<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 2, 1999
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
0-27446 94-3025618
(Commission file number) (IRS Employer Identification No.)
3603 Haven Avenue, Menlo Park, California 94025
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (650) 306-1650
N/A
Former name or former address, if changed from last report)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 2, 1999, Landec Corporation (the "Registrant") acquired
Apio, Inc., a California corporation ("Apio"), by the statutory merger of Apio
with and into Bush Acquisition Corporation, a Delaware corporation ("BAC") and a
wholly owned subsidiary of the Registrant (the "Merger"). The Registrant also
acquired all of the outstanding shares and partnership interests of South Coast
Paper Company, Inc., Pacific West Produce Marketing, Inc., Cal Ex Trading
Company, and Apio Produce Sales (the "Related Entities"). Apio and the Related
Entities are marketers and packers of produce and specialty packaged fresh-cut
vegetables and are customers of the Registrant. The acquisitions were
accomplished pursuant to an Agreement and Plan of Merger and Purchase Agreement
(the "Agreement") dated as of November 29, 1999 among the Registrant, BAC, Apio,
the Related Entities and the stockholders and partners of the Related Entities
(the "Stockholders"). Upon the closing, the Registrant paid $8.9 million in cash
and issued 2,500,000 shares of the Registrant's common stock to the
Stockholders. In addition, the Agreement provides for future payments to the
Stockholders of up to $16.75 million, with $10.0 million of that amount based on
Apio achieving certain performance milestones.
Under the terms of the Agreement and a related Escrow Agreement,
401,667 shares of the Registrant's common stock issued in connection with the
Merger will be held in escrow for up to three years for the purpose of
indemnifying the Registrant against any damages that result from any breach
of the representations and warranties contained in the Agreement. The
Registrant also agreed to effect the registration of 833,333 of such shares
of the Registrant's common stock by March 31, 2000.
In connection with the acquisitions, the Registrant replaced a
portion of the existing bank debt of Apio and the Related Entities with a
$11.25 million term note and entered into a new $12 million line of credit
agreement with Bank of America.
The timing and amount of the consideration paid in connection with the
acquisitions was the result of arms-length negotiations between the
representatives of the Registrant and the Stockholders.
Item 5. OTHER EVENTS.
Pursuant to a Series A Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated November 19, 1999, by and among the Registrant
and Frederick Frank, the Registrant completed a financing that raised
approximately $10.0 million, through a private placement of its Series A-1
Preferred Stock and Series A-2 Preferred Stock (the "Preferred Stock").
Pursuant to the Purchase Agreement, the Registrant issued 166,667 shares of
Preferred Stock of the Registrant at $60.00 per share (representing 1,666,670
shares of common stock on an as-converted basis). The Registrant agreed to
effect the registration of all of the common stock into which the Preferred
Stock is convertible by March 31, 2000.
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Effective upon the closing of the Merger, Frederick Frank was
elected as a director of the Board of Directors of the Registrant and Ray
Stewart resigned as a director from the Board of Directors of the Registrant.
Item 7. FINANCIAL STATEMENTS AND EXHBITS
(a) Financial Statements of Business Acquired.
The financial statements required by Rule 3-05(b) of
Regulation S-X will be filed by the Registrant no later than sixty (60) days
from the date of this Report.
(b) Pro Forma Financial Information.
The financial statements required by Article 11 of Regulation
S-X will be filed by the Registrant no later than sixty (60) days from the date
of this Report.
(c) Exhibits.
2.1* Form of Agreement and Plan of Merger and Purchase
Agreement by and among the Registrant, Bush Acquisition Corporation, a
wholly-owned subsidiary of the Registrant, Apio, Inc., South Coast Paper
Company, Inc., Pacific West Produce Marketing, Inc., Cal Ex Trading Company,
Apio Produce Sales, and each of the respective shareholders of Apio, Inc.,
South Coast Paper Company, Inc., Pacific West Produce Marketing, Inc., and
Cal Ex Trading Company, and the constituent partners of Apio Produce Sales,
dated November 29, 1999.
4.1 Series A Preferred Stock Purchase Agreement between the
Registrant and Frederick Frank, dated as of November 19, 1999.
99.1 Press Release dated December 3, 1999.
* The Registrant hereby agrees to furnish to the Securities and Exchange
Commission supplementally, any schedules or exhibits to such agreement which
are not filed herewith, upon the request of the Securities and Exchange
Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LANDEC CORPORATION
Registrant
Date: December 17, 1999 By: /s/ Gregory S. Skinner
-------------------------
Gregory S. Skinner
Vice President of Finance and
Chief Financial Officer
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LANDEC CORPORATION
INDEX TO EXHIBITS
Exhibit No. Exhibit Title
- ----------- -------------
2.1* Agreement and Plan of Merger and Purchase Agreement
by and among the Registrant, Bush Acquisition
Corporation, a wholly-owned subsidiary of the
Registrant, Apio, Inc., South Coast Paper Company,
Inc., Pacific West Produce Marketing, Inc., Cal Ex
Trading Company, Apio Produce Sales, and each of the
respective shareholders of Apio, Inc., South Coast
Paper Company, Inc., Pacific West Produce Marketing,
Inc., and Cal Ex Trading Company, and the constituent
partners of Apio Produce Sales, dated November 29,
1999.
4.1 Series A Preferred Stock Purchase Agreement between
the Registrant and Frederick Frank, dated as of
November 19, 1999.
99.1 Press Release dated December 3, 1999.
* The Registrant hereby agrees to furnish to the Securities and Exchange
Commission supplementally, any schedules or exhibits to such agreement which are
not filed herewith, upon the request of the Securities and Exchange Commission
<PAGE>
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Exhibit 2.1
LANDEC CORPORATION
AGREEMENT AND PLAN
OF MERGER
AND PURCHASE AGREEMENT
NOVEMBER 29, 1999
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TABLE OF CONTENTS
<TABLE>
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Page
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1. Definitions................................................................................................2
1.1 Definitions.......................................................................................2
2. Merger, Sale and Purchase..................................................................................4
2.1 Merger............................................................................................4
2.2 Purchase and Sale.................................................................................6
2.3 Escrow Consideration..............................................................................7
2.4 Adjustment to Purchase Price......................................................................7
2.5 Earn-Out..........................................................................................8
2.6 Secondary Partner Earn-Out.......................................................................12
2.7 Allocation of Purchase Price.....................................................................13
2.8 Transaction Taxes................................................................................13
3. Closing...................................................................................................13
3.1 Closing..........................................................................................13
3.2 Actions at the Closing...........................................................................14
3.3 Post-Closing Actions.............................................................................14
4. Representations and Warranties of the Target Companies and Partners.......................................15
4.1 Organization, Standing and Power.................................................................15
4.2 Authority........................................................................................15
4.3 Execution and Binding Effect.....................................................................16
4.4 Consents and Approvals of Governmental Entities..................................................16
4.5 No Violation.....................................................................................16
4.6 Capital Structure................................................................................16
4.7 Consents.........................................................................................17
4.8 Financial Information............................................................................17
4.9 Absence of Certain Changes.......................................................................17
4.10 Title to Property................................................................................19
4.11 Intellectual Property............................................................................19
4.12 Inventories......................................................................................20
4.13 Accounts Receivable..............................................................................20
4.14 Licenses and Permits.............................................................................20
4.15 Liabilities Generally; No Undisclosed Liabilities................................................21
4.16 Warranties and Indemnities.......................................................................21
4.17 Employees........................................................................................21
4.18 Employee Benefit Plans...........................................................................22
4.19 Taxes............................................................................................24
4.20 Compliance with Law..............................................................................26
4.21 Environmental Matters............................................................................26
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4.22 Products.........................................................................................29
4.23 Product Liability................................................................................29
4.24 Litigation; Other Claims.........................................................................29
4.25 Defaults.........................................................................................30
4.26 Brokers and Finders..............................................................................30
4.27 Insurance........................................................................................30
4.28 Restrictions on Business Activities..............................................................30
4.29 Minute Books.....................................................................................30
4.30 Customers and Suppliers..........................................................................30
4.31 Related Parties..................................................................................31
4.32 Real Property....................................................................................31
4.33 Contracts........................................................................................32
4.34 Representations Complete.........................................................................35
5. Certain Shareholder Representations.......................................................................35
5.1 Restricted Shares; Rules 144 and 145.............................................................35
5.2 Experience.......................................................................................35
5.3 Investment.......................................................................................36
5.4 Public Market; No Federal or State Approval......................................................36
5.5 Access to Data...................................................................................36
6. Representations and Warranties of Landec and New Apio.....................................................36
6.1 Organization.....................................................................................36
6.2 Authority........................................................................................36
6.3 Execution and Binding Effect.....................................................................37
6.4 Consent and Approvals............................................................................37
6.5 No Violation.....................................................................................37
6.6 Access to Data...................................................................................37
6.7 SEC Filings; Financial Statements................................................................38
6.8 Status of Shares.................................................................................39
7. Covenants.................................................................................................39
7.1 Access to Information............................................................................39
7.2 Third Party Consents.............................................................................39
7.3 Certain Notifications............................................................................39
7.4 Efforts to Close.................................................................................40
7.5 Target Companies' Conduct of the Business Prior to Closing.......................................40
7.6 No Other Bids....................................................................................41
7.7 Section 338(h)(10) Elections.....................................................................42
7.8 Additional Tax Matters...........................................................................42
7.9 Post-Closing Access to Information...............................................................44
7.10 Post-Closing Cooperation.........................................................................44
7.11 Public Announcements.............................................................................45
7.12 Post-Closing Actions.............................................................................45
7.13 Collection of Accounts Receivable................................................................45
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7.14 Release of Guarantees............................................................................45
7.15 No Disparagement.................................................................................46
7.16 Form S-8.........................................................................................46
7.17 APS 46
8. Conditions to Landec's and New Apio's Obligations.........................................................46
8.1 Representations and Warranties True; Performance; Certificate....................................46
8.2 Consents.........................................................................................47
8.3 No Proceedings or Litigation.....................................................................47
8.4 Documents........................................................................................47
8.5 Governmental Filings.............................................................................47
8.6 Legal Opinion....................................................................................48
8.7 Shareholder Approval.............................................................................48
8.8 Availability of Target Companies' Representative.................................................48
8.9 Additional Agreements............................................................................48
8.10 Termination of Related Party Debt................................................................48
8.11 Guarantee Release and Indemnification............................................................48
8.12 Transfer of Ownership in Unacquired Parties......................................................48
8.13 FIRPTA Matters...................................................................................48
8.14 Tax Opinion......................................................................................49
9. Conditions to Target Companies' and Partners' Obligations.................................................49
9.1 Representations and Warranties True; Performance.................................................49
9.2 Consents.........................................................................................49
9.3 No Proceeding or Litigation......................................................................49
9.4 Governmental Filings.............................................................................50
9.5 Legal Opinion....................................................................................50
9.6 Additional Agreements............................................................................50
9.7 Intellipac Contribution..........................................................................50
10. Escrow and Indemnification................................................................................50
10.1 Survival of Representations and Warranties.......................................................50
10.2 Indemnification by Partners......................................................................50
10.3 Escrow Period....................................................................................52
10.4 Method of Asserting Claims.......................................................................53
10.5 Notice of Claim..................................................................................53
11. Landec Stock..............................................................................................54
11.1 Registration Requirements........................................................................54
12. Termination...............................................................................................58
12.1 Termination of Agreement.........................................................................58
12.2 Procedure for Termination........................................................................58
12.3 Fees and Expenses................................................................................59
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13. Miscellaneous.............................................................................................59
13.1 Amendments and Waivers...........................................................................59
13.2 Arbitration......................................................................................59
13.3 Successors and Assigns...........................................................................59
13.4 Governing Law....................................................................................59
13.5 Counterparts.....................................................................................59
13.6 Titles and Subtitles.............................................................................59
13.7 Notices..........................................................................................60
13.8 Severability.....................................................................................60
13.9 Entire Agreement.................................................................................60
13.10 Advice of Legal Counsel..........................................................................60
13.11 Landec Payment Obligations.......................................................................60
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
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Exhibit A - Escrow Agreement
Exhibit B-1 - Opinion of McCutchen, Doyle, Brown & Enersen, LLP
Exhibit B-2 - Opinion of Orrick, Herrington & Sutcliffe LLP
Exhibit C - Tompkins Employment Agreement
Exhibit D - Intellipac Contribution Agreement
Exhibit E - Grower Agreements
Exhibit F - Murphy Employment Agreement
Target Company Disclosure Schedule
Schedule 1.1(a) - 1998 Balance Sheet
Schedule 1.1(d) - Geneva Report
Schedule 1.1(l) - Governmental Authorizations
Schedule 1.1(s) - Mexico Grower Receivables
Schedule 1.1(w) - Rodgers Grower Receivables
Schedule 2.1(c) - Allocation of Merger Consideration
Schedule 2.2(i) - Allocation of Earn-Out Consideration to Partners of APS
Schedule 2.2(ii) - Allocation of Consideration for Pacific West Produce Marketing, Inc.
