July 1993,
the Company issued warrants to purchase 186,349 shares of common stock at an
exercise price of $4.31 per share for $5,357 in cash. The warrants expire five
years from the date of issuance. No warrants have been exercised as of October
31, 1996.
6. Shareholders' Equity
Common Stock, Stock Purchase Plans and Stock Option Plans
In December 1995, the Board approved a one-for-2.875 reverse stock
split of its common stock and preferred stock through an amendment to the
Articles of Incorporation. All share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect this event. The
Board has also approved an amendment to the Articles of Incorporation to change
the number of authorized shares of common stock to 50,000,000 shares and
Preferred Stock to 2,000,000 shares upon the closing of the Company's initial
public offering.
On February 15, 1996 the Company completed an initial public offering
of 2,800,000 shares of common stock at a price of $12.00 per share. The net
proceeds to the Company from the initial public offering were approximately
$30.3 million, after deducting underwriting discounts, commissions and expenses.
In March 1996, the underwriters exercised their overallotment option to
purchase 420,000 shares of common stock for $12.00 per share. The Company
received an additional $4.7 million in offering proceeds, after deducting
underwriting discounts, commissions and expenses.
The Company has 2,838,565 common shares reserved for future issuance
under all stock option plans, outstanding warrants and employee stock purchase
plans.
-45-
<PAGE>
6. Shareholders' Equity (continued)
The Company has a 1988 Stock Purchase Plan for issuance of common stock
to employees and consultants. The price of the shares to be purchased and the
terms of payment are determined by the Company's Board of Directors, provided
that such price cannot be less than the fair market value on the date of the
grant. Shares purchased under the plan vest over a period of four years; the
Company may repurchase any unvested shares in the event of termination of
employment. As of October 31, 1996, 143,965 shares of common stock had been
purchased under the plan at prices ranging from $0.29 to $0.58 per share, of
which no shares were subject to repurchase. The plan was terminated in December
1995.
The Company established the 1988 Stock Option Plan under which the
Board of Directors may grant incentive stock options or nonqualified stock
options to its employees and outside consultants. As of October 31, 1996, the
Company had reserved 1,574,161 shares of common stock for future issuance under
the plan. The exercise price of incentive stock options and nonqualified stock
options may be no less than 100% and 85%, respectively, of the fair market value
of the Company's common stock as determined by the Board of Directors. Options
are exercisable upon grant and generally vest ratably over four years
(commencing one year after an employee's hire date) and are subject to
repurchase if exercised before being vested.
In December 1995, the Board also approved the adoption of the 1995
Employee Stock Purchase Plan (the "Purchase Plan") and the 1995 Directors' Stock
Option Plan (the "Directors' Plan"), which authorizes the issuance of 300,000
and 200,000 shares, respectively, under the plans. The Purchase Plan permits
eligible employees to purchase common stock, which may not exceed 10% of an
employee's compensation, at a price equal to the lower of 85% of the fair market
value of the Company's common stock at the beginning of the offering period or
on the purchase date. The Directors' Plan provides that each person who becomes
a nonemployee director of the Company, who has not received a previous grant,
shall be granted a nonstatutory stock option to purchase 20,000 shares of common
stock on the date on which the optionee first becomes a nonemployee director of
the Company. Thereafter, on the date of each annual meeting of the shareholders
each non-employee Director shall be granted an additional option to purchase
5,000 shares of common stock if, on such date, he or she shall have served on
the Company's Board of Directors for at least six months prior to the date of
such annual meeting. The exercise price of the options will be the fair market
value of the Company's common on the date the options are granted. In June 1996,
the Board amended the Directors' Plan to provide that options are exercisable
and vest upon grant. Such amendment is subject to shareholder approval to be
recommended by the Company at its next meeting of shareholders.
In September 1996, the Board approved the adoption of the 1996
Non-Executive Stock Option Plan which authorizes the issuance of 750,000 shares
under the plan. The Board of Directors may grant non-qualified stock options to
employees and outside consultants who are not officers or directors of the
Company. The exercise price of the options will be equal to the fair market
value of the Company's common stock on the date the options are granted. Options
are exerciseable upon grant and generally vest ratably over four years and are
subject to repurchase if exercised before being vested.
In October 1996, the Board of Directors of Intellicoat approved the
adoption of the 1996 Intellicoat Stock Plan which authorizes the issuance of
2,000,000 shares of Intellicoat common stock under the plan. The Board of
Directors of Intellicoat may grant stock purchase rights, incentive stock
options or non-statutory stock options to employees and outside consultants. The
exercise price of the stock purchase rights, incentive stock options and
non-statutory stock options may be no less than 85%, 100% and 85%, respectively,
of the fair market value of Intellicoat's common stock as determined by
Intellicoat's Board of Directors. Options are exercisable upon grant and
generally vest ratably over four
-46-
<PAGE>
6. Shareholders' Equity (continued)
years and are subject to repurchase if exercised before being vested. No shares
have been granted under this plan as of October 31, 1996.
<TABLE>
Activity under all Stock Option Plans is as follows:
<CAPTION>
Options Outstanding Options
Available for --------------------------------------
Grant Number of Shares Price Per Share
-------------- ----------------- ----------------
<S> <C> <C> <C>
Balance at October 31, 1993................. 164,407 706,011 $0.58
Additional shares reserved............... 347,826 -- --
Options granted.......................... (188,145) 188,145 $0.58-$0.86
Options exercised........................ -- (20,700) $0.58
Options canceled......................... 50,448 (50,448) $0.58-$0.86
--------- --------- --------------
Balance at October 31, 1994................. 374,536 823,008 $0.58-$0.86
Additional shares reserved............... 347,826 -- --
Options granted.......................... (410,570) 410,570 $0.86-$1.44
Options exercised........................ -- (7,968) $0.58-$0.86
Options canceled......................... 13,691 (13,691) $0.58-$0.86
--------- --------- --------------
Balance at October 31, 1995................. 325,483 1,211,919 $0.58-$1.44
Additional shares reserved............... 950,000 -- --
Options granted.......................... (128,959) 128,959 $3.59-$20.75
Options exercised........................ -- (131,537) $0.58-$1.44
Options canceled......................... 30,993 (30,993) $0.58-$19.00
--------- --------- --------------
Balance at October 31, 1996................. 1,177,517 1,178,348 $0.58-$20.75
========= ========= ===============
</TABLE>
At October 31, 1996 and 1995, options to purchase 744,355 and 602,991
common shares were vested, respectively. No options have been exercised prior to
being vested.
For options granted through October 31, 1996, the Company recognized an
aggregate of $451,000 as deferred compensation for the excess of the deemed
value for accounting purposes of the common stock issuable on exercise of such
options over the aggregate exercise price of such options. The deferred
compensation expense is being amortized ratably over the vesting period of the
options.
7. Notes Payable
In March 1995, the Company issued notes payable to two current
investors for $700,000. The notes and accrued interest were payable upon demand
of the holder, and in no event later than three years from the date of issuance.
The notes bear interest at a rate of 10% per annum. Upon the completion of the
Company's initial public offering, the principal value of the notes were
converted into 176,432 shares of common stock (converted at $3.97 per share) and
all accrued interest was forgiven.
-47-
<PAGE>
8. Income Taxes
As of October 31, 1996, the Company had net operating loss
carryforwards of approximately $17,700,000 for federal income tax purposes. The
net operating loss carryforwards will expire at various dates beginning in 2001
through 2011, if not utilized.
Utilization of the net operating losses and credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986.
Significant components of the Company's deferred tax assets are as
follows (in thousands):
Years ended October 31,
-------------------------
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards ........ $ 6,300 $ 5,500
Research credit carryforwards ........... 800 800
Capitalized research costs .............. 2,100 1,400
------- -------
Total deferred tax assets .................. 9,200 7,700
Valuation allowance ........................ (9,200) (7,700)
======= =======
Net deferred tax assets .................... $ -- $ --
======= =======
Due to the Company's absence of earning history, the net deferred tax
asset has been fully offset by a valuation allowance.
The valuation allowance increased by $1,200,000 and $1,400,000 during
the years ended October 31, 1995 and 1994, respectively.
9. Commitments
Leases
The Company leases office and laboratory space and certain equipment.
Rent expense for the years ended October 31, 1996, 1995 and 1994 was
approximately $370,000, $349,000 and $328,000, respectively.
During 1994, the Company arranged for a lease line of credit of
$2,000,000 to purchase capital assets. The lease term under this line of credit
is 48 months. The interest rate on these leases is based on a lease rate factor
and approximates 15% per annum. Amounts outstanding under the capital leases are
collateralized by the underlying property and equipment. The line of credit
expired in December 1995 and was not renewed by the Company. Future minimum
lease obligations as of October 31, 1996 under all leases are as follows (in
thousands):
Capital Leases Operating Leases
-------------- ----------------
1997 .......................................... $ 295 $ 397
1998 .......................................... 269 105
1999 .......................................... 93 16
----- -----
Total minimum lease payments .................. 657 $ 518
=====
Less amount representing interest ............. (98)
-----
Present value of future lease payments ........ 559
Less current portion .......................... (229)
-----
Noncurrent obligations under capital lease .... $ 330
=====
-48-
<PAGE>
10. Subsequent Events
In November 1996, the Company's Board of Directors approved the
adoption of the 1996 Stock Option Plan which authorizes the issuance of 750,000
shares under the plan. This stock option plan is subject to shareholder
approval.
-49-
<PAGE>
<TABLE>
LANDEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
SCHEDULE II
<CAPTION>
Additions
Balance at charged to
beginning costs and Balance at
of period expenses Deductions end of period
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended October 31, 1994
Allowance for doubtful accounts............. $ -- $ 18 $ -- $ 18
Year ended October 31, 1995
Allowance for doubtful accounts............. $ 18 $ 14 $ -- $ 32
Year ended October 31, 1996
Allowance for doubtful accounts............. $ 32 $ -- $ -- $ 32
</TABLE>
-50-
<PAGE>
(b) No reports on Form 8-K were filed by the Company during the period
August 1, 1996 to October 31, 1996.
(c) Exhibits
3.1(1) Amended and Restated Bylaws of Registrant.
3.2(2) Ninth Amended and Restated Articles of Incorporation of
Registrant.
4.1(3) Form of Common Stock Certificate.
10.1(3) Form of Indemnification Agreement.
10.2(3) 1988 Stock Option Plan and form of Option Agreements.
10.3 1995 Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement.
10.4 1995 Directors' Stock Option Plan, as amended, and form of
Option Agreement.
10.5(3) Investors' Rights Agreement dated as of August 10, 1995 among
the Registrant and certain security holders of the
Registrant.
10.6(3) Industrial Real Estate Lease dated March 1, 1993 between the
Registrant and Wayne R. Brown & Bibbits Brown, Trustees of
the Wayne R. Brown & Bibbits Brown Living Trust dated
December 30, 1987.
10.7(3) Agreement dated as of July 29, 1995 between the Registrant
and the BFGoodrich Company.
10.8(3) License and Development Agreement dated as of August 10, 1995
between the Registrant and Hitachi Company, Ltd.
10.9(3) Technical License Agreement dated October 1, 1994 between the
Registrant and Hitachi Co., Ltd.
10.10(3) Agreement dated March 14, 1995 between the Registrant and
Nitta Corporation.
10.11(3) Note Purchase Agreement dated March 27, 1995 between the
Registrant and H&Q Healthcare Investors and H&Q Life Sciences
Investors, as amended by a Notice of Conversion dated
December 20, 1995.
10.12(4) Agreement dated February 26, 1996 between the Registrant and
Nitta Corporation.
10.13(4) Letter dated March 29, 1996 regarding the Agreement dated as
of July 29, 1995 between the Registrant and BFGoodrich
Company.
10.14 Consulting Agreement dated May 1, 1996 between the Registrant
and Richard Dulude.
10.15 1996 Intellicoat Stock Option Plan and form of Option
Agreements.
10.16 1996 Non-Executive Stock Option Plan and form of Option
Agreements.
11.1 Calculation of Loss Per Share.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney. See page 52.
27.1 Financial Data Schedule
- -------------------
(1) Incorporated by reference to Exhibit 3.4 filed with
Registrant's Registration statement on Form S-1 (File No.
33-80723) declared effective on February 12, 1996.
(2) Incorporated by reference to Exhibit 3.5 filed with
Registrant's Registration statement on Form S-1 (File No.
33-80723) declared effective on February 12, 1996.
(3) Incorporated by reference to the identically numbered
exhibits filed with the Registrant's Registration Statement
on Form S-1 (File No. 33-80723) declared effective on
February 12, 1996.
(4) Incorporated by reference to the identically numbered
exhibits filed with the Registrant's Form 10-Q filed for the
quarter ended April 30, 1996.
(d) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes.
-51-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Menlo Park, State
of California, on January 29, 1997.
LANDEC CORPORATION
By: /s/ Joy T. Fry
----------------------------------------------
Joy T. Fry
Vice President of Finance and
Administration and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Gary T. Steele and Joy T. Fry, and
each of them, as his attorney-in-fact, with full power of substitution, for him
in any and all capacities, to sign any and all amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said Report on Form 10-K.
<TABLE>
Pursuant to the requirements of the Securities and Exchange Act of
1934, this Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary T. Steele
- ------------------------------------------------------
Gary T. Steele President and Chief Executive Officer (Principal January 29, 1997
Executive Officer)
/s/ Joy T. Fry
- ------------------------------------------------------
Joy T. Fry Vice President of Finance and Administration and January 29, 1997
Chief Financial Officer (Principal Financial and
Accounting Officer)
- ------------------------------------------------------
Mitchell J. Blutt Director January 29, 1997
/s/ Kirby L. Cramer
- ------------------------------------------------------
Kirby L. Cramer Director January 29, 1997
/s/ Richard Dulude
- ------------------------------------------------------
Richard Dulude Director January 29, 1997
/s/ Stephen E. Halprin
- ------------------------------------------------------
Stephen E. Halprin Director January 29, 1997
/s/ Richard S. Schneider
- ------------------------------------------------------
Richard S. Schneider Director January 29, 1997
/s/ Ray F. Stewart
- ------------------------------------------------------
Ray F. Stewart Director January 29, 1997
</TABLE>
-52-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------ --------------
10.3 1995 Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement.
10.4 1995 Directors' Stock Option Plan, as amended, and form of
Option Agreement.
10.14 Consulting Agreement dated May 1, 1996 between the Registrant
and Richard Dulude.
10.15 1996 Intellicoat Stock Option Plan and form of option
agreements.
11.1 Calculation of Loss Per Share.
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
-53-
Exhibit 10.3
LANDEC CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
(As Amended September 1996)
The following constitute the provisions of the 1995 Employee Stock
Purchase Plan of Landec Corporation
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly,
be construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Landec Corporation, a California
corporation.
(e) "Compensation" shall mean all regular straight time gross
earnings, excluding payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions and other compensation.
(f) "Continuous Status as an Employee" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the
account of a participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer,
who is customarily employed for at least twenty (20) hours per week and more
than five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
1
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(k) "Purchase Date" shall mean the last day of each Offering
Period of the Plan.
(l) "Offering Date" shall mean the first business day of each
Offering Period of the Plan, except that in the case of an individual who
becomes an eligible Employee after the first business day of an Offering Period
but prior to the first business day of the last calendar quarter of such
Offering Period, the term "Offering Date" shall mean the first business day of
the calendar quarter coinciding with or next succeeding the day on which that
individual becomes an eligible Employee.
Options granted after the first business day of an
Offering Period will be subject to the same terms as the options granted on the
first business day of such Offering Period except that they will have a
different grant date (thus, potentially, a different exercise price) and,
because they expire at the same time as the options granted on the first
business day of such Offering Period, a shorter term.
(m) "Offering Period" shall mean a period of twelve (12)
months commencing on January 1 and July 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
(p) "Purchase Period" shall mean a period of six (6) months
within an Offering Period, except for the first Purchase Period as set forth in
Section 4(b).
(q) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, provided that such person was not eligible to participate in
such Offering Period as of any prior Offering Date, and further, subject to the
requirements of Section 5(a) and the limitations imposed by Section 423(b) of
the Code.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) if,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own stock and/or hold outstanding options to purchase stock possessing
five
2
<PAGE>
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of fair market value of such stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods and Purchase Periods.
(a) The Plan shall be implemented by a series of Offering
Periods, of twelve (12) months duration with new Offering Periods commencing on
or about December 1 and June 1 of each year (or at such other time or times as
may be determined by the Board of Directors). The first Offering Period shall
commence on the beginning of the effective date of the Registration Statement on
Form S-1 for the initial public offering of the Company's Common Stock and
continue until December 31, 1996 and the second Offering Period shall commence
on January 1, 1997 and continue until November 30, 1996. The Plan shall continue
until terminated in accordance with Section 20 hereof. The Board of Directors of
the Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without shareholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall consist of
two (2) consecutive purchase periods of six (6) months duration, except as set
forth below. The last day of each Purchase Period shall be the "Purchase Date"
for such Purchase Period. A Purchase Period commencing on December 1 shall end
on the next May 31. A Purchase Period commencing on June 1 shall end on the next
November 30; provided, however, the first Purchase Period shall commence on the
IPO Date and shall end on June 30, 1996; the second Purchase Period shall
commence on July 1, 1996 and shall end on December 31, 1996; and the third
Purchase Period shall commence on January 1, 1997 and end on May 31, 1997. The
Board of Directors of the Company shall have the power to change the duration
and/or frequency of Purchase Periods with respect to future purchases without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Purchase Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 10%) to be paid
as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Date of the
3
<PAGE>
offering to which the subscription agreement is applicable, unless sooner
terminated by the participant as provided in Section 10.
6. Method of Payment of Contributions.
(a) The participant shall elect to have payroll deductions
made on each payday during the Offering Period in an amount not less than one
percent (1%) and not more than ten percent (10%) of such participant's
Compensation on each such payday; provided that the aggregate of such payroll
deductions during the Offering Period shall not exceed ten percent (10%) of the
participant's aggregate Compensation during said Offering Period. All payroll
deductions made by a participant shall be credited to his or her account under
the Plan. A participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in
the Plan as provided in Section 10, or, on one occasion only during the Offering
Period, may decrease the rate of his or her Contributions during the Offering
Period by completing and filing with the Company a new subscription agreement.
The change in rate shall be effective as of the beginning of the next calendar
month following the date of filing of the new subscription agreement, if the
agreement is filed at least ten (10) business days prior to such date and, if
not, as of the beginning of the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period which is scheduled to end during the current calendar year that
the aggregate of all payroll deductions accumulated with respect to such
Offering Period equal $21,250. Payroll deductions shall re-commence at the rate
provided in such participant's subscription Agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the lower of (i) eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the Offering Date, or (ii)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Purchase Date; provided however, that the maximum number of
shares an Employee may purchase during each Purchase Period shall be determined
at the Offering Date by dividing $12,500 by the fair market value of a share of
the Company's Common Stock on the Offering Date, and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 12.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b).