Schedule 2.2(iii) - Allocation of Consideration for Cal Ex Trading Company, Inc.
Schedule 2.2(iv) - Allocation of Consideration for South Coast Paper Company, Inc.
Schedule 2.3(a) - Allocation of Purchase Price Reserve
Schedule 2.3(c) - Allocation of Escrow Shares
Schedule 2.6 - Secondary Partner Deferred Payments
Schedule 2.7 - Adjustment Amount to the Partners
Schedule 2.8(a) - Payment by Apio to Partners for Mexico Grower Receivables
Schedule 2.8(b) - Payment by Apio to Partners for Rodgers Grower Receivable
Schedule 4.33(e) - Permitted Liens
Schedule 4.4 - Government Consents
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Schedule 4.5 - No Violation
Schedule 4.6 - Shareholders and Partners of the Target Companies
Schedule 4.7 - Required Consents
Schedule 4.10 - Properties
Schedule 4.11 - Intellectual Property
Schedule 4.15 - Liabilities
Schedule 4.16 - Warranties and Indemnities
Schedule 4.17 - Existing Employment Agreements
Schedule 4.18 - Benefit Plans
Schedule 4.19 - S-Corporation Election Dates and C-Corporation NOLs
Schedule 4.21 - Environmental Permits
Schedule 4.23 - Product Liability
Schedule 4.24 - Litigation
Schedule 4.26 - Brokers and Finders
Schedule 4.27 - Insurance
Schedule 4.31.1 - Related Party Ownership Interests
Schedule 4.31.2 - Related Party Debts
Schedule 4.33 - Contracts
Schedule 7.7 - Tax Allocations
Schedule 7.14 - Guarantees of Partners to be Released
Schedule 10.2 - Pro Ratio Allocation
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AND PURCHASE AGREEMENT
This Agreement and Plan of Merger and Purchase Agreement (the
"AGREEMENT") is entered into as of November 29, 1999 by and among Landec
Corporation, a California corporation ("LANDEC"), Bush Acquisition Corporation,
a Delaware corporation and wholly-owned subsidiary of Landec ("NEW APIO"), Apio,
Inc., a California corporation, South Coast Paper Company, Inc., a California
corporation, Pacific West Produce Marketing, Inc., a California corporation, Cal
Ex Trading Company, a California corporation, Apio Produce Sales, a California
general partnership ("APS") and each of the respective shareholders or
constituent partners of the foregoing entities as listed on SCHEDULE 4.6 hereto
(collectively, the "PARTNERS"). Apio, Inc., South Coast Paper Company, Inc.,
Pacific West Produce Marketing, Inc. and Cal Ex Trading Company, Inc. are
referred to herein collectively as the "ACQUIRED CORPORATIONS." The Acquired
Corporations together with APS and Apio Cooling, a California limited
partnership ("AC"), are referred to herein as the "TARGET COMPANIES."
RECITALS
Landec is in the business of manufacturing and distributing
polymer-based packaging materials and New Apio is a wholly-owned subsidiary of
Landec, formed specifically for the purpose of acquiring the Target Companies.
The Target Companies conduct their respective businesses in a collective fashion
so as to provide produce harvesting, packing, cooling and distribution services
to their growers (collectively, the "BUSINESS"). Landec and New Apio desire to
acquire from the Partners, and the Partners desire to sell or exchange, as the
case may be, all of their ownership interests in the Acquired Corporations and
APS in the transactions described in this Agreement. Each of the Partners has
separately negotiated the consideration such Partner is entitled to receive in
exchange for such Partner's interest in the Acquired Corporations and APS, with
the result that the consideration to be received by the Partners will differ
notwithstanding the fact that their ownership interests in the Acquired
Corporations and APS may be identical.
The Boards of Directors of Landec, New Apio and Apio, Inc. deem it
advisable and in the best interests of their respective shareholders to approve
and consummate the transaction provided for herein whereby New Apio would merge
with Apio, Inc., with New Apio being the surviving corporation in the merger
(the "MERGER"). It is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
AGREEMENT
In consideration of the mutual agreements, representations, warranties
and covenants set forth below, Landec, New Apio, the Partners, APS and the
Acquired Corporations agree as follows:
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1. DEFINITIONS.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "1998 BALANCE SHEET" means the balance sheet of the
Business audited by McGladrey & Pullen, LLP, and attached hereto as SCHEDULE
1.1(a) which includes the asset, liability and shareholders' equity accounts of
the Business as a whole as of December 31, 1998.
(b) "AFFILIATE" means with respect to any Person, a Person
directly or indirectly controlling or controlled by or under common control with
such Person.
(c) "APS INTERESTS" means all general or limited partnership
or other ownership interests, including any warrants, options, subscription
rights or other rights to acquire any ownership interest in APS.
(d) "BUSINESS AS PROPOSED TO BE CONDUCTED" means, with respect
to the Target Companies, the Business as contemplated in the Geneva Corporate
Finance binder for Apio, Inc. and its Combined Affiliates marked as version "D"
and attached hereto as SCHEDULE 1.1(d) (the "GENEVA REPORT"); PROVIDED, HOWEVER,
that except as specifically incorporated by reference in Section 6.6 hereof,
nothing in the Geneva Report shall constitute any kind of representation or
warranty herein.
(e) "CLOSING" means the consummation of the transactions
contemplated hereby on December 2, 1999.
(f) "CLOSING BALANCE SHEET" means the balance sheet of the
Business, to be prepared by the Target Companies' Representative and his
accountants, in cooperation with New Apio and its accountants, in accordance
with the terms of Section 2.4 hereof, which will be prepared in accordance with
GAAP, consistently applied, and which includes the asset, liability and
shareholders' equity accounts of the Business as a whole as of the Closing Date.
(g) "CLOSING DATE" means November 29, 1999.
(h) "CODE" means the Internal Revenue Code of 1986, as
amended.
(i) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(j) "ESCROW AGENT" means Chase Manhattan Bank and Trust
Company.
(k) "GAAP" means generally accepted accounting principles of
the United States as set forth by the Financial Accounting Standards Board, as
consistently applied to the financial statements of the Business.
(l) "GOVERNMENTAL AUTHORIZATIONS" means the permits,
authorizations, consents or approvals of any Governmental Entity which are a
condition to the lawful
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consummation by the Target Companies of the transactions contemplated hereby
listed on SCHEDULE 1.1(l) to this Agreement.
(m) "GOVERNMENTAL ENTITY" means any court, or any federal,
state, municipal or other governmental authority, department, commission, board,
agency or other instrumentality (domestic or foreign) or any securities exchange
having jurisdiction over the parties hereto.
(n) "GROWER RECEIVABLES" means the accounts receivable of the
Business and the grower advances made by the Business which are payable by the
Growers.
(o) "GROWERS" means the persons or entities who are suppliers
of fruit or vegetables to the Business.
(p) "INTELLECTUAL PROPERTY" means any patent rights, copyright
rights, moral rights, trade secret rights, and any other intellectual property
rights recognized by the law of the United States or the state of California,
including without limitation, patents, patent applications, trademarks,
trademark applications, service marks and copyright or mask work registrations
(q) "LIEN" means any mortgage, pledge, lien, security
interest, option, covenant, condition, restriction, encumbrance, charge or other
third-party claim of any kind.
(r) "MATERIAL ADVERSE EFFECT" with respect to a Person means
any event, change or effect that is materially adverse to the condition
(financial or otherwise), Properties, assets, liabilities, business, operations,
results of operations, or Business as Proposed to be conducted of such Person
and its Affiliates, taken as a whole.
(s) "MEXICO GROWER RECEIVABLES" means the Grower Receivables
listed on SCHEDULE 1.1(s).
(t) "PERMITTED LIENS" means (i) the lien of current taxes,
assessments or governmental charges not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the Properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such Properties of the type presently conducted thereon or the Business as
Proposed to be conducted thereon, (iii) liens securing indebtedness for borrowed
money(which includes capitalized leases) which are reflected on the 1998 Balance
Sheet or SCHEDULE 4.33(e), (iv) materialmen's, mechanics, carriers', workmen's
and repairmen's liens and other similar liens arising in the ordinary course of
business securing obligations of the Target Companies that are not overdue for a
period of more than thirty (30) days, (v) pledges or deposits to secure
obligations under worker's compensation laws or similar legislation or to secure
public or statutory obligations which are reflected on the 1998 Balance Sheet or
are incurred in the ordinary course of business consistent with past practice
after the date thereof, or (vi) liens arising solely by virtue of any statutory
or common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution.