4
<PAGE>
(b) The option price per share of the shares offered in a
given Offering Period shall be the lower of: (i) 85% of the fair market value of
a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Purchase Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the fair market value per
share shall be the closing price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal. For purposes of the
Offering Date under the first Offering Period under the Plan, the fair market
value of a share of the Common Stock of the Company shall be the Price to Public
as set forth in the final prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option. Any cash remaining to the credit of a
participant's account under the Plan after a purchase by him or her of shares at
the termination of each Purchase Period, or which is insufficient to purchase a
full share of Common Stock of the Company, shall be carried over to the next
Purchase Period if the Employee continues to participate in the Plan, or if the
Employee does not continue to participate, shall be returned to said
participant.
10. Voluntary Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as
an Employee prior to a Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or
5
<PAGE>
her death, to the person or persons entitled thereto under Section 15, and his
or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in which the employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or her
option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his or her eligibility to participate in a succeeding offering
or in any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the fair market value of the shares on the
first Purchase Date of an Offering Period is less than the fair market value of
the shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 300,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 19. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in
shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
6
<PAGE>
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him or her
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Purchase Date of the Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. Transferability. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees promptly following each Purchase Date, which statements will set forth
the amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustment. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but have not yet been placed under option (collectively, the
7
<PAGE>
"Reserves"), as well as the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
(b) Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board. In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation, each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Board determines, in the
exercise of its sole discretion and in lieu of such assumption or substitution,
to shorten the Offering Period then in progress by setting a new Purchase Date
(the "New Purchase Date"). If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
days prior to the New Purchase Date, that the Purchase Date for his or her
option has been changed to the New Purchase Date and that his or her option will
be exercised automatically on the New Purchase Date, unless prior to such date
he or she has withdrawn from the Offering Period as provided in Section 10. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding
8
<PAGE>
Common Stock, and in the event of the Company being consolidated with or merged
into any other corporation.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time
terminate or amend the Plan. Except as provided in Section 19, no such
termination may affect options previously granted, nor may an amendment make any
change in any option theretofore granted which adversely affects the rights of
any participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any successor rule
or provision or any applicable law or regulation), the Company shall obtain
shareholder approval in such a manner and to such a degree as so required.
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
the earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the
9
<PAGE>
Company. It shall continue in effect for a term of twenty (20) years unless
sooner terminated under Section 20.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
10
<PAGE>
LANDEC CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Landec Corporation 1995 Employee Stock Purchase Plan (the "Plan") for the
Offering Period ______________, 19__ to _______________, 19__, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 10% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on each
Purchase Date of the Offering Period unless I otherwise withdraw from the Plan
by giving written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to a Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can decrease the rate of my Contributions on one occasion only
during any Offering Period by completing and filing a new Subscription Agreement
with such decrease taking effect as of the beginning of the calendar month
following the date of filing of the new Subscription Agreement, if filed at
least ten (10) business days prior to the beginning of such month. Further, I
may change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period. In addition, I acknowledge that, unless I
discontinue my participation in the Plan as provided in Section 10 of the Plan,
my election will continue to be effective for each successive Offering Period.
5. I have received a copy of the Company's most recent description of
the Plan and a copy of the complete "Landec Corporation 1995 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
<PAGE>
6. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):
------------------------------------
------------------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
- -------------------- -------------------------------------
(Relationship) (Address)
-------------------------------------
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date (the last day of the Offering Period), I will be treated for
federal income tax purposes as having received ordinary compensation income at
the time of such disposition in an amount equal to the excess of the fair market
value of the shares on the Purchase Date over the price which I paid for the
shares, regardless of whether I disposed of the shares at a price less than
their fair market value at the Purchase Date. The remainder of the gain or loss,
if any, recognized on such disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days
after the date of any such disposition, and I will make adequate provision for
federal, state or other tax withholding obligations, if any, which arise upon
the disposition of the Common Stock. The Company may, but will not be obligated
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received compensation income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares under the option, or (2) 15% of the fair market
value of the shares on the Offering Date. The remainder of the gain or loss, if
any, recognized on such disposition will be treated as capital gain or loss.
-2-
<PAGE>
I understand that this tax summary is only a summary and is subject to
change. I further understand that I should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE: ___________________________________
SOCIAL SECURITY #: ___________________________
DATE: ________________________________________
SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse):
______________________________________________
(Signature)
______________________________________________
(Print name)
-3-
<PAGE>
LANDEC CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my
participation in the Landec Corporation 1995 Employee Stock Purchase Plan (the
"Plan") for the Offering Period _________. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid
to me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
If the undersigned is an Officer or Director of Landec Corporation or
other person subject to Section 16 of the Securities Exchange Act of 1934, the
undersigned further understands that under rules promulgated by the U.S.
Securities and Exchange Commission he or she may not re-enroll in the Plan for a
period of six (6) months after withdrawal.
Dated:___________________ ____________________________________
Signature of Employee
____________________________________
Social Security Number
Exhibit 10.4
LANDEC CORPORATION
1995 DIRECTORS' STOCK OPTION PLAN
As Amended June 1996
1. Purposes of the Plan. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be "nonstatutory stock
options".
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Landec Corporation, a California
corporation.
(e) "Continuous Status as a Director" shall mean the absence
of any interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Option" shall mean a stock option granted pursuant to the
Plan. All options shall be nonstatutory stock options (i.e., options that are
not intended to qualify as incentive stock options under Section 422 of the
Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an
Employee.
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(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1995 Directors' Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 200,000 Shares (the "Pool") of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If Shares which were acquired upon
exercise of an Option are subsequently repurchased by the Company, such Shares
shall not in any event be returned to the Plan and shall not become available
for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each person who becomes an Outside Director
after the effective date of the Plan, other than any person who has previously
been granted an option by the Company to purchase shares under any stock option
plan of the Company, shall be automatically granted an Option to purchase 20,000
Shares (the "First Option") on the date on which such person first becomes an
Outside Director, whether through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares ((a "Subsequent Option") on the date
of each Annual Meeting of the Company's shareholders at which such Outside
Director is elected, provided that, on such date, he or she shall have served on
the Board for at least six (6) months prior to the date of such Annual Meeting.
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<PAGE>
(iv) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, in the event that a grant would cause the number of
Shares subject to outstanding Options plus the number of Shares previously
purchased upon exercise of Options to exceed the Pool, then each such automatic
grant shall be for that number of Shares determined by dividing the total number
of Shares remaining available for grant by the number of Outside Directors
receiving an Option on such date on the automatic grant date. Any further grants
shall then be deferred until such time, if any, as additional Shares become
available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any grant of an Option made before the Company has
obtained shareholder approval of the Plan in accordance with Section 17 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 17 hereof.
(vi) The terms of each First Option granted hereunder
shall be as follows:
(1) the First Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Section 9 hereof.
(2) the exercise price per Share shall be
100% of the fair market value per Share on the date of grant of the First
Option, determined in accordance with Section 8 hereof.
(3) the First Option shall be exercisable in
full on the date of grant of the Option.
(vii) The terms of each Subsequent Option granted
hereunder shall be as follows:
(1) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Section 9 hereof.
(2) the exercise price per Share shall be
100% of the fair market value per Share on the date of grant of the Subsequent
Option, determined in accordance with Section 8 hereof.
(3) the Subsequent Option shall be
exercisable in full on the date of grant of the Subsequent Option.
(c) Powers of the Board. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per share of Options to be granted, which exercise
price shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to
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<PAGE>
authorize any person to execute on behalf of the Company any instrument required
to effectuate the grant of an Option previously granted hereunder; and (vi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the President or
his or her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years
from the date of grant thereof.
8. Exercise Price and Consideration.
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(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be
determined by the Board; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean of the
bid and asked prices of the Common Stock in the over-the-counter market on the
date of grant, as reported in The Wall Street Journal (or, if not so reported,
as otherwise reported by the National Association of Securities Dealers
Automated Quotation ("Nasdaq") System) or, in the event the Common Stock is
traded on the Nasdaq National Market or listed on a stock exchange, the fair
market value per Share shall be the closing price on such system or exchange on
the date of grant of the Option, as reported in The Wall Street Journal. With
respect to any Options granted hereunder concurrently with the initial
effectiveness of the Plan, the fair market value shall be the Price to Public as
set forth in the final prospectus relating to such initial public offering.
(c) Form of Consideration. The consideration to be paid for
the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised (which, if acquired from the Company, shall have
been held for at least six months), or any combination of such methods of
payment and/or any other consideration or method of payment as shall be
permitted under applicable corporate law.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
prior to shareholder approval of the Plan in accordance with Section 17 hereof
has been obtained.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 8(c) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
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<PAGE>
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Status as a Director. If an Outside
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (which he or
she was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding Section 9(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue Code), he or
she may, but only within six (6) months (or such other period of time not
exceeding twelve (12) months as is determined by the Board) from the date of
such termination, exercise his or her Option to the extent he or she was
entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set forth in
Section 7 has expired. To the extent that he or she was not entitled to exercise
the Option at the date of termination, or if he or she does not exercise such
Option (which he or she was entitled to exercise) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) During the term of the Option who is, at the time
of his or her death, a Director of the Company and who shall have been in
Continuous Status as a Director since the date of grant of the Option, the
Option may be exercised, at any time within six (6) months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as Director for six (6) months (or such lesser
period of time as is determined by the Board) after the date of death.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired.