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(u) "PERSON" means an individual, corporation, partnership,
association, trust, government or political subdivision or agent or
instrumentality thereof, or other entity or organization.
(v) "RETURNS" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
(w) "RODGERS GROWER RECEIVABLES" means the Grower Receivables
listed on SCHEDULE 1.1(w).
(x) "TARGET COMPANIES' REPRESENTATIVE" means Nicholas
Tompkins.
(y) "TARGET COMPANY SECURITIES" means all shares of capital
stock of the Acquired Corporations, all of the partnership interests of AC held
by Apio, Inc., all of the APS Interests or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any shares of capital stock
or other convertible securities of the Acquired Corporations, APS, or AC.
(z) "TAXES" means all taxes, however denominated, including
any interest, penalties or other additions to tax that may become payable in
respect thereof, (i) imposed by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income and profit taxes, franchise taxes, gross receipts taxes,
sales and use taxes, ad valorem taxes, excise taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes, environmental
taxes, real property gains taxes, transfer taxes, payroll and employee
withholding taxes, unemployment insurance contributions, social security taxes,
and other governmental charges, and other obligations of the same or of a
similar nature to any of the foregoing, which are required to be paid, withheld
or collected, (ii) any liability for payment of amounts referred to in clause
(i) above as a result of being a member of any affiliated, consolidated,
combined or unitary group, or (iii) any liability for amounts referred to in
clauses (i) and (ii) above as a result of any obligations to indemnify another
person.
(aa) "UNACQUIRED PARTY" means Apio Land Co., LLC, Chicago
Fresh LLC, Fresh King Produce, LLC, Central Coast Fresh Cut, L.P., Central City
Investments, LLC, San Ysidro Farms, Edward Silva & Sons, Inc., Pacific West Cold
Storage, a California limited partnership and Pacific West Citrus, a general
partnership.
2. MERGER, SALE AND PURCHASE.
2.1 MERGER. Upon the terms and subject to the conditions set forth in
this Agreement and in reliance upon the representations and warranties set forth
herein, Apio, Inc. will be merged with and into New Apio, the result of which
will cause the separate corporate existence of Apio, Inc. to cease and New Apio
to continue under the laws of the State of Delaware. As promptly as possible
after the Closing, the parties shall cause the Merger to be completed by
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filing a certificate of merger (the "MERGER DOCUMENTS") with the Secretary of
State of the State of Delaware, as provided in the General Corporation Law of
the State of Delaware, as amended (the "DGCL") and with the Secretary of State
of the State of California, as provided in the Corporation Code of the State of
California (the "CCC"), respectively. The Merger shall become effective (the
"EFFECTIVE TIME") upon the filing of the Merger Documents with the Secretary of
State of the State of Delaware.
(a) EFFECTS OF THE MERGER. At the Effective Time (i) the
separate existence of Apio, Inc. shall cease and Apio, Inc. shall be merged with
and into New Apio, with New Apio being the surviving corporation, (the surviving
corporation is sometimes referred to herein as the "SURVIVING CORPORATION"),
(ii) the Merger shall have all the effects provided by applicable law, and (iii)
New Apio shall remain a wholly-owned subsidiary of Landec.
(b) TAX CONSEQUENCES. For federal income tax purposes, the
Merger is intended to constitute a reorganization within the meaning of Section
368(a) of the Code. The parties to this Agreement hereby adopt this Agreement as
a "plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
(c) CONSIDERATION FOR THE MERGER. At the Closing, by virtue of
the Merger and without any action on the part of the holders thereof, all of the
issued and outstanding shares of Apio, Inc., consisting of 3,000 shares of
common stock, shall be converted into the right to receive 2,500,000 shares of
Landec Common Stock (the "SHARES"), par value $0.001 per share, allocated among
the shareholders of Apio, Inc. as set forth in SCHEDULE 2.1(c), and the
Adjustment Amount set forth in Section 2.7 (collectively, the "MERGER
CONSIDERATION");
(d) CERTIFICATE OF INCORPORATION AND BY-LAWS.
(i) The Certificate of Incorporation of New Apio, as
in effect immediately prior to the Effective Time of the Merger shall be amended
as of the Effective Time of the Merger so that Article One of such Certificate
of Incorporation reads in its entirety as follows: "The name of the Corporation
shall be Apio, Inc." and as so amended, such Certificate of Incorporation shall
be the Certificate of Incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(ii) The Bylaws of New Apio as in effect at the
Effective Time of the Merger shall be the Bylaws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
(e) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From
and after the Effective Time, the directors and officers of New Apio at the
Effective Time of the Merger shall be the directors and officers of the
Surviving Corporation until such time as their successors are duly elected and
qualified.
(f) DISSENTING SHARES. Each outstanding share of capital stock
of Apio, Inc., the holder of which has perfected his or its right to dissent
under applicable law and has not effectively withdrawn or lost such right as of
the Effective Time (the "DISSENTING SHARES") shall
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not be converted into the right to receive the consideration set forth in
Section 2.1(c), and the holder thereof shall be entitled only to such rights as
are granted by applicable law. Apio, Inc. shall give Landec and New Apio prompt
notice upon receipt by Apio, Inc. of any such written demands for payment of
fair value of shares of capital stock of Apio, Inc. and any other instruments
provided pursuant to applicable law. Any payments made in respect of Dissenting
Shares shall be made by New Apio.
(g) CONVERSION OF STOCK. At the Effective Time, each share of
New Apio stock issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become one validly issued, fully paid and
non-assessable share of the Surviving Corporation. Such newly issued shares
shall thereafter constitute all of the issued and outstanding capital stock of
the Surviving Corporation.
2.2 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, New Apio agrees to buy from the Partners, and the Partners agree to
sell, transfer and deliver to New Apio, at the Closing, all of the issued and
outstanding Target Company Securities (excluding the capital stock of Apio, Inc.
and the partnership interests of AC) in the amount for each Partner set forth
below, free and clear of all Liens, options, voting trusts, agreements, proxies
and other rights of third parties of any type or nature. At the Closing, New
Apio agrees to deliver to the Partners, or an account or accounts designated by
the Partners, the following consideration:
(i) the APS Interests shall be exchanged for cash in
the amount of $3,425,000, the Earn-Out Consideration to be paid pursuant to
Section 2.5; and the Secondary Partner Deferred Payment to be paid pursuant to
the terms of Section 2.6. The allocation of such initial payment among the
partners of APS shall be as set forth in SCHEDULE 2.2(i);
(ii) the outstanding shares of capital stock of
Pacific West Produce Marketing, Inc., consisting of 26,638 shares of common
stock, shall be exchanged for cash in the amount of $900,000. The allocation of
such payment among the shareholders of Pacific West Produce Marketing, Inc.
shall be as set forth in SCHEDULE 2.2(ii);
(iii) the outstanding shares of capital stock of Cal
Ex Trading Company, consisting of 4,000 shares of common stock, shall be
exchanged for cash in the amount of $2,175,000. The allocation of such payment
among the shareholders of Cal Ex Trading Company, Inc. shall be as set forth in
SCHEDULE 2.2(iii); and
(iv) the outstanding shares of capital stock of South
Coast Paper Company, Inc., consisting of 2,400 shares of common stock, shall be
exchanged for cash in the amount of $2,400,000. The allocation of such payment
among the shareholders of South Coast Paper Company, Inc. shall be as set forth
in SCHEDULE 2.2(iv).
The sum of (a) the Merger Consideration to be delivered to the Partners
pursuant to Section 2.1 above and (b) the consideration to be issued to each
Partner pursuant to Section 2.2(i) through (iv) shall be collectively referred
to as the "PURCHASE PRICE". The aggregate of the cash
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payments to be paid to the Partners at the Closing pursuant to Section 2.2(i)
through (iv) is referred to herein as the "INITIAL PAYMENT."
2.3 ESCROW CONSIDERATION. At the Closing, the following portions of the
Purchase Price shall be delivered (by wire transfer to an account or accounts
designated by the Escrow Agent in the case of cash payments and by physical
delivery in the case of the Escrow Shares) by New Apio directly to the Escrow
Agent:
(a) $750,000 in immediately available funds (the "PURCHASE
PRICE RESERVE"), which Purchase Price Reserve shall be allocated among the
Partners as set forth on SCHEDULE 2.3(a);
(b) 401,667 shares of Common Stock of Landec to an account or
accounts designated by the Escrow Agent (the "ESCROW SHARES"), which Escrow
Shares shall be allocated among the Partners as set forth on SCHEDULE 2.3(c).
The Escrow Shares, along with the Purchase Price Reserve, shall be collectively
referred to as the "ESCROW CONSIDERATION").
2.4 ADJUSTMENT TO PURCHASE PRICE.
(a) DETERMINATION OF BALANCE SHEETS. Following the Closing
Date, but in any event less than forty-five (45) days following the Closing
Date, the Target Companies' Representative, together with accountants, will
prepare and deliver to New Apio, a preliminary version of the Closing Balance
Sheet (the "TARGET COMPANY PROPOSAL"). The Target Company Proposal will be
prepared in accordance with GAAP, consistently applied, and will accurately
reflect the asset, liability and shareholders' equity accounts of the Business
as a whole. Within sixty (60) days of the delivery of the Target Company
Proposal, New Apio will provide the Target Companies' Representative with notice
of any specific objections with respect to any particular line items contained
in the Target Company Proposal. Upon any such objection, the parties shall work
together in good faith to determine the appropriate amounts to be included in
the Closing Balance Sheet. If the parties cannot resolve such dispute within
thirty (30) days of the delivery of all such objections, such dispute(s) will be
determined according to binding arbitration in accordance with the terms of
Section 13.2 hereof. The final agreed upon (or arbitrated) balance sheet shall
become the Closing Balance Sheet for purposes hereof.
(b) DETERMINATION OF PURCHASE PRICE ADJUSTMENT. For purposes
of this Agreement, the Purchase Price Adjustment shall be the greater of (i) 0,
and (ii) the amount by which the total outstanding principal amount of
short-term and long-term debt (which means working capital lines, term loans and
capital leases, less positive cash balances) (the "DEBT") (net of (a) Related
Party Debt (excluding guarantees) of the Target Companies, (b) receivables of
the Target Companies owed by any Related Party or Partner and (c) capital
accounts of any Unacquired Parties, in each case, that is paid at the Closing)
on the Closing Balance Sheet exceeds $14,500,000.
(c) PAYMENT OF PURCHASE PRICE ADJUSTMENT. Upon the final
determination of the Purchase Price Adjustment:
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(i) If the Purchase Price Adjustment is equal to
zero, the Escrow Agent shall deliver to each of the Partners or accounts
designated by the Partners, their pro rata portion (based on the proportions set
forth on SCHEDULE 2.3(a)) of the entire Purchase Price Reserve, plus the
interest earned thereon, in immediately available funds.
(ii) If the Purchase Price Adjustment is greater than
zero and (A) the Purchase Price Reserve is less than the value of the Purchase
Price Adjustment, the Escrow Agent shall promptly deliver the entire amount of
the Purchase Price Reserve plus the interest earned thereon, to New Apio or
accounts designated by New Apio, in immediately available funds, and each of the
Partners shall promptly deliver to New Apio, in immediately available funds,
their pro rata portion (based on the proportions set forth on SCHEDULE 2.3(a))
of the difference between the Purchase Price Adjustment and the sum of the
Purchase Price Reserve and the interest earned thereon, or (B) the Purchase
Price Adjustment is less than the Purchase Price Reserve, (x) the Escrow Agent
shall deliver an amount equal to the Purchase Price Adjustment, plus a
proportionate portion of the interest earned thereon, to New Apio or accounts
designated by New Apio, in immediately available funds from the Purchase Price
Reserve, and (y) the Escrow Agent shall deliver to the Partners or accounts
designated by the Partners, in immediately available funds, their pro rata
portion (based on the proportions set forth on SCHEDULE 2.3(a)) of the balance
of the Purchase Price Reserve, plus a proportionate portion of the interest
earned thereon.
(iii) Pending the determination of the Closing
Balance Sheet, to the extent that the parties agree as to which party will
receive proceeds under the Purchase Price Adjustment, but dispute the actual
amount to be paid, the undisputed portion of such payment shall be made
immediately upon such agreement (and the amount paid upon final determination of
the Closing Balance Sheet shall be accordingly reduced). Notwithstanding the
foregoing, no party shall be obligated to make any payment under this clause
(iii) to the extent that it believes that it will be entitled to receive funds
pursuant to the Purchase Price Adjustment mechanism.
2.5 EARN-OUT.
(a) DEFINITIONS. For purposes of this Section 2.5, the
following terms shall have the following meanings:
(i) "TARGET EBIT" means $10,500,000 for the First
Earn-Out Period and $13,700,000 for the Second Earn-Out Period.
(ii) "FIRST EARN-OUT PERIOD" means the period
beginning on the day after the Closing Date and ending on October 31, 2000.
(iii) "SECOND EARN-OUT PERIOD" means the period
beginning on the day after the end of the First Earn-Out Period and ending on
October 31, 2001.
(iv) "FIRST EARN-OUT TARGET" means $7,250,000.
(v) "SECOND EARN-OUT TARGET" means $2,750,000.
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(vi) "REVENUE" means gross revenues (in accordance
with GAAP and consistent with the revenue recognition policies of the Target
Companies in their audited financial statements as of and for the twelve (12)
month period ended December 31, 1998) recognized by the Business of the Target
Companies from the sales of the following products or services during an
Earn-Out Period, net of customary and reasonable reserves established in
connection with potential returns of any such products and net of any
intercompany transactions among the Target Companies: (A) products or services
that are currently being sold by the Target Companies as of the date hereof, (B)
products or services that are logical extensions of the products or services
currently being sold by the Target Companies, and (C) such additional products
and services as are mutually approved by the President of Landec and the Target
Companies' Representative.
(vii) "COSTS" means, except for the Excluded Costs
(as defined below), and net of intercompany transactions among the Target
Companies: (A) all cost of goods sold attributable to Revenue, (B) all costs and
expenses incurred by the Business of the Target Companies during an Earn-Out
Period (assuming the operation of the Business consistent with the operations
and expense policies of the Target Companies prior to the date hereof),
including selling, general and administrative expenses and research and
development expenses, and (C) all depreciation and amortization expenses
associated with (x) equipment and (y) goodwill existing in the Business as of
the date hereof, or acquired after the date hereof in the ordinary course of
business, but without giving effect to the goodwill generated or earned from the
transactions contemplated hereby. The term "Costs" does not include any payment
of Purchase Price and shall be measured in accordance with GAAP, consistently
applied.
(viii) "EXCLUDED COSTS" means, (A) the loss (or gain)
recognized by the Business and directly attributable to the operation of the
Intellipac business contributed by Landec to New Apio pursuant hereto and (B)
any corporate overhead allocations of Landec assigned to New Apio.
(ix) "ACTUAL EBIT" for a particular Earn-Out Period
means the sum of (a) the difference between Revenues and Costs, and (b) interest
income during such Earn-Out Period, less net income attributable to any minority
interest.
(x) "EARN-OUT RATIO" for an Earn-Out Period means
Earn-Out Target for the Period divided by the Target EBIT for the Earn-Out
Period.
(b) ADDITIONAL CONSIDERATION FOR APS INTERESTS. The parties to
this Agreement recognize that the current value of the APS Interests is
uncertain due to its central importance to the revenues of the Business. The
earn-out provided in this Section 2.5 is intended to establish the purchase
price of the APS Interests and, therefore, any Earn-Out Consideration made under
this Section 2.5 shall be treated for federal, state and local income tax
purposes by the parties to this Agreement as additional consideration received
by the Partners for their APS Interests.
(c) DETERMINATION OF EARN-OUT CONSIDERATION. After the end of
each Earn-Out Period, but in any event prior to sixty (60) days following the
expiration of such period, the
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Target Companies' Representative will prepare and deliver to the Chief Financial
Officer of Landec, a preliminary calculation of Revenues, Costs, Excluded Costs
and Actual EBIT for such Earn-Out Period (the "TARGET COMPANIES' EARN-OUT
PROPOSAL"). Within thirty (30) days of the delivery of the Target Company
Earn-Out Proposal, Landec will provide the Target Companies' Representative with
notice of any specific objections with respect to any particular line items
contained in the Target Companies' Earn-Out Proposal. Upon any such objection,
the parties shall work together in good faith to determine the appropriate
amounts to be included in the above calculated numbers. If the parties cannot
resolve such dispute within thirty (30) days of the delivery of all such
objections, such dispute(s) will be determined according to binding arbitration
in accordance with the terms of Section 13.2 hereof. Any arbitration award of
the amount of the Earn-Out Consideration shall bear interest from the date of
the Target Companies' Earn-Out Proposal to the date of payment to the prevailing
party at the reference rate of Bank of America NT&SA in effect from time to time
or from the date of delivery to said date of payment. The final agreed upon (or
arbitrated) calculations of Revenue, Costs, Excluded Costs and Actual EBIT shall
be determinative for purposes hereof.
(d) CALCULATION OF EARN-OUT CONSIDERATION.
(i) FIRST EARN-OUT PERIOD. The Earn-Out Consideration
for the First Earn-Out Period shall be equal to the product of the Actual EBIT
and the Earn-Out Ratio for the First Period; provided, however, that in no event
shall the Earn-Out Consideration for the First Earn-Out Period exceed
$7,250,000.
(ii) SECOND EARN-OUT PERIOD. The Earn-Out
Consideration for the Second Earn-Out Period shall be equal to the sum of (A)
the product of the Actual EBIT and the Earn-Out Ratio for the Second Period;
provided, however, that in no event shall such product exceed $2,750,000, and
(B) the product of (x) the Actual EBIT for the Second Earn-Out Period less the
Target EBIT for the Second Earn-Out Period and (y) the Earn-Out Ratio for the
First Earn-Out Period; provided that in no event shall the amount determined
pursuant to clause (B) be less than zero. The total of the Earn-Out
Consideration for the First Earn-Out Period and Second Earn-Out Period can in no
event exceed $10,000,000.
(e) PAYMENT OF EARN-OUT CONSIDERATION.
(i) Upon the determination of the Earn-Out
Consideration for a year, New Apio will promptly pay to Nicholas Tompkins and
Kathleen Tompkins in equal portions, the Earn-Out Consideration for such year in
immediately available funds. The parties agree to use reasonable commercial
efforts to calculate and pay the Earn-Out Consideration by March 1, 2001 for the
First Earn-Out Period and March 1, 2002 for the Second Earn-Out Period or such
later dates as (I) the conclusion of an arbitration in the event of a dispute
regarding the Target Companies' Earn-Out Proposal or (II) New Apio is in
compliance with the financial covenants contained in its Loan Agreement with
Bank of America N.A. (the "LOAN AGREEMENT"); provided that in the event payment
is delayed in accordance with clause (II) above, New Apio will pay interest at
the rate of 10% per annum from the date of such delay until payment thereof. The
other Partners of APS recognize the contingent nature of the earn-out and are
unwilling to accept
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that purchase price risk even though the total amount of consideration they
might have received by agreeing to participate in the earn-out (if certain
conditions are met) may be more than the total consideration they receive by not
participating in the earn-out. Such other Partners hereby represent that they
have received independent legal advice in deciding not to participate in the
earn-out payment.
(ii) Notwithstanding the foregoing, to the extent the
Adjustment Amount is to be paid to the Partners pursuant to Section 2.7, the
parties agree that the Earn-Out Consideration to be paid for the First Earn-Out
Period will be reduced by the total amount of the Adjustment Amount and such
amount will be paid to Nicholas and Kathleen Tompkins in equal portions on the
fifth anniversary of the Closing Date.
(iii) Until after the Earn-Out Consideration is fully
paid to Nicholas Tompkins and Kathleen Tompkins for both Earn-Out Periods, (i)
no payment will be made by New Apio to Landec or any affiliates for indirect
Corporate Services and General Operations Allocation under the Corporate
Services Agreement or for taxes under the Tax Sharing Agreement that are in
excess of actual taxes owed or paid, whichever is less, to governmental
agencies, including, but not limited to, the State of California and the IRS,
(ii) no dividends or distributions, except for the reimbursement of merger
related expenses paid by Landec, of any type will be declared or paid by New
Apio to Landec or any of its affiliates and (iii) New Apio will not make loans
or advances to Landec or any of its affiliates. After the Earn-Out Consideration
for the First Earn-Out Period is paid in full, accrued expenses associated with
the management fee and taxes can be paid, to the extent allowed in the Loan
Agreement, as long as there are monies available after taking into consideration
the amount due for the Second Earn-Out Period.
(f) ADJUSTMENTS TO EARN-OUT TARGETS. The parties hereby agree
that in the event of a sale or other transfer of a portion of the Business to a
third party, all recognized gains on the sale, if any, shall not be included in
the definition of Revenue for purposes of calculating the Earn-Out
Consideration, PROVIDED THAT, in the event that a material portion of the
Business is sold or otherwise transferred to a third party or parties, Landec,
New Apio and the Target Companies' Representative will mutually agree upon
appropriate adjustments to the First and Second Earn-Out Targets.