(ii) Within three (3) months after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
six (6) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its term set forth in Section 7 has expired.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code
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<PAGE>
or the rules thereunder). The designation of a beneficiary by an Optionee does
not constitute a transfer. An Option may be exercised during the lifetime of an
Optionee only by the Optionee or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustment. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of (i) a dissolution
or liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option (or receive a substitute
option with comparable terms) as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other
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<PAGE>
applicable law or regulation), the Company shall obtain approval of the
shareholders of the Company to Plan amendments to the extent and in the manner
required by such law or regulation. Notwithstanding the foregoing, the
provisions set forth in Section 4 of this Plan (and any other Sections of this
Plan that affect the formula award terms required to be specified in this Plan
by Rule 16b-3) shall not be amended more than once every six months, other than
to comport with changes in the Code, the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
If such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such shareholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised, before such
shareholder approval.
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<PAGE>
LANDEC CORPORATION
1995 DIRECTORS' STOCK OPTION PLAN
DIRECTOR NONSTATUTORY STOCK OPTION AGREEMENT
Optionee: Optionee
Address: StreetAddress
StreetAddress2
CityAddress
Total Shares Subject to Option: Shares
Exercise Price Per Share: PricePerShare
Date of Grant: GrantDate
Expiration Date: ExpirationDate
Type of Stock Option: Nonstatutory Stock Option
1. Grant of Option. Landec Corporation (the "Company"), a California
corporation, hereby grants to the Optionee named above ("Optionee") an option
(the "Option") to purchase a total of up to SharesSpelledOut (Shares) shares of
Common Stock of the Company (the "Shares") at the exercise price per share set
forth above (the "Exercise Price"), subject to all of the terms and conditions
of this Director Nonstatutory Stock Option Agreement ("Agreement") and the
Company's 1995 Directors' Stock Option Plan (the "Plan"). The terms defined in
the Plan shall have the same defined meanings herein.
A. Nature of the Option. This Option is a nonstatutory stock
option and is not intended to qualify for any special tax benefits to the
Optionee.
B. Exercise Price. The exercise price is PricePerShare for
each share of Common Stock, which is 100% of the Fair Market Value of the Common
Stock as determined on the date of grant of this Option.
2. Exercise Period of Option. Subject to the terms and conditions of
the Plan and this Grant, this Option shall become exercisable as follows:
100% of the Option shall become exercisable on GrantDate.
3. Restrictions on Exercise. Exercise of this Option is subject to the
following limitations:
A. This Option may not be exercised unless such exercise is in
compliance with the Securities Act of 1933, as amended, and all applicable state
securities laws, as they are in effect on the date of exercise.
<PAGE>
B. If, at the time of the exercise of this Option, the
Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), then the Optionee must comply with Rule 16b-3
under the Exchange Act and such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
4. Termination of Status as a Director. If an Outside Director ceases
to serve as a Director for any reason other than death or disability, he or she
may, but only within ninety (90) days after the date he or she ceases to be a
Director of the Company, exercise his or her Option to the extent that he or she
was entitled to exercise it at the date of such termination. To the extent that
he or she was not entitled to exercise an Option at the date of such
termination, or if he or she does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
5. Disability of Director. Notwithstanding Section 4 above, in the
event an Outside Director is unable to continue his or her service as a Director
with the Company as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), he or she may, but only within six (6) months
from the date of termination of such service (but in no event later than the
date of expiration of the term of this Option as set forth in the Notice of
Stock Option Grant), exercise the Option to the extent otherwise so entitled at
the date of such termination. To the extent that he or she was not entitled to
exercise the Option at the date of termination, or if he or she does not
exercise such Option (to the extent otherwise so entitled) within the time
specified in this Agreement, the Option shall terminate.
6. Death of Director. Notwithstanding Section 4 above, in the event of
the death an Outside Director while serving as a Director of the Company or
within three (3) months of terminating such service, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of this Option as set
forth in the Notice of Stock Option Grant), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance to the
extent the Optionee was entitled to exercise such Option on the date of death,
provided, however, that if the Director dies while serving as a Director, the
Option will be exercisable to the extent of the right to exercise that would
have accrued had the Director continued living and serving as a Director for six
(6) months after the date of death.
7. Manner of Exercise.
A. This Option shall be exercisable by delivery to the Company
of an executed written Director Stock Option Exercise Notice and Agreement in
the form attached hereto as Exhibit A, or in such other form as may be approved
by the Company, which shall set forth Optionee's election to exercise this
Option, the number of Shares being purchased, any restrictions imposed on the
Shares and such other representations and agreements regarding Optionee's
investment intent and access to information as may be required by the Company to
comply with applicable securities laws.
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<PAGE>
B. The Director Stock Option Exercise Notice and Agreement
shall be accompanied by full payment of the Exercise Price for the Shares being
purchased (I) in cash, (ii) by check, (iii) by delivery of other shares of
Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares being purchased (which, if acquired from
the Company, shall have been held for at least six months) or (iv) by any
combination of the foregoing methods of payment.
C. Prior to the issuance of the Shares upon exercise of this
Option, Optionee must pay or make adequate provision for any applicable federal
or state withholding obligations of the Company.
D. Provided that such notice and payment are in form and
substance satisfactory to counsel for the Company, the Company shall issue the
Shares registered in the name of Optionee or Optionee's legal representative.
8. Compliance with Laws and Regulations. The issuance and transfer of
Shares shall be subject to compliance by the Company and the Optionee with all
applicable requirements of federal and state securities laws and with all
applicable requirements of any stock exchange on which the Company's Common
Stock may be listed at the time of such issuance or transfer. Optionee
understands that the Company is under no obligation to register or qualify the
Shares with the Securities and Exchange Commission, any state securities
commission or any stock exchange to effect such compliance.
9. Nontransferability of Option. This Option may not be transferred in
any manner other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of the Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of this
option shall be binding upon the executors, administrators, successors and
assigns of the Optionee.
10. Federal Tax Consequences. Set forth below is a brief summary as of
the date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES. THIS SUMMARY DOES NOT DISCUSS STATE OR LOCAL TAX
CONSEQUENCES OF EXERCISE OF THIS OPTION AND DISPOSITION OF THE SHARES.
A. Taxation Upon Exercise of Option. Optionee understands
that, upon exercise of this Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares purchased over the exercise price paid for such Shares. Since the
Optionee is likely to be subject to Section 16(b) of the Securities Exchange Act
of 1934, as amended, the measurement and timing of such income may be deferred,
and the Optionee is advised to contact a tax adviser concerning the desirability
of filing an 83(b) election in connection with the exercise of the Option. Upon
a resale of such Shares by the
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<PAGE>
Optionee, any difference between the sale price and the exercise price of the
Shares, to the extent not included in income as described above, will be treated
as capital gain or loss, which will be long-term if the shares have been held
for more than one year.
11. Interpretation. Any dispute regarding the interpretation of this
agreement shall be submitted by Optionee or the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
12. Entire Agreement. The Plan and the Director Stock Option Exercise
Notice and Agreement attached as Exhibit A are incorporated herein by reference.
This Grant, the Plan and the Director Stock Option Exercise Notice and Agreement
constitute the entire agreement of the parties regarding the Option and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
LANDEC CORPORATION
By:______________________
Its: ____________________
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<PAGE>
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a tax adviser prior to such exercise or disposition.
________________________
Optionee
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<PAGE>
EXHIBIT A
DIRECTOR NONSTATUTORY STOCK OPTION EXERCISE NOTICE AND AGREEMENT
Landec Corporation
3603 Haven Avenue
Menlo Park, CA 94025
Attention: Chief Financial Officer
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Landec Corporation (the "Company") under and pursuant to the
Company's 1995 Directors' Stock Option Plan and the Director Nonstatutory Stock
Option Agreement dated GrantDate (the "Grant Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Grant Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act") or unless an exemption from such
registration is available and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is under
no obligation to register the Shares and that an exemption may not be available
or may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
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<PAGE>
6. Entire Agreement. The Grant Agreement is incorporated herein by
reference. This Agreement and the Grant Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof. This Agreement and the Grant Agreement are governed by California law
except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: LANDEC CORPORATION
By: ________________________
_________________
Optionee
Its: _______________________
Address:
StreetAddress
StreetAddress2
CityAddress
Dated: _________ Dated: _____________________
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Exhibit 10.14
LANDEC CORPORATION
CONSULTING AGREEMENT
Richard Dulude
507 Welch Road
Corning, NY 14830
Dear Dick:
1. Landec Corporation, a California Corporation, (the "Company") wishes
to obtain your services as a consultant beginning May 1, 1996 on projects agreed
by you and the Company in writing. This letter will constitute an agreement
between you and the Company and contains all the terms and conditions relating
to the services you are to provide.
2. During this agreement you will make yourself available to provide up
to three (3) full days of consulting services to the Company per year, which may
be increased upon our mutual consent.
3. You will provide Landec with the following services: (i) advising
the Company regarding potential U.S. commercial activities for the Company's
industrial products, (ii) advising the Company regarding its European partner
strategy and (iii) other areas by mutual agreement.
4. As consideration for your services and other obligations, you will
receive in cash $30,000 per year to be paid at the end of the earlier of the
second year or the termination of this agreement. As additional consideration,
you will be granted a nonstatutory stock option to purchase 4,000 shares of the
Company's Common Stock at fair market value on the date of grant, which will
vest at the rate of 1/24th of the shares per month. Vesting of the option will
continue until this agreement is terminated. The stock option will be subject to
a right of first refusal of the Company with respect to transfers of the
underlying Common Stock and will have a term of ten years. The stock option will
be in the form of the Company's standard option agreement which will be signed
by you and the Company.
5. The term of this agreement shall be two (2) years. However, either
party may terminate this agreement at any time for any reason upon thirty (30)
days written notice. At the end of such two year period, the parties will
discuss extending the term of this agreement.
6. You will be reimbursed for reasonable travel and other out-of-pocket
expenses incurred by you at the request of the Company in connection with your
services under this agreement, provided that you provide the Company with
receipts for such expenses.
7. Your relationship with the Company will be that of an independent
contractor and not that of an employee. You will not be eligible for any
employee benefits, nor will the Company make deductions from payments made to
you for taxes, which will be your responsibility. You will have no authority to
enter into contracts which bind the Company or create obligations on the part of
the Company without the express prior authorization of the Company.
8. You will keep in confidence and will not disclose or make available
to third parties or make any use of any information or documents relating to
your services under this agreement or to the products, methods of manufacture,
trade secrets, processes, business or affairs or confidential or proprietary
information of the Company (other than information in the public domain through
no fault of your own), except with the prior written consent of the Company or
to the extent necessary in performing tasks assigned to you by the Company. Upon
termination of this agreement you will return to Company all documents, and
other materials related to the services provided hereunder or furnished to you
by the Company. Your obligations under this Paragraph 8 will terminate five (5)
years after termination of this agreement.
9. Any amendment to this agreement must be in writing signed by you and
the Company.
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10. All notices, requests and other communications called for by this
agreement will be deemed to have been given if made in writing and mailed,
postage prepaid, if to you at the address set forth above and if to the Company
at 3603 Haven Avenue, Menlo Park, California 94025, or to such other addresses
as either party specifies to the other.
11. The validity, performance and construction of this agreement will
be governed by the laws of the State of California.
12. Your obligations under paragraph 8 will survive termination of this
agreement. This agreement supersedes any prior consulting or other agreements
between you and the Company with respect to the subject matter hereof.
If this agreement is satisfactory, you should execute and return the
original and one copy to us, retaining the third copy for your file.
Dated as of: May 1, 1996
Very truly yours,
/s/ Gary T. Steele
-------------------------
Gary T. Steele
CEO and President
AGREED AND ACCEPTED:
/s/ Richard Dulude
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Richard Dulude
Exhibit 10.15
INTELLICOAT CORPORATION
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1996 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Intellicoat Corporation, a Delaware
corporation.
(g) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective successors. For
purposes of this Plan, a change in status from an Employee to a Consultant or
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
<PAGE>
(i) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(k) "Fair Market Value" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(m) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(n) "Option" means a stock option granted pursuant to the
Plan.
(o) "Optioned Stock" means the Common Stock subject to an
Option or a Stock Purchase Right.
(p) "Optionee" means an Employee or Consultant who receives an
Option or a Stock Purchase Right.
(q) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(r) "Plan" means this 1996 Stock Plan.
<PAGE>
(s) "Reporting Person" means an officer, director, or greater
than ten percent stockholder of the Company within the meaning of Rule 16a-2
under the Exchange Act, who is required to file reports pursuant to Rule 16a-3
under the Exchange Act.
(t) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as the same may be amended from time to time, or any successor
provision.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(x) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is two million (2,000,000) shares of Common Stock. The
Shares may be authorized, but unissued, or reacquired Common Stock. If an Option
should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares that were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock which are retained by
the Company upon exercise of an Option or Stock Purchase Right in order to
satisfy the exercise or purchase price for such Option or Stock Purchase Right
or any withholding taxes due with respect to such exercise shall be treated as
not issued and shall continue to be available under the Plan. Shares repurchased
by the Company pursuant to any repurchase right which the Company may have shall
not be available for future grant under the Plan.
4. Administration of the Plan.
(a) Initial Plan Procedure. Prior to the date, if any, upon
which the Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or a committee appointed by the Board.
(b) Plan Procedure After the Date, if any, Upon Which the
Company Becomes Subject to the Exchange Act.
(i) Multiple Administrative Bodies. If permitted by
Rule 16b-3, grants under the Plan may be made by different bodies with respect
to directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
(ii) Administration With Respect to Reporting
Persons. With respect to grants of Options or Stock Purchase Rights to Employees
who are Reporting Persons,
<PAGE>
such grants shall be made by (A) the Board if the Board may make grants to
Reporting Persons under the Plan in compliance with Rule 16b-3, or (B) a
committee designated by the Board to make such grants under the Plan, which
committee shall be constituted in such a manner as to permit grants under the
Plan to comply with Rule 16b-3. Once appointed, such committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the committee and thereafter directly make grants to Reporting
Persons under the Plan, all to the extent permitted by Rule 16b-3.
(iii) Administration With Respect to Consultants and
Other Employees. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code and of any
applicable Stock Exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any Stock Exchange, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under Section 9(f) instead of
Common Stock;
<PAGE>
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(ix) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. Eligibility.
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee or Consultant who has been
granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) Type of Option. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a Nonstatutory
Stock Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with such Optionee's right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided
<PAGE>
further that, in the case of an Option granted to an Optionee who, at the time
the Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the
date of grant thereof or such shorter term as may be provided in the written
option agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board and set forth in the applicable agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Parent or Subsidiary, the per Share exercise price shall be
no less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option that
is:
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) authorization for the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (4) delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the exercise price and any applicable income or employment taxes, (5) any
combination of the foregoing methods of payment, or (6) such other consideration
and method of payment for the issuance of Shares to the extent permitted under
Applicable Laws. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
<PAGE>
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, and reflected in the written
option agreement, which may include vesting requirements and/or performance
criteria with respect to the Company and/or the Optionee; provided that such
Option shall become exercisable at the rate of at least twenty percent (20%) per
year over five (5) years from the date the Option is granted. In the event that
any of the Shares issued upon exercise of an Option should be subject to a right
of repurchase in the Company's favor, such repurchase right shall lapse at the
rate of at least twenty percent (20%) per year over five (5) years from the date
the Option is granted.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and the
Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship.
Subject to Section 9(c), in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three (3) months (or such other period of time not less than thirty
(30) days as is determined by the Administrator, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the Option
and not exceeding three (3) months) after the date of such termination (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) Disability of Optionee.
(i) Notwithstanding Section 9(b) above, in the event
of termination of an Optionee's Continuous Status as an Employee or Consultant
as a result of his or her total and
<PAGE>
permanent disability (within the meaning of Section 22(e)(3) of the Code),
Optionee may, but only within twelve (12) months from the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To the extent
that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of a disability which
does not fall within the meaning of total and permanent disability (as set forth
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee during the period of Continuous Status as an Employee or Consultant
since the date of grant of the Option, or within thirty (30) days following
termination of Optionee's Continuous Status as an Employee or Consultant, the
Option may be exercised, at any time within six (6) months following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of death or, if
earlier, the date of termination of Optionee's Continuous Status as an Employee
or Consultant. To the extent that Optionee was not entitled to exercise the
Option at the date of death or termination, as the case may be, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
for Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase,
<PAGE>
the price to be paid (which price shall not be less than 85% of the Fair Market
Value of the Shares as of the date of the offer, or, in the case of a person
owning stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the price shall not be less than one hundred percent (100%) of the Fair Market
Value of the Shares as of the date of the offer), and the time within which such
person must accept such offer, which shall in no event exceed thirty (30) days
from the date upon which the Administrator made the determination to grant the
Stock Purchase Right. The offer shall be accepted by execution of a Restricted
Stock purchase agreement in the form determined by the Administrator. Shares
purchased pursuant to the grant of a Stock Purchase Right shall be referred to
herein as "Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or less than Optionee's marginal tax rate times
the ordinary income recognized, or (d) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, or the Shares to be
issued in connection with the Stock Purchase Right, if any, that number of
Shares having a fair market value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
<PAGE>
Any surrender by a Reporting Person of previously owned Shares
to satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain
Other Transactions.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale
of all or substantially all of the Company's assets or a merger of the Company
with or into another corpora-
<PAGE>
tion where the successor corporation issues its securities to the Company's
stockholders, each outstanding Option or Stock Purchase Right shall be assumed
or an equivalent option or right shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
successor corporation does not agree to assume the Option or Stock Purchase
Right or to substitute an equivalent option or right, in which case such Option
or Stock Purchase Right shall terminate upon the consummation of the merger or
sale of assets.
(d) Certain Distributions. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options and Stock Purchase Rights. Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee or Stock Purchase Rights Holder only by the Optionee or Stock
Purchase Rights Holder.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board; provided
however that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the determination
shall be given to each Employee or Consultant to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Authority to Amend or Terminate. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any Stock Exchange), the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. No amendment or
termination of the Plan shall adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any
<PAGE>
Stock Exchange. As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange upon which the Common Stock is listed. All Options
and Stock Purchase Rights issued under the Plan shall become void in the event
such approval is not obtained.
20. Information and Documents to Optionees and Purchasers. The Company
shall provide financial statements at least annually to each Optionee and to
each individual who acquired Shares Pursuant to the Plan, during the period such
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares. The Company shall
not be required to provide such information if the issuance of Options or Stock
Purchase Rights under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent information. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee or the Purchaser a copy of the Plan and any
agreement(s) pursuant to which securities under the Plan are issued.