(g) EXAMPLE OF EARN-OUT CONSIDERATION. Set forth below is an
example of the calculation of the Earn-Out Consideration assuming Actual EBIT of
$8.0 million in the First Earn-Out Period and $14.7 million in the Second
Earn-Out Period.
<TABLE>
<S> <C>
Year 1 - First Earn-Out Target $ 7,250,000
Target EBIT 10,500,000
Earn-Out Ratio 69.05%
Actual EBIT 8,000,000
-----------------
Year 1 Earn-Out Consideration $ 5,524,000
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Year 2 - Second Earn-Out Target $ 2,750,000
Target EBIT 13,700,000
Earn-Out Ratio 20.07%
Actual EBIT 14,700,000
----------------
Year 2 Earn-Out Consideration $ 2,750,000 (1)
Actual EBIT in excess
of Target EBIT $ 1,000,000
Year 1 Earn-Out Ratio 69.05%
----------------
Additional Year 2 Earn-Out
Consideration 690,500
----------------
Total Earn-Out Consideration $ 8,964,000
----------------
</TABLE>
(1) Full amount earned as the product of the Actual
EBIT and the Earn-Out Ratio cannot exceed
$2,750,000.
2.6 SECONDARY PARTNER DEFERRED PAYMENT. On January 2, 2001, 2002, 2003,
2004 and 2005, with respect to each of the Partners listed on Schedule 2.6
hereto (the "SECONDARY PARTNERS"), New Apio will pay to such Secondary Partner
the amount set forth on Schedule 2.6 for such Secondary Partner for the relevant
year. The aggregate amounts delivered hereunder are referred to in this
Agreement as the "SECONDARY PARTNER DEFERRED PAYMENT."
2.7 LOOK-BACK PROVISION.
(a) ADJUSTMENT FEATURE. In the event the average closing sale
price for the Common Stock as reported on the Nasdaq National Market (or such
other exchange or over-the-counter market in which the Common Stock is being
traded) (the "CLOSING PRICE") for the last twenty (20) trading days of the two
hundred seventy (270) calendar day period commencing on the day following the
Closing Date (such 270th day being the "LOOK-BACK DATE") is less than $6.00 (the
"PERIOD AVERAGE"), New Apio shall pay to certain of the Partners in accordance
with Section 2.7(b) an amount equal to product of (x) the remainder obtained by
subtracting the greater of (A) the Period Average or (B) $4.50 from $6.00,
multiplied by (y) the number of Registrable Securities (as defined in Section
11.1(a)) held by such Partners on the Look Back Date (the "ADJUSTMENT AMOUNT");
PROVIDED THAT, if, during any period of twenty (20) consecutive trading days
commencing after the Effective Date (as defined below) and ending on the Look
Back Date, the Closing Price is at least $8.00 on each such trading day, then
the adjustment feature set forth in this Section 2.7(a) shall terminate and be
of no further effect, and no Adjustment Amount will be paid.
(b) PAYMENT SCHEDULE. If the adjustment feature set forth in
Section 2.7(a) becomes effective, New Apio shall pay the Adjustment Amount to
certain of the Partners in proportion to the number of Registrable Securities
held by such Partners on the Look Back Date in five (5) equal annual
installments, the first payment to occur on the first anniversary of the Closing
Date and the following annual payments to occur on the same day of each year for
the next four (4) years.
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2.8 ACCOUNTS RECEIVABLE PAYMENTS.
(a) MEXICO GROWER RECEIVABLES. New Apio shall pay to the
Partners in accordance with Schedule 2.8(a) an amount equal to the total amount
received (as calculated by the Chief Financial Officer of Landec) in respect of
the Mexico Grower Receivables during the ninety (90) day calendar period
commencing on the Closing Date within five (5) days following the expiration of
such period; PROVIDED, HOWEVER, that in no event shall the amount owed by New
Apio to the Partners pursuant to the application of this Section 2.8(a) be
greater than $100,000.
(b) RODGERS GROWER RECEIVABLES. As of the Closing Date, New
Apio shall have a note receivable in respect of the Rodgers Grower Receivables
listed on Schedule 1.1(aa) (the "RODGERS NOTE RECEIVABLE"). If within the ten
(10) month period commencing on the Closing Date, the balance of the Rodgers
Note Receivable is reduced below $400,000 (as calculated by the Chief Financial
Officer of Landec) as a result of the receipt of amounts in respect of the
Rodgers Grower Receivables, then New Apio shall pay the Partners in accordance
with Schedule 2.8(b) $100,000 within five (5) days of the date that the Rodgers
Note Receivable is reduced below $400,000.
2.9 ALLOCATION OF PURCHASE PRICE. For purposes of the 338(h)(10)
elections described in Section 7.7 and allocations of the Purchase Price, the
Purchase Price shall be allocated among the assets of the Target Companies as is
mutually agreed by the parties hereto prior to the Closing and shall be set
forth in SCHEDULE 7.7 hereto, in a manner consistent with Section 1060 of the
Code. As soon as practicable after the establishment of the Closing Balance
Sheet, New Apio and the Target Companies' Representative shall revise such
allocation to reflect any Purchase Price Adjustment, which revised allocation
shall be reasonably consistent with the principles of the allocation originally
agreed to by the parties. In addition, any amounts of Earn-Out Consideration
shall be allocated in a manner consistent with this Agreement. If any tax
authority challenges such allocation, the party receiving notice of such
challenge shall give the other prompt written notice thereof and the parties
shall cooperate in order to preserve the effectiveness of such allocation.
2.10 TRANSACTION TAXES. All Taxes incurred by the Partners and Target
Companies in connection with the transactions contemplated by this Agreement,
including without limitation Taxes imposed under Section 1374 of the Code (and
corresponding provisions of applicable state law), the Tax imposed by Cal. Rev.
& Tax. Code Section 23802, and sales or use and transfer Taxes, shall be the
responsibility of and paid by the Partners. New Apio and Landec shall be
indemnified by the Partners for such Taxes. Each Partner will, at his or its own
expense, file all such necessary tax returns or other documentation with respect
to such Taxes.
3. CLOSING.
3.1 CLOSING. Subject to the terms and conditions of this Agreement, the
Closing shall take place on such date, as soon as practicable after all
conditions precedent in Sections 7 and 8 have been satisfied or waived.
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3.2 ACTIONS AT THE CLOSING. At the Closing, Landec, New Apio, the
Target Companies and the Partners shall take such actions and execute and
deliver such agreements and other instruments and documents as are necessary or
appropriate to effect the transactions contemplated by this Agreement in
accordance with its terms, including without limitation the following:
(a) the Partners shall deliver certificates and such other
evidences of ownership representing the Target Company Securities to New Apio
which (except for the partnership interests of AC) have been duly endorsed for
transfer to New Apio by each Partner and which, in the case of APS, shall be an
agreement transferring the general partnership interests of the Partners to New
Apio;
(b) the Target Companies and the Partners shall deliver the
certificates, instruments and documents described in Section 7 hereof to New
Apio and Landec;
(c) New Apio shall deliver to the Partners, or to an account
or accounts designated by the Partners, the Initial Payment, in immediately
available funds to the Partners as set forth on SCHEDULES 2.2(i) through (iv);
(d) Landec or New Apio shall, on behalf of the Partners,
deliver the Escrow Consideration to the Escrow Agent;
(e) Landec shall deliver the Shares to the shareholders of
Apio, Inc., to be allocated among the Apio, Inc. shareholders as set forth on
SCHEDULE 2.1(c); and
(f) Landec and New Apio shall deliver the certificates,
instruments and documents described in Section 8 hereof to the Target Companies'
Representative.
3.3 CLOSING COSTS. At the Closing (i) Landec will contribute $9.0
million in cash to New Apio, (ii) New Apio will record a payable to Landec for
acquisition related costs paid by Landec prior to the Closing, currently
estimated to be approximately $725,000 ("Pre-Close Costs"), and (iii) New Apio
will record an accrual for Landec related acquisition costs not yet paid,
currently estimated to be approximately $1.1 million ("Post-Close Costs"). The
Pre-Close Costs will be paid by New Apio to Landec within thirty (30) days after
the Closing. The Post-Close Costs will be paid by New Apio as the bills come
due. If the actual Post-Close Costs are less than $1.1 million, the difference
will be refunded to Landec. If the Post-Close Costs are greater than $1.1
million, New Apio will pay the difference out of operating funds.
3.4 POST-CLOSING ACTIONS. Subsequent to the Closing, the Partners
shall, and shall cause any Affiliate of the Partners and any Unacquired Party
to, from time to time, execute and deliver, upon the request of New Apio, all
such other and further materials and documents and instruments of conveyance,
transfer or assignment as may reasonably be requested by New Apio to effect,
record or verify the transfer to and vesting in New Apio of Target Companies'
and any of the Affiliates of Target Companies' or Unacquired Parties' right,
title and interest in and to the Target Company Securities, free and clear of
all Liens in accordance with the terms of this Agreement.
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4. REPRESENTATIONS AND WARRANTIES OF THE TARGET COMPANIES AND PARTNERS.
Each representation and warranty set forth below is qualified by any
exception or disclosures set forth in the Target Company disclosure schedule
attached hereto (the "TARGET COMPANY DISCLOSURE SCHEDULE"), which exceptions
specifically reference the Section(s) to be qualified. In all other respects,
each representation and warranty set out in this Section 4 is not qualified in
any way whatsoever, will not merge on Closing or by reason of the execution and
delivery of any agreement, document or instrument at the Closing, will remain in
force on and after the Closing, is given with the intention that liability is
not confined to breaches discovered before Closing and is separate and
independent. Each Target Company and Partner represents and warrants to Landec
and New Apio as listed on SCHEDULE 4.6.
4.1 ORGANIZATION, STANDING AND POWER. Each of the Target Companies is a
corporation (or in the cases of APS, a general partnership, and AC, a limited
partnership) duly organized, validly existing and in good standing under the
laws of the State of California. The Target Companies collectively have the
requisite corporate power and authority and all necessary permits,
authorizations, consents, and approvals of all Governmental Entities to own,
lease and operate their Properties and to carry on the Business as now being
conducted and as Proposed to be Conducted, except where the failure to have such
power, authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on the Business. Each Target Company
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the Properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on the Business.