<PAGE>
INTELLICOAT CORPORATION
1996 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
Optionee
OptioneeAddress1
OptioneeAddress2
<TABLE>
You have been granted an option to purchase Common Stock of Intellicoat
Corporation (the "Company") as follows:
<CAPTION>
<S> <C>
Board Approval Date: BoardApprovalDate
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting): GrantDate
Vesting Commencement Date: VestingCommenceDate
Exercise Price per Share: $ExercisePrice
Total Number of Shares Granted: Optionee
Total Exercise Price: $TotalExercisePrice
Type of Option: NoSharesISO Incentive Stock Option
NoSharesNSO Nonstatutory Stock Option
Term/Expiration Date: ExpirDate
Vesting Schedule: This Option may be exercised, in whole or in part, in
accordance with the following schedule: CliffVestAmount of
the Shares subject to the Option shall vest on the
CliffMonthNumber month anniversary of the Vesting Commencement
Date and 1/TotalVestingMonths of the total number of Shares
subject to the Option shall vest on the MonthVestDate of each
month thereafter.
Repurchase Option: The Shares granted pursuant to this option are subject to a
right of repurchase by Landec Corporation.
<PAGE>
Termination Period: Option may be exercised for
NumberDaystoExercise [must be
between 30 days and three
months] days after termination
of employment or consulting
relationship except as set out
in Sections 7 and 8 of the
Stock Option Agreement (but in
no event later than the
Expiration Date).
</TABLE>
<PAGE>
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the 1996 Stock Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
Optionee: Intellicoat Corporation
____________________________ By: ________________________________
Signature
____________________________ ____________________________________
Print Name Print Name and Title
<PAGE>
INTELLICOAT CORPORATION
1996 STOCK PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Intellicoat Corporation, a Delaware corporation
(the "Company"), hereby grants to Optionee ("Optionee"), an option (the
"Option") to purchase a total number of shares of Common Stock (the "Shares")
set forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to
the terms, definitions and provisions of the Intellicoat Corporation 1996 Stock
Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code.
2. Exercise of Option. This Option shall be exercisable during its Term
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
(i) This Option may not be exercised for a fraction
of a share.
(ii) In the event of Optionee's death, disability or
other termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after
the date of expiration of the Term of this Option as set forth in the Notice of
Stock Option Grant.
(b) Method of Exercise. This Option shall be exercisable upon
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of applicable law and the
<PAGE>
requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Method of Payment. Payment of the Exercise Price shall be by
any of the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company
which (i) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by Optionee for more than six (6) months on the date of
surrender, and (ii) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to deliver promptly to
the Company the amount of sale or loan proceeds required to pay the exercise
price.
4. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the stockholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. Termination of Relationship. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set forth in the
Notice of Stock Option Grant. To the extent that Optionee was not entitled to
exercise this Option at such Termination Date, or if Optionee does not exercise
this Option within the Termination Period, the Option shall terminate.
6. Disability of Optionee.
(a) Notwithstanding the provisions of Section 6 above, in the
event of termination of Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant and in Section 9 below), exercise this Option
to the extent Optionee was entitled to exercise it as of such Termination Date.
To the extent that Optionee was not entitled to exercise the Option as of the
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<PAGE>
Termination Date, or if Optionee does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(b) Notwithstanding the provisions of Section 6 above, in the
event of termination of Optionee's consulting relationship or Continuous Status
as an Employee as a result of any disability not constituting a total and
permanent disability (as set forth in Section 22(e)(3) of the Code), Optionee
may, but only within six (6) months from the Termination Date (but in no event
later than the Expiration Date set forth in the Notice of Stock Option Grant and
in Section 9 below), exercise this Option to the extent Optionee was entitled to
exercise it as of such Termination Date; provided, however, that if this is an
Incentive Stock Option and Optionee fails to exercise this Incentive Stock
Opinion within three (3) months from the Termination Date, this Option will
cease to qualify as an Incentive Stock Option (as defined in Section 422 of the
Code) and Optionee will be treated for federal income tax purposes as having
received ordinary income at the time of such exercise in an amount generally
measured by the difference between the Exercise Price for the Shares and the
fair market value of the Shares on the date of exercise. To the extent that
Optionee was not entitled to exercise the Option at the Termination Date, or if
Optionee does not exercise such Option to the extent so entitled within the time
in this Section 6(b), the Option shall terminate.
7. Death of Optionee. In the event of the death of Optionee (a) during
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant and in Section 9 below), by Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the Termination Date.
8. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. Term of Option. This Option may be exercised only within the Term
set out in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.
10. Repurchase Option.
(a) At any time after the date hereof and prior to the initial
public offering of the Company's common stock, Landec Corporation ("Landec"),
the Company's parent corporation, shall have an irrevocable, exclusive option
(the "Repurchase Option") to repurchase all or any portion of the Shares,
whether vested or unvested, held by Optionee at a purchase price determined
pursuant to the appraisal process set forth below (adjusted for any stock
splits, stock dividends and the like). Consideration for such repurchased shares
shall be
-3-
<PAGE>
cash or the cash equivalent of Landec common stock, pursuant to the appraisal
process set forth below.
(b) The Repurchase Option shall be exercised by Landec by
written notice to Optionee and to the Company, and at Landec's option, (i) by
delivery to Optionee with such notice of a check or stock certificate for Landec
common stock in the amount of the purchase price for the Shares being purchased,
or (ii) in the event Optionee is indebted to Landec, by cancellation by Landec
of an amount of such indebtedness equal to the purchase price for the Shares
being repurchased, or (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, Landec shall become the legal and beneficial owner of the
Shares being repurchased and all rights and interest therein or related thereto,
and the Company shall transfer to Landec the number of Shares being repurchased
by Landec, without further action by Optionee.
(c) Any securities of the Company to be repurchased or
exchanged pursuant to sections 10(a) and (b) above shall be valued at their fair
market value, as determined in good faith by the Board of Directors of the
Company. Any Landec common stock to be exchanged pursuant to sections 10(a) and
(b) above shall be valued at the average of the closing prices for Landec common
stock on the Nasdaq National Market System over the thirty-day period ending
three (3) days prior to Landec's delivery to the Company of the consideration
set forth in section 10(b) above.
11. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option
qualifies as an Incentive Stock Option, there will be no regular federal or
California income tax liability upon the exercise of the Option, although the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price will be treated as an adjustment to the alternative
minimum tax for federal tax purposes and may subject Optionee to the alternative
minimum tax in the year of exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does
not qualify as an Incentive Stock Option, there may be a regular federal income
tax liability and a California income tax liability upon the exercise of the
Option. Optionee will be treated as having received compensation income (taxable
at ordinary income tax rates) equal to the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
-4-
<PAGE>
(c) Disposition of Shares. In the case of a Nonstatutory Stock
Option, if the Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year after
exercise and are disposed of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. If Shares purchased
under an Incentive Stock Option are disposed of within such one-year period or
within two years after the Date of Grant, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (i) the
fair market value of the Shares on the date of exercise, or (ii) the sale price
of the Shares.
(d) Notice of Disqualifying Disposition of Incentive Stock
Option Shares. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to such Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after the
date of exercise, Optionee shall immediately notify the Company in writing of
such disposition. Optionee acknowledges and agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
by Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
12. Withholding Tax Obligations. Optionee understands that, upon
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (a) by cash payment, (b) out of Optionee's current compensation, (c) if
permitted by the Administrator, in its discretion, by surrendering to the
Company Shares which (i) in the case of Shares previously acquired from the
Company, have been owned by Optionee for more than six months on the date of
surrender, and (ii) have a fair market value on the date of surrender equal to
or greater than Optionee's marginal tax rate times the ordinary income
recognized, or (d) by electing to have the Company withhold from the Shares to
be issued upon exercise of the Option that number of Shares having a fair market
value equal to the amount required to be withheld. For this purpose, the fair
market value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
-5-
<PAGE>
If Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
13. Market Standoff Agreement. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
-6-
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
document.
Intellicoat Corporation
By: _____________________________
_________________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
Optionee
-7-
<PAGE>
EXHIBIT A
INTELLICOAT CORPORATION
1996 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of ______________, by and
between Intellicoat Corporation, a Delaware corporation (the "Company"), and
Optionee ("Purchaser"). To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
1996 Stock Plan.
1. Exercise of Option. Subject to the terms and conditions hereof,
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
the Company's 1996 Stock Plan (the "Plan") and the Stock Option Agreement dated
______________, (the "Option Agreement"). The purchase price for the Shares
shall be $ExercisePrice per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Time and Place of Exercise. The purchase and sale of the Shares
under this Agreement shall occur at the principal office of the Company
simultaneously with the execution of this Agreement by the parties or on such
other date as the Company and Purchaser agree (the "Purchase Date"). On the
Purchase Date, the Company will deliver to Purchaser a certificate representing
the Shares to be purchased by Purchaser (which shall be issued in Purchaser's
name) against payment of the purchase price therefor by Purchaser by (a) check
made payable to the Company, (b) cancellation of indebtedness of the Company to
Purchaser, (c) delivery of shares of the Common Stock of the Company in
accordance with Section 3 of the Option Agreement, or (d) by a combination of
the foregoing.
3. Limitations on Transfer. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by
Purchaser or any transferee of Purchaser (either being sometimes referred to
herein as the "Holder") may be sold or otherwise transferred (including transfer
by gift or operation of law) and subject to the Repurchase Option of Landec
Corporation set forth in Section 4 below, the Company or its assignee(s) shall
have a right of first refusal to purchase the Shares on the terms and conditions
set forth in this Section 3(a) (the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (i)
the Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the terms and
conditions of each proposed sale or transfer. The Holder shall offer the Shares
at the same price (the "Offered Price") and upon the same terms (or terms as
similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) Payment. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) Exception for Certain Family Transfers. Anything
to the contrary contained in this Section 3(a) notwithstanding, the transfer of
any or all of the Shares during the Optionee's lifetime or on the Optionee's
death by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section,
<PAGE>
and there shall be no further transfer of such Shares except in accordance with
the terms of this Section 3.
(b) Involuntary Transfer.
(i) Company's Right to Purchase upon Involuntary
Transfer. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce) or all or a portion of the Shares by the record holder thereof, the
Company shall have an option to purchase all of the Shares transferred at the
greater of the purchase price paid by Purchaser pursuant to this Agreement or
the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to
any stock to be transferred pursuant to Section 3(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) Assignment. The right of the Company to purchase any part
of the Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and fair
market value, if the original purchase price is less than the fair market value
of the Shares subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) Termination of Rights. The right of first refusal granted
the Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act. Upon
termination of the right of first refusal described in Section 3(a) above, a new
certificate or certificates
<PAGE>
representing the Shares not repurchased shall be issued, on request, without the
legend referred to in Section 6(a)(ii) herein and delivered to Purchaser.
4. Repurchase Option of Landec Corporation.
(a) At any time after the date hereof and prior to the initial
public offering of the Company's common stock, Landec Corporation ("Landec"),
the Company's parent corporation, shall have an irrevocable, exclusive option
(the "Repurchase Option") to repurchase all or any portion of the Shares,
whether vested or unvested, held by Optionee at a purchase price determined
pursuant to the appraisal process set forth below (adjusted for any stock
splits, stock dividends and the like). Consideration for such repurchased shares
shall be cash or the cash equivalent of Landec common stock, pursuant to the
appraisal process set forth below.
(b) The Repurchase Option shall be exercised by Landec by
written notice to Optionee and to the Company, and at Landec's option, (i) by
delivery to Optionee with such notice of a check or stock certificate for Landec
common stock in the amount of the purchase price for the Shares being purchased,
or (ii) in the event Optionee is indebted to Landec, by cancellation by Landec
of an amount of such indebtedness equal to the purchase price for the Shares
being repurchased, or (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, Landec shall become the legal and beneficial owner of the
Shares being repurchased and all rights and interest therein or related thereto,
and the Company shall transfer to Landec the number of Shares being repurchased
by Landec, without further action by Optionee.
(c) Any securities of the Company to be repurchased or
exchanged pursuant to sections 4(a) and (b) above shall be valued at their fair
market value, as determined in good faith by the Board of Directors of the
Company. Any Landec common stock to be exchanged pursuant to sections 4(a) and
(b) above shall be valued at the average of the closing prices for Landec common
stock on the Nasdaq National Market System over the thirty-day period ending
three (3) days prior to Landec's delivery to the Company of the consideration
set forth in section 4(b) above.
5. Investment and Taxation Representations. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
<PAGE>
(c) Purchaser further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the securities. Purchaser understands that the
certificate(s) evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and
701, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
securities exempt under Rule 701 may be resold by the Purchaser ninety (90) days
thereafter, subject to the satisfaction of certain of the conditions specified
by Rule 144, including, among other things: (1) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable. Notwithstanding this paragraph (d), Purchaser acknowledges and
agrees to the restrictions set forth in paragraph (f) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of purchase, then the securities may be resold by the Purchaser in certain
limited circumstances subject to the provisions of Rule 144, which requires,
among other things: (1) the availability of certain public information about the
Company; (2) the resale occurring not less than two years after the party has
purchased, and made full payment of (within the meaning of Rule 144), the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable. PURCHASER UNDERSTANDS THAT PAYMENT FOR THE SHARES WITH A PROMISSORY
NOTE IS NOT DEEMED TO BE FULL PAYMENT UNDER RULE 144 UNLESS THE NOTE IS SECURED
BY ASSETS OTHER THAN THE SHARES.
(e) Purchaser further understands that at the time he or she
wishes to sell the securities there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
securities under Rule 144 or 701 even if the two-year minimum holding period had
been satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and
<PAGE>
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
(g) Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON
TRANSFER HELD BY THE ISSUER OR ITS
ASSIGNEE(S) AS SET FORTH IN THE EXERCISE
NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT
OF FIRST REFUSAL ARE BINDING ON TRANSFEREES
OF THESE SHARES.
(iii) IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8. Market Stand-off Agreement. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
9. Miscellaneous.
(a) Governing Law. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.
(b) Entire Agreement; Enforcement of Rights. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(d) Construction. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
<PAGE>
(e) Notices. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
COMPANY:
Intellicoat Corporation
By: _________________________________
Name: _______________________________
(print)
Title: ______________________________
CompanyAddressLine1
CompanyAddressLine2
PURCHASER:
Optionee
______________________________________
(Signature)
______________________________________
(Print Name)
Address:
OptioneeAddress1
OptioneeAddress2
I, ______________________, spouse of Optionee, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or other such interest shall hereby by similarly bound by the Agreement. I
hereby appoint my spouse as my attorney-in-fact with respect to any amendment or
exercise of any rights under the Agreement.
______________________________________
Spouse of Optionee
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and
Security Agreement between the undersigned ("Purchaser") and Intellicoat
Corporation, dated _____________, (the "Agreement"), Purchaser hereby sells,
assigns and transfers unto _______________________________ (________) shares of
the Common Stock of Intellicoat Corporation, standing in Purchaser's name on the
books of said corporation represented by Certificate No. ___ herewith and hereby
irrevocably appoints _____________________________ to transfer said stock on the
books of the within-named corporation with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
______________________________________
Optionee
______________________________________
Spouse of Optionee (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to perfect the security interest of the Company
pursuant to the Agreement.
<PAGE>
RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt of Certificate No. _____
for __________ shares of Common Stock of Intellicoat Corporation (the
"Company").
The undersigned further acknowledges receipt of a copy of Section
260.141.11 of the Rules of the Commissioner of Corporations of the State of
California, which copy is attached to the aforementioned certificate.
Dated: _______________
______________________________________
Optionee
<PAGE>
RECEIPT
Intellicoat Corporation (the "Company") hereby acknowledges receipt of
(check as applicable):
_____ A check in the amount of $__________
_____ The cancellation of indebtedness in the amount of $__________
_____ Certificate No. ____ representing ______ shares of the Company's
Common Stock with a fair market value of $__________
given by Optionee as consideration for Certificate No. ______ for ___________
shares of Common Stock of the Company.
Dated: ______________
Intellicoat Corporation
By: ____________________________
Name: __________________________
(print)
Title: _________________________
Exhibit 10.16
LANDEC CORPORATION
1996 NON-EXECUTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees and
Consultants of the Company and to promote the success of the Company's business.
Options granted hereunder shall be Nonstatutory Stock Options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Affiliate" shall mean an entity other than a Subsidiary
(as defined below) in which the Company owns an equity interest.
(c) "Applicable Laws" shall have the meaning set forth in
Section 4(a) below.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Committee appointed by the
Board of Directors in accordance with Section 4(a) of the Plan, if one is
appointed.
(g) "Common Stock" shall mean the Common Stock of the Company.
(h) "Company" shall mean Landec Corporation, a California
corporation.
(i) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company, provided that
the term Consultant shall not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(j) "Continuous Status as an Employee or Consultant" shall
mean the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Administrator; provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute a termination of employment.
(k) "Director" shall mean a member of the Board.
-2-
<PAGE>
(l) "Employee" shall mean any person (excluding any Officer or
Director) employed by the Company or any Parent, Subsidiary or Affiliate of the
Company. The payment by the Company of a director's fee to a Director shall not
be sufficient to constitute "employment" of such Director by the Company.
(m) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock as quoted on such system on the date of
determination (if for a given day no sales were reported, the closing bid on
that day shall be used), as such price is reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(o) "Nonstatutory Stock Option" shall mean an Option not
intended to qualify as an incentive stock option under Section 422 of the Code,
as designated in the applicable written option agreement.
(p) "Officer" shall mean a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" shall mean a stock option granted pursuant to the
Plan.
(r) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(s) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(t) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(u) "Plan" shall mean this 1996 Non-Executive Stock Option
Plan.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act as the same may be amended from time to time, or any successor
provision.
-3-
<PAGE>
(w) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 14 of the Plan.
(x) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is 750,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Composition of Administrator. The Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of stock option laws, if any, of
applicable securities law and the Code (collectively the "Applicable Laws"). If
a Committee has been appointed pursuant to this Section 4(a), such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of any Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies (however
caused) and remove all members of a Committee and thereafter directly administer
the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Employees and Consultants to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
-4-
<PAGE>
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture restrictions
regarding any Option and/or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator shall determine, in its sole
discretion);
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Recipients of Grants. Options may be granted to Employees
and Consultants. An Employee or Consultant who has been granted an Option may,
if he or she is otherwise eligible, be granted an additional Option or Options.
(b) Type of Option. Each Option shall be designated in the
written option agreement as a Nonstatutory Stock Option.
(c) No Employment Rights. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator.