4.2 AUTHORITY. The execution and delivery of this Agreement (and all
other agreements and instruments contemplated under this Agreement) by the
Target Companies and the Partners, the performance by the Target Companies and
the Partners of their obligations hereunder and thereunder, and the consummation
by the Target Companies and the Partners of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action by the Board of
Directors, constituent partners and shareholders of each such Target Company and
Partner, and no other act or proceeding on the part of or on behalf of the
Target Companies or the Partners is necessary to approve the execution and
delivery of this Agreement by the Target Companies and Partners and such other
agreements and instruments, the performance by the Target Companies and Partners
of their obligations hereunder and thereunder and the consummation by the Target
Companies and Partners of the transactions contemplated hereby and thereby. Each
of the Partners has the power and authority and each of the signatory officers
of the Target Companies has been duly authorized, to execute and deliver this
Agreement and all of the other agreements and instruments to be executed and
delivered by the Partners and Target Companies pursuant hereto, to consummate
the transactions hereby and thereby contemplated and to take all other actions
required to be taken by the Partners and Target Companies pursuant to the
provisions hereof and thereof.
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4.3 EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly executed and delivered by each of the Target Companies and the Partners
and constitutes, and the other agreements and instruments to be executed and
delivered by the Target Companies and the Partners pursuant hereto, upon their
execution and delivery by the Target Companies and the Partners, will constitute
(assuming, in each case, the due and valid authorization, execution and delivery
thereof by Landec and New Apio), legal, valid and binding agreements of the
Target Companies and Partners, enforceable against each Target Company and
Partner in accordance with their respective terms.
4.4 CONSENTS AND APPROVALS OF GOVERNMENTAL ENTITIES. Other than the
Governmental Authorizations, there is no requirement applicable to any of the
Target Companies or Partners to make any filing, declaration or registration
with, or to obtain any permit, authorization, consent or approval of, any
Governmental Entity as a condition to the lawful consummation by the Target
Companies and Partners of the transactions contemplated by this Agreement and
the other agreements and instruments to be executed and delivered by the Target
Companies and Partners pursuant hereto or the consummation by the Target
Companies and Partners of the transactions contemplated herein or therein.
4.5 NO VIOLATION. Neither the execution, delivery and performance by
the Target Companies or Partners of this Agreement and all of the other
agreements and instruments to be executed and delivered pursuant hereto, nor the
consummation of the transactions contemplated hereby or thereby by the Target
Companies or Partners, will, with or without the passage of time or the delivery
of notice or both, (a) violate or result in any breach of the terms, conditions
or provisions of the Bylaws and Articles of Incorporation or partnership
agreement of any Target Company, (b) result in a violation or breach of, or
constitute a default or require consent of any Person (or give rise to any right
of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any contract, notice, bond, mortgage, indenture,
license, franchise, permit, agreement, lease or other instrument or obligation
to which any Target Company or Partner is a party or by which any Target Company
or Partner is bound, (c) violate any statute, ordinance or law or any rule or
regulation of any Governmental Entity, (d) to the knowledge of any Target
Company or Partner, after diligent investigation, violate any order, writ,
injunction or decree of any Governmental Entity applicable to any Target Company
or Partner or by which any Properties or assets of any Target Company are bound,
or (e) result in any cancellation of, or obligation to repay, any grant, loan or
other financial assistance received by any Target Company from any Governmental
Entity.
4.6 CAPITAL STRUCTURE. The authorized capital stock or partnership
interests, as applicable, of the Target Companies, and the ownership of all
Target Company Securities, is as set forth on SCHEDULE 4.6 hereto. There are no
other outstanding Target Company Securities. All outstanding Target Company
Securities are duly authorized, validly issued, fully paid and non-assessable
and are free of any Liens, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation, Bylaws or
partnership agreement of a Target Company or any agreement to which a Target
Company or a Partner is a party or by which it is bound. The Partners are the
sole shareholders and/or interest holders of the Target Companies; provided that
the owners of AC are as set forth on SCHEDULE 4.6
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4.7 CONSENTS. SCHEDULE 4.7 sets forth (a) each agreement, contract or
other instrument binding upon any of the Target Companies requiring a consent as
a result of the execution, delivery and performance of this Agreement or the
consummation by the Target Companies of the transactions contemplated hereby,
except such consents as would not, individually or in the aggregate, have a
Material Adverse Effect on the Business if not received by the Closing, and (b)
such additional consents as would be required in order that no default in excess
of $25,000 would result or that otherwise are material to the operation of the
Business as currently conducted and proposed to be conducted (each a "REQUIRED
CONSENT").
4.8 FINANCIAL INFORMATION. The Target Companies have delivered to
Landec the balance sheets and statements of income and cash flows for the
Business as a whole for the fiscal years ended December 31, 1996, 1997 and 1998,
audited by McGladrey & Pullen LLP ("MCGLADREY FINANCIALS") the unaudited balance
sheet and statements of income and cash flows for the Business as a whole for
the nine (9) months ended September 30, 1999, and the items of Revenue contained
in the Combining Statements of Operations of Apio, Inc. and its Combined
Affiliates for the year ended December 31, 1998 (the "UNAUDITED FINANCIALS" and
collectively with the McGladrey Financials, the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared consistently for all periods presented
in accordance with GAAP. The Financial Statements present fairly in all material
respects the financial condition, results of operations and cash flows of the
Business as of the dates and during the periods indicated therein, subject to
normal year-end adjustments, which will not be material in amount or
significance, and are consistent with the books and records of the Target
Companies, which books and records are complete.
4.9 ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, except as set
forth in SCHEDULE 4.9, through the date of this Agreement, the Target Companies
and Partners have conducted the Business in the ordinary course consistent with
past practice and, except as set forth on the Target Company Disclosure
Schedule, no Target Company has:
(a) Caused or permitted any amendments to its Articles of
Incorporation, Bylaws or partnership agreement, as applicable;
(b) Declared or paid any dividends on or made any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combined or reclassified any of its capital stock or
issued or authorized the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or repurchased or
otherwise acquired, directly or indirectly, any shares of its capital stock;
(c) Entered into any contract or commitment, or violated,
amended or otherwise modified or waived any of the terms of any of its
contracts, which has had or will in the future have a Material Adverse Effect on
the Business, individually or in the aggregate;
(d) Issued, delivered or sold or authorized or proposed the
issuance, delivery or sale of, or purchased or proposed the purchase of, any
Target Company Securities;
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(e) Transferred to any person or entity any rights to its
Intellectual Property other than in the ordinary course of business consistent
with past practice;
(f) Entered into or amended any agreements pursuant to which
any other party is granted exclusive marketing or other exclusive rights of any
material type or scope with respect to any of its products or technology;
(g) Sold, leased, licensed or otherwise disposed of or
encumbered any of its Properties or assets, individually or in the aggregate,
material to the Business, taken as a whole, except in the ordinary course of
business consistent with past practice;
(h) Incurred any indebtedness, including without limitation
under any operating lease or line of credit, for borrowed money or guaranteed
any such indebtedness or issued or sold any debt securities or guaranteed any
debt securities of others;
(i) Paid, discharged or satisfied, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
of any material amount, or arising other than in the ordinary course of
business;
(j) Made any capital expenditures, capital additions or
capital improvements material to the Business in excess of $100,000;
(k) Materially reduced the amount of any material insurance
coverage provided by existing insurance policies;
(l) Terminated or waived any right of material value;
(m) Adopted or amended any employee benefit or stock purchase
or option plan, or hired any new director level or officer level employee, paid
any special bonus or special remuneration to any employee or director, or
increased the salaries or wage rates of its employees, in each case, other than
in the ordinary course of business, consistent with past practice;
(n) Granted any severance or termination pay (i) to any
director or officer or (ii) to any other employee except, in each case, grants
which are made in the ordinary course of business in accordance with past
practice;
(o) Commenced a lawsuit other than for the routine collection
of bills;
(p) Acquired or agreed to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquired or agreed to
acquire any assets which are material, individually or in the aggregate, to the
Business, taken as a whole;
(q) Except for APS and AC, ceased to qualify as an S
corporation for federal and all applicable state income tax purposes and other
than in the ordinary course of business,
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made or changed any material election in respect of Taxes, adopted or changed
any accounting method in respect of Taxes or consented to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
(r) Revalued any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable;
or
(s) Agreed in writing or otherwise to take, any of the actions
described in Sections 4.9(a) through (r) above.
4.10 TITLE TO PROPERTY. Each of the Target Companies has good and valid
title to all of its Properties, interests in Properties and assets, real and
personal, reflected in the Unaudited Financials or acquired after the date
thereof (except Properties, interests in Properties and assets sold or otherwise
disposed of since such date in the ordinary course of business), or in the case
of leased Properties and assets, valid leasehold interests in such assets, free
and clear of all Liens other than the Permitted Liens. The plants, property and
equipment that are used in the operations of the Business are in reasonable
operating condition and repair given the age of such assets and customary wear
and tear experienced in operations such as the Business. All Properties used in
the operations of the Business are reflected in the Unaudited Financials to the
extent GAAP require the same to be reflected. SCHEDULE 4.10 identifies each
parcel of real property owned or leased by the Target Companies.
4.11 INTELLECTUAL PROPERTY.
(a) The execution, delivery and performance of this Agreement
by the Target Companies and Partners and the consummation by the Target
Companies and Partners of the transactions contemplated hereby (including
without limitation the continued conduct by New Apio after the Closing of the
Business as presently conducted by the Target Companies and the incorporation of
any Intellectual Property in any current product of the Business or any product
of the Business as Proposed to be conducted) will not breach or violate any
material instrument or agreement governing any Intellectual Property necessary
or required for, or used in, the conduct of the Business as presently conducted
and will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any such Intellectual Property or in any material
way impair the right of New Apio or any of its affiliates to use, sell, license
or dispose of, or to bring any action for the infringement of, any such
intellectual property or portion thereof.
(b) Except with respect to the Intellipac breathable membrane
Intellectual Property owned by Landec ("Intellipac"), neither the development,
manufacture, marketing, license, sale or use of any product or Intellectual
Property currently licensed, used or sold in connection with the Business or
currently under development, violates or will violate any material license or
agreement to which any Target Company is a party or infringes or will infringe
any copyright, patent, trademark, service mark, trade secret or other
intellectual property or other proprietary right of any other party. All
registered trademarks, service marks, patents and copyrights held by the Target
Companies are valid and subsisting. There is no pending or, to the knowledge of
any Target Company or Partner, threatened claim or litigation contesting the
validity, ownership or right to use, sell, license or dispose of any of the
assets material to the
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Business (including without limitation the Intellectual Property of the
Business) nor to the knowledge of any Target Company or Partner, is there any
basis for any such claim, nor has any Target Company or Partner received any
notice asserting that any such asset (including without limitation the
Intellectual Property of the Business) or the proposed use, sale, license or
disposition thereof violates or will violate with the rights of any other party,
nor to the knowledge of any Target Company or Partner, is there any basis for
any such assertion. To the knowledge of any Target Company or Partner, after
diligent investigation, there is no material unauthorized use, infringement or
misappropriation on the part of any third party of any assets of the Business
(including without limitation any Intellectual Property).