(b) Permissible Consideration. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator and may consist entirely of
(1) cash, (2) check, (3) authorization for the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (4) delivery
of a properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall
-5-
<PAGE>
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (5) a combination of any of the foregoing methods of
payment, or (6) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 9(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant, such Optionee may, but only within thirty (30) days or such other
period of time, not exceeding six (6) months as is determined by the
Administrator, after the date of such termination (but in no event later than
the date of expiration of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that he or she was entitled
to exercise it at the date of such termination. To the extent that the Optionee
was not entitled to exercise the Option at the date of such termination, or if
the Optionee does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 10(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code), he or she may, but
-6-
<PAGE>
only within six (6) months, or such other period of time not exceeding twelve
(12) months as is determined by the Administrator, from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. To the extent that he or she was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option (which
he was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time
of his death an Employee or Consultant of the Company and who shall have been in
Continuous Status as an Employee or Consultant since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time, not exceeding twelve (12) months, as is determined by the
Administrator) following the date of death (but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement),
by the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance but only to the extent of the right to exercise
that would have accrued had the Optionee continued living and remained in
Continuous Status as an Employee or Consultant three (3) months (or such other
period of time as is determined by the Administrator as provided above) after
the date of death; or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the Administrator) after
the termination of Continuous Status as an Employee or Consultant, the Option
may be exercised, at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
10. Withholding Taxes. As a condition to the exercise of Options
granted hereunder, the Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of such Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash payment, or (b) out of Optionee's current
compensation, or (c) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the
-7-
<PAGE>
Shares to be issued upon exercise of the Option that number of Shares having a
fair market value equal to the amount required to be withheld. For this purpose,
the fair market value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld to
satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by
an Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
12. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution; provided that the
Administrator may in its discretion grant transferable Options pursuant to
option agreements specifying (i) the manner in which such Nonstatutory Stock
Options are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option may be exercised, during the lifetime of the
Optionee, only by the Optionee or a transferee permitted by this Section 12.
13. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustment. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, and the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as
-8-
<PAGE>
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Administrator. The Administrator may, in the exercise of its sole discretion
in such instances, declare that any Option shall terminate as of a date fixed by
the Administrator and give each Optionee the right to exercise his or her Option
as to all or any part of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Option shall be assumed or an
equivalent option shall be substituted by such successor corporation or a parent
or subsidiary of such successor corporation, unless the Administrator
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to some or all of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. If the Administrator makes an
Option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee that the
Option shall be exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
-9-
<PAGE>
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
-10-
<PAGE>
LANDEC CORPORATION
1996 NON-EXECUTIVE STOCK OPTION PLAN
NOTICE OF NONSTATUTORY STOCK OPTION GRANT
Optionee's Name and Address:
Optionee
OptioneeAddress1
OptioneeAddress2
<TABLE>
You have been granted an option to purchase Common Stock of Landec
Corporation, (the "Company") as follows:
<CAPTION>
<S> <C>
Board Approval Date: _____________________
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): GrantDate
Exercise Price Per Share: ExercisePrice
Total Number of Shares Granted: SharesGranted
Total Price of Shares Granted: TotalExercisePrice
Type of Option: NoSharesNSO Shares Nonstatutory Stock Option
Term/Expiration Date: Term/ExpirDate
Vesting Commencement Date: VestingStartDate
Vesting Schedule: VestingSchedule
Termination Period: Option may be exercised for
a period of 30 days after
termination of employment
or consulting relationship
except as set out in
Sections 7 and 8 of the
Nonstatutory Stock Option
Agreement (but in no event
later than the Expiration
Date).
</TABLE>
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the Landec Corporation 1996 Non-Executive Stock
Option Plan and the Nonstatutory Stock Option Agreement, all of which are
attached and made a part of this document.
OPTIONEE: LANDEC CORPORATION
-11-
<PAGE>
_________________________________ By: _________________________
Signature
_________________________________ Title: ______________________
Print Name
-12-
<PAGE>
LANDEC CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
1. Grant of Option. Landec Corporation, a California corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Nonstatutory
Stock Option Grant attached to this Agreement ("Optionee"), a nonstatutory stock
option (the "Option") to purchase the total number of shares of Common Stock
(the "Shares") set forth in the Notice of Nonstatutory Stock Option Grant, at
the exercise price per share set forth in the Notice of Nonstatutory Stock
Option Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the 1996 Non-Executive Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated in this Agreement by reference. In the event
of a conflict between the terms of the Plan and the terms of this Agreement, the
terms of the Plan shall govern. Unless otherwise defined in this Agreement, the
terms used in this Agreement shall have the meanings defined in the Plan.
This Option is a Nonstatutory Stock Option and is not intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Exercise of Option. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Nonstatutory
Stock Option Grant and with the provisions of Sections 9 and 10 of the Plan as
follows:
(a) Right to Exercise.
(i) This Option may not be exercised for a fraction
of a share.
(ii) In the event of Optionee's death, disability or
other termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in paragraphs
(iii) and (iv) below.
(iii) In no event may this Option be exercised after
the date of expiration of the term of this Option as set forth in the Notice of
Nonstatutory Stock Option Grant.
(b) Method of Exercise.
(i) This Option shall be exercisable by delivering to
the Company a written notice of exercise (in the form attached as Exhibit A)
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other representations
and agreements as to the holder's investment intent with respect to such Shares
of Common Stock as may be required by the Company pursuant to the provisions of
the Plan. Such written notice shall be signed by Optionee and shall be delivered
in person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price. This Option shall
be deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
(ii) As a condition to the exercise of this Option,
Optionee agrees to make adequate provision for federal, state or other tax
withholding obligations, if any, which arise upon the exercise of the Option or
disposition of Shares, whether by withholding, direct payment to the Company, or
otherwise.
(iii) No Shares will be issued pursuant to the
exercise of an Option unless such issuance and such exercise shall comply with
all relevant provisions of law and the requirements of any stock exchange upon
which the Shares may then be listed. Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to Optionee on the date on
which the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (d) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or (e) if there is a
public market for the Shares and they are registered under the Securities Act,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set out in the Notice
of Nonstatutory Stock Option Grant. To the extent that Optionee was not entitled
to exercise this Option at the date of such termination, or if Optionee
-2-
<PAGE>
does not exercise this Option within the time specified in the Notice of
Nonstatutory Stock Option Grant, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of termination of employment (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the Option
at the date of termination, or if Optionee does not exercise such Option (to the
extent otherwise so entitled) within the time specified in this Agreement, the
Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee:
(a) during the term of this Option and while an Employee of
the Company and having been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, the Option may be exercised, at any time
within six (6) months following the date of death (but in no event later than
the date of expiration of the term of this Option as set forth in Section 10
below), by Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had Optionee continued living and remained in
Continuous Status as an Employee or Consultant three (3) months after the date
of death; or
(b) within thirty (30) days after the termination of
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months following the date of death (but in
no event later than the date of expiration of the term of this Option as set
forth in Section 10 below), by Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
9. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution. The
designation of a beneficiary does not constitute a transfer. An Option may be
exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.
10. Term of Option. This Option may be exercised only within the term
set out in the Notice of Nonstatutory Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees
that the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Plan which is incorporated in this Agreement by
-3-
<PAGE>
reference, shall confer upon Optionee any right with respect to continuation as
an Employee or Consultant with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her employment
or consulting relationship at any time, with or without cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS
OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Nonstatutory Stock Option. Optionee may incur
regular federal income tax liability upon the exercise of the Option as Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price. In addition, if Optionee
is an employee of the Company, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
(b) Disposition of Shares. Gain or loss realized on the
disposition of Shares will be calculated as the difference between the fair
market value on the exercise date and the proceeds from the disposition. Such
gain or loss will be treated as long-term capital gain or loss if the
disposition occurs more than one year after the exercise date.
13. Signature. This Stock Option Agreement shall be deemed executed by
the Company and Optionee upon execution by such parties of the Notice of
Nonstatutory Stock Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
-4-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: Landec Corporation
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Nonstatutory Stock Option
This is official notice that the undersigned ("Optionee") intends to
exercise Optionee's option to purchase __________ shares of Landec Corporation
Common Stock, under and pursuant to the Company's 1996 Non-Executive Stock
Option Plan and the Nonstatutory Stock Option Agreement dated ___________, as
follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price
(and applicable taxes): ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name: ________________________________
Address: ________________________________
________________________________
________________________________
Signed: ________________________________
Date: ________________________________
Exhibit 11.1
<TABLE>
LANDEC CORPORATION
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
(In thousands, except per share data)
<CAPTION>
Year Ended October 31,
---------------------------------------------
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Net Loss $ (4,200) $ (2,759) $ (4,355)
============= ============= ==============
Shares used in calculating net loss per share:
Weighted average shares of common stock
outstanding 7,699 542 522
SEC Staff Accounting Bulletin Topic 4D - 640 640
------------ ------------- --------------
Total shares used in calculating net loss per 7,699 1,182 1,162
share ============ ============= ==============
Net loss per share $ (0.55) $ (2.33) $ (3.75)
============ ============= ==============
Shares used in calculating supplemental net loss per share:
Weighted average shares of common stock
outstanding 7,699 542
Weighted average shares of the assumed
conversion of preferred stock and
promissory notes from the date of issuance 1,998 6,633
------------- -------------
Total shares used in calculating supplemental net
loss per share 9,697 7,175
============= =============
Supplemental net loss per share $ (0.43) $ (0.38)
============= =============
</TABLE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-06163) pertaining to the 1988 Stock Option Plan, 1995 Employee Stock
Purchase Plan and 1995 Directors' Stock Option Plan, of our report dated
December 6, 1996 with respect to the consolidated financial statements and
financial schedule of Landec Corporation included in the Annual Report (Form
10-K) for the year ended October 31, 1996.
Ernst & Young, LLP
Palo Alto, California
January 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> Nov-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 14,185
<SECURITIES> 22,325
<RECEIVABLES> 55
<ALLOWANCES> 32
<INVENTORY> 549
<CURRENT-ASSETS> 37,270
<PP&E> 3,248
<DEPRECIATION> (2,285)
<TOTAL-ASSETS> 38,358
<CURRENT-LIABILITIES> 1,388
<BONDS> 0
<COMMON> 68,242
0
0
<OTHER-SE> (31,602)
<TOTAL-LIABILITY-AND-EQUITY> 38,358
<SALES> 755
<TOTAL-REVENUES> 2,451
<CGS> 1,004
<TOTAL-COSTS> 4,812
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> (4,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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</TABLE>