(c) Each Target Company has taken reasonable steps (including,
without limitation, entering into confidentiality and non-disclosure agreements
with the persons listed on SCHEDULE 4.11 hereto) to maintain the secrecy and
confidentiality of, and its proprietary rights in the Intellectual Property
owned by Landec and licensed to any Target Company. The Target Company
Disclosure Schedule contains a complete and accurate list of all applications,
filings and other formal actions made or taken pursuant to federal, state, local
and foreign laws by each Target Company to perfect or protect its interest in
the Intellectual Property of the Business.
(d) All fees to maintain the Target Companies' rights in the
Intellectual Property, including, without limitation, patent and trademark
registration and prosecution fees in connection therewith pertaining to the
Intellectual Property of the Business due and payable on or before the Closing,
have been paid by the appropriate Target Company.
4.12 INVENTORIES. All of the inventories reflected on the Unaudited
Financials are and will be items of a quality usable or salable in the ordinary
and usual course of businesses in the same line of business as the Target
Companies. The value at which such inventories are carried on the Unaudited
Financials reflects an inventory valuation policy of the Target Companies which
is in accordance with GAAP, consistently applied.
4.13 ACCOUNTS RECEIVABLE. All accounts receivable, notes receivable and
other receivables reflected on the Unaudited Financials (other than the Mexico
Grower Receivables and the Rodgers Grower Receivables) are valid, genuine and
fully collectible in the aggregate amount thereof, subject to normal and
customary trade discounts less any reserves for doubtful accounts recorded on
the Unaudited Financials. All accounts receivable, notes receivable, and other
receivables arising out of or relating to the Business on September 30, 1999
have been included in the Unaudited Financials to the extent required by GAAP.
4.14 LICENSES AND PERMITS. Except for the Environmental Permits (as
hereinafter defined), the Target Companies possess all material consents,
approvals, registrations, certifications, authorizations, permits and licenses
relating to the Business (the "PERMITS"), and have made all material filings
with, or required notifications to, all Governmental Entities pursuant to
applicable requirements of all federal, state, local and foreign laws,
ordinances, governmental rules or regulations applicable to the Business,
including, but not limited to, all such laws, ordinances, governmental rules or
regulations relating to registration of the products of the Business (at their
current level of development and use) and certification of the facilities of
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the Business. Other than with respect to the Environmental Laws (as hereinafter
defined), the Business is in compliance in all material respects with all
federal, state, local and foreign laws, ordinances, governmental rules and
regulations relating to the products harvested, processed and distributed by the
Business or otherwise related to the Business and no Target Company has any
reason to believe that any of the Permits are invalid or have been or are being
suspended, canceled, revoked or questioned. There is no investigation or inquiry
of which any Target Company has received actual or constructive notice or, to
the knowledge of any Target Company or Partner, pending or threatened, relating
to the Business and its compliance with applicable foreign, state, local or
foreign laws, ordinances, governmental rules or regulations. Each Permit is
transferable and shall be transferred to New Apio at the Closing in accordance
with the terms of this Agreement.
4.15 LIABILITIES GENERALLY; NO UNDISCLOSED LIABILITIES. Except as set
forth on SCHEDULE 4.15 and any other Schedule to this Agreement, no Target
Company has any material liabilities or obligations of any nature (whether
matured, unmatured, fixed or contingent) other than those (i) reflected in the
Unaudited Financials, (ii) incurred in the ordinary course of business and not
required to be set forth in the Financial Statements under GAAP, (iii) incurred
in the ordinary course of business, consistent with past practice, since the
date of the Unaudited Financials, and (iv) incurred in connection with this
Agreement and the transactions contemplated hereby.
4.16 WARRANTIES AND INDEMNITIES. SCHEDULE 4.16 sets forth a summary of
all warranties and indemnities, express or implied, relating to products sold or
services rendered by the Business within the past three (3) years, and no
warranty or indemnity has been given by any Target Company during such period
which is not listed on SCHEDULE 4.16 or which differs therefrom in any material
respect. Each Target Company is in compliance in all material respects with the
appropriate warranties described in SCHEDULE 4.16. SCHEDULE 4.16 also indicates
all warranty and indemnity claims currently pending against each Target Company.
4.17 EMPLOYEES.
(a) No officers or directors, or to the knowledge of any
Target Company or Partner, after diligent inquiry, any employee of any Target
Company is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would conflict with
their obligation to promote the interests of such Target Company with regard to
the Business or that would conflict with the Business. To the knowledge of the
Target Companies and Partners, neither the execution nor the delivery of this
Agreement, nor the carrying on of the Business by its employees and consultants,
will result in a breach of the terms, conditions or provisions of, or constitute
a default under, any contract, covenant or instrument under which any of such
persons or entities are now obligated. It is currently not necessary nor will it
be necessary for any Target Company to utilize in the Business any inventions of
any of such persons or entities (or people it currently intends to hire) made or
owned prior to their employment by or affiliation with Target Company, nor is it
or will it be necessary to utilize any other assets or rights of any such
persons or entities (or people it currently intends to hire) made
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or owned prior to their employment with or engagement by such Target Company, in
violation of any registered patents, trade names, trademarks or copyrights or
any other limitations or restrictions to which any such persons or entity is a
party or to which any of such assets or rights may be subject. To the knowledge
of the Target Companies and the Partners, none of the Target Companies'
employees, consultants, officers, directors or shareholders that has had
knowledge or access to information relating to the Business has taken, removed
or made use of any proprietary documentation, manuals, products, materials, or
any other tangible item from his or her previous employer relating to the
business of such previous employer which has resulted in a Target Company's
access to or use of such proprietary items included in the assets of the
Business, and no Target Company will gain access to or make use of any such
proprietary items in the Business, except to the extent that any such activities
would not have a Material Adverse Effect on the Business.
(b) Except as listed on SCHEDULE 4.17 hereto, there are no
written or oral contracts of employment between any Target Company and any
employee.
(c) No Target Company is a party to a collective bargaining
agreement with any trade union, no Target Company's employees are members of a
trade union certified as a bargaining agent with such Target Company and no
proceedings to implement any such collective bargaining agreement or
certifications are pending.
4.18 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.18 lists, with respect to each Target Company
and any trade or business (whether or not incorporated) which is treated as a
single employer with any Target Company (an "ERISA AFFILIATE") within the
meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee benefit
plans (as defined in Section 3(3) of ERISA), (ii) except for Related Party Debt
(as defined in Section 4.31 below), each outstanding loan to a non-officer
employee in excess of $20,000, each outstanding loan to officers and directors
and any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of any Target Company and that do not generally apply to all
employees, and (v) any current or former employment or executive compensation or
severance agreements, written or otherwise, as to which unsatisfied obligations
of any Target Company remain for the benefit of, or relating to, any present or
former employee, consultant or director of any Target Company (together, the
"TARGET COMPANY EMPLOYEE PLANS").
(b) The Target Companies have furnished to New Apio a copy of
each of the Target Company Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets, summary
plan descriptions and other authorizing documents, and any material employee
communications relating thereto) and has,
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with respect to each Target Company Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500 reports filed for the
last three plan years. Any Target Company Employee Plan intended to be qualified
under Section 401(a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service pronouncements
in which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. The Target Companies have also
furnished Landec and New Apio with the most recent Internal Revenue Service
determination letter issued with respect to each such Target Company Employee
Plan, and nothing has occurred since the issuance of each such letter which
could reasonably be expected to cause the loss of the tax-qualified status of
any Target Company Employee Plan subject to Code Section 401(a).
(c) (i) None of the Target Company Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person; (ii)
there has been no "prohibited transaction," as such term is defined in Section
406 of ERISA and Section 4975 of the Code, with respect to any Target Company
Employee Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (iii) each Target Company Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect, and each Target Company and each ERISA Affiliate have
performed all obligations required to be performed by them under, are not in any
respect in default under or violation of, and have no knowledge of any default
or violation by any other party to, any of the Target Company Employee Plans,
which default or violation could reasonably be expected to have a Material
Adverse Effect; (iv) neither any Target Company nor any ERISA Affiliate is
subject to any liability or penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Target Company Employee Plans;
(v) all contributions required to be made by any Target Company or any ERISA
Affiliate to any Target Company Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Target Company Employee Plan for the current plan years; (vi) with respect to
each Target Company Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; (vii) each of the Target Company Employee Plans may be terminated by
the appropriate Target Company at any time without liability to such Target
Company; and (viii) no Target Company Employee Plan is covered by, and neither
any Target Company nor any ERISA Affiliate has incurred or expects to incur any
liability under Title IV of ERISA or Section 412 of the Code. With respect to
each Target Company Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, each Target Company has
prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and, has properly and timely
filed and distributed or posted all notices and reports
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to employees required to be filed, distributed or posted with respect to each
such Target Company Employee Plan. No suit, administrative proceeding, action or
other litigation has been brought, or to the best knowledge of any Target
Company or Partner, after diligent inquiry, is threatened, against or with
respect to any such Target Company Employee Plan, including any audit or inquiry
by the IRS or United States Department of Labor. Neither any Target Company nor
any ERISA Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in Section
3(37) of ERISA.
(d) With respect to each Target Company Employee Plan, each
Target Company has complied with (i) the applicable health care continuation and
notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the regulations thereunder and (ii) the applicable requirements of
the Family Leave Act of 1993 and the regulations thereunder, except to the
extent that such failure to comply would not, in the aggregate, have a Material
Adverse Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of any Target Company or any other ERISA Affiliate to severance
benefits or any other payment, except as expressly provided in this Agreement,
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by any Target Company or other ERISA
Affiliate relating to, or change in participation or coverage under, any Target
Company Employee Plan which would materially increase the expense of maintaining
such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in the Financial Statements.
4.19 TAXES.
(a) RETURNS FILED AND TAXES PAID. All Returns required to be
filed by or on behalf of the Target Companies have been duly filed on a timely
basis (taking into account any extensions) and such Returns are true, complete
and correct, except to the extent that any failures to file or misstatements
would not, individually or in the aggregate have a Material Adverse Effect. All
Taxes shown to be payable on the Returns or on subsequent assessments with
respect thereto, and all payments of estimated Taxes required to be made by or
on behalf of a Target Company under Section 6655 of the Code or comparable
provisions of state, local or foreign law, have been paid in full on a timely
basis or have been accrued as of September 30, 1999, and no other Taxes are
payable by the Target Companies with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns). Each Target
Company has withheld and paid over all Taxes required to have been withheld and
paid over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third party. There are no Liens on any of the assets of any
Target Company with respect to Taxes, other than Permitted Liens. Except as set
forth on the Target Company Disclosure Schedule, no Target Company has been at
any time a
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member of any partnership or joint venture for a period for which the statue of
limitations for any Tax potentially applicable as a result of such membership
has not expired.
(b) TAX RESERVES. No liabilities for Taxes have been incurred
since September 30, 1999 (or will be incurred prior to Closing) other than in
the ordinary course of business or as a result of the Closing, and any Taxes of
Target Companies for periods ending on or before the Closing shall have been
paid prior to the Closing, or will be adequately reserved for in the Closing
Balance Sheet, or will be paid by the Partners as provided for in Section
7.8(b).
(c) RETURNS FURNISHED. New Apio has been furnished by the
Target Companies with true and complete copies of (i) relevant portions of
income tax audit reports, statements of deficiencies, closing or other
agreements received by or on behalf of any Target Company (other than APS)
relating to Taxes within the last seven (7) years, and (ii) all federal and
state income or franchise Tax Returns and state sales and use Tax Returns for or
including any Target Company for all periods ending on and after December 31,
1993. No Target Company has ever been a member of an affiliated group of
corporations filing consolidated returns or a unitary group of corporations
filing combined returns. No Target Company does business in or derives income
from any state other than states for which Returns have been duly filed and
furnished to New Apio.
(d) TAX DEFICIENCIES; AUDITS; STATUTES OF LIMITATIONS. The
Returns of the Target Companies have never been audited by a government or
taxing authority, nor to the knowledge of any Target Company or Partner is any
such audit in process, pending or threatened. No deficiencies exist or have been
asserted (either in writing or orally) or to the knowledge of any Target Company
or Partner are expected to be asserted with respect to Taxes of any Target
Company, and neither any Target Company nor any Partner has received notice
(either in writing or orally) nor expects to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid. No Target Company is
a party to any pending action or proceeding for assessment or collection of
Taxes, nor has such event been asserted or threatened (either in writing or
orally) against any Target Company or any of its assets. No waiver or extension
of any statute of limitations is in effect with respect to Taxes or Returns of
any Target Company. Each Target Company has disclosed on its federal and state
income and franchise tax returns all positions taken therein that could give
rise to a substantial understatement penalty within the meaning of Code Section
6662 or comparable provisions of applicable state tax laws.
(e) TAX SHARING AGREEMENTS. No Target Company is (nor has it
ever been) a party to any tax sharing agreement.
(f) TAX ELECTIONS AND SPECIAL TAX STATUS. Each Target Company
(other than APS and AC) has made a valid and timely election to be treated as an
S corporation under Section 1362 of the Code (and corresponding provisions of
applicable state law) for its taxable year commencing on the dates set forth on
SCHEDULE 4.19 and has continued to be an S corporation at all times since each
such date, and each such Target Company will be an S corporation at the time of
the transactions contemplated by this Agreement to enable the Partners, Landec
and New Apio to make an election under Section 338(h)(10) of the Code
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pursuant to Section 7.7 of this Agreement. No Target Company is, nor has it
been, a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code, and neither New Apio nor Landec is required to
withhold tax on the purchase of the Target Company Stock by reason of Section
1445 of the Code. No Target Company is a "consenting corporation" under Section
341(f) of the Code. No Target Company has entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a nondeductible expense to such Target Company pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. No Target Company has agreed to, nor is it
required to make any adjustment under Code Section 481(a) by reason of, a change
in accounting method, nor otherwise has any material income reportable for a
period ending after the Closing attributable to a transaction or other event
(e.g., an installment sale) occurring prior to the Closing. No Target Company
is, nor has it been, a "reporting corporation" subject to the information
reporting and record maintenance requirements of Section 6038A and the
regulations thereunder. Each Target Company is in compliance with the terms and
conditions of any applicable tax exemptions, agreements or orders of any foreign
government to which it may be subject or which it may have claimed, and the
transactions contemplated by this Agreement will not have any adverse effect on
such compliance.
(g) C CORPORATION NET OPERATING LOSSES. SCHEDULE 4.19 sets
forth accurate and complete information regarding each Target Company's C
corporation net operating losses for federal and each state tax purposes as of
the completion of its 1998 taxable year. Such net operating losses are not
currently subject to limitation under Code Sections 382, 383 or 384.
4.20 COMPLIANCE WITH LAW.
(a) Except with respect to Environmental Laws (as hereinafter
defined), the operation of the Business has been conducted in all material
respects in accordance with all applicable laws, regulations and other
requirements of Governmental Entities having jurisdiction over the same.
(b) The operation of the Business has been conducted in all
material respects in accordance with the California Food and Agricultural Code.
4.21 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "ENVIRONMENTAL CONDITIONS" shall mean any
environmental contamination or pollution or threatened contamination or
pollution of, or the Release or threatened Release of Hazardous Materials into,
the surface water, groundwater, surface soil, subsurface soil, air and land.
(ii) "ENVIRONMENTAL LAWS" shall mean all federal,
regional, state, county or local laws, statutes, ordinances, decisional law,
rules, regulations, codes, orders,
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decrees, directives and judgments relating to public health or safety,
pollution, damage to or protection of the environment, Environmental Conditions,
Releases or threatened Releases of Hazardous Materials into the environment or
the use, manufacture, processing, distribution, treatment, storage, generation,
disposal, transport or handling of Hazardous Materials, whether existing in the
past or present. Environmental Laws shall include, but are not limited to, the
following laws, and the regulations promulgated thereunder, as the same may be
amended from time to time through the date hereof: the Comprehensive
Environmental Response Compensation and Liability Act (42 U.S.C. 9601 ET SEQ.)
("CERCLA"); the Resource Conservation and Recovery Act (42 U.S.C. 6901 ET SEQ.)
("RCRA"); the Clean Air Act (42 U.S.C. 7401 et seq.); the Clean Water Act (33
U.S.C. 1251 ET SEQ.); and any related or analogous provisions under applicable
state law.
(iii) "ENVIRONMENTAL PERMITS" shall mean all permits,
authorizations, registrations, certificates, licenses, approvals or consents
required under or issued by any Governmental Entity pursuant to Environmental
Laws.
(iv) "FORMER FACILITIES" shall mean any plants,
offices, land, manufacturing or other facilities formerly owned, operated,
leased, managed, used, controlled or occupied by any Target Company in
connection with the Business.
(v) "HAZARDOUS MATERIALS" shall mean any toxic or
hazardous substance, material or waste and any pollutant or contaminant, or
infectious or radioactive substance or material, or any substances, materials
and wastes defined or regulated under any Environmental Laws, including without
limitation, petroleum, polychlorinated byphenyls and urea formaldehyde.
(vi) "PROPERTIES" means any of the current real
property owned, used or leased (whether as lessor or lessee) by a Target
Company.
(vii) "RELEASE" shall mean any intentional or
unintentional release, discharge, spill, leaking, pumping, pouring, emitting,
emptying, injection, disposal or dumping.
(b) Each of the Target Companies and the Partners represents
and warrants to Landec and New Apio that:
(i) ENVIRONMENTAL PERMITS. The Target Companies
possess all material Environmental Permits necessary in order to conduct the
Business as it is now being conducted (including, without limitation, the
leasing of farmland to growers). Each Environmental Permit issued to the Target
Companies is in full force and effect. Each Target Company is in compliance with
all material requirements, terms and provisions of the Environmental Permits
issued to such Target Company and relating to the Business, and has filed on a
timely basis (and updated as required) all reports, notices, applications or
other documents required to be filed pursuant to the Environmental Permits.
SCHEDULE 4.21 lists all of the Environmental Permits relating to the Business
which have been issued to or are held by any Target Company which by their terms
or by operation of law will expire or otherwise become ineffective on or before
the Closing Date or within sixty (60) days thereafter. The Target
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Companies shall take all reasonable actions to have such Environmental Permits
renewed or reissued to the appropriate Target Company prior to the Closing so as
to allow New Apio to continue the Business without interruption after the
Closing.
(ii) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Business
and the Properties are, and at all times have been, in compliance in all
material respects with all Environmental Permits and Environmental Laws
applicable to the Business.
(iii) REPORTS, DISCLOSURES AND NOTIFICATIONS. Each
Target Company has filed on a timely basis (and updated as required) all
reports, disclosures, notifications, applications, pollution prevention,
stormwater prevention or discharge prevention or response plans or other
emergency or contingency plans required to be filed under Environmental Laws
applicable to the Business, including without limitation, Title III of the
Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 11001 ET SEQ.
SCHEDULE 4.21 lists all such reports, disclosures, notifications, applications
and plans filed by Target Company under Environmental Laws within the last two
(2) years. All such reports, disclosures, notifications, applications and plans
are true, accurate and complete.
(iv) NOTICES. No Target Company or Partner has
received any notice that any of the Properties or the Former Facilities: (i) is
in violation of the requirements of any Environmental Permit or Environmental
Laws; (ii) is the subject of any suit, claim, proceeding, demand, order,
investigation or request or demand for information arising under any
Environmental Permit or Environment Laws; or (iii) has actual or potential
liability under any Environmental Laws, including without limitation CERCLA,
RCRA, or any comparable state or local Environmental Laws.
(v) NO REPORTING OR REMEDIATION OBLIGATIONS. There
are no Environmental Conditions or other facts, circumstances or activities
arising out of or relating to the Business, or the use, operation or occupancy
by the Target Companies of the Properties or, to the knowledge of the Target
Companies or the Partners after diligent inquiry, the Former Facilities that
result or reasonably could be expected to result in (A) any obligation of a
Target Company to file any report or notice, to conduct any investigation,
sampling or monitoring or to effect any environmental cleanup or remediation,
whether onsite or offsite; or (B) liability, either to Governmental Entities or
third parties, for damages (whether to persons, property or natural resources),
cleanup costs or remedial costs of any kind or nature whatsoever.
(vi) LIENS AND ENCUMBRANCE. No federal, state, local
or municipal governmental agency or authority has obtained or asserted an
encumbrance or lien upon the Properties or any other assets of the Business or,
to the knowledge of the Target Companies or the Partners after diligent inquiry,
any of the Former Facilities as a result of any Release, use or cleanup of any
Hazardous Material for which Target Company is legally responsible, nor has any
such Release, use or cleanup occurred which could result in the assertion or
creation of such a lien or encumbrance.
(vii) STORAGE TRANSPORT OR DISPOSAL OF HAZARDOUS
MATERIALS. Except as described in the reports listed or referred to in SCHEDULE
4.21:
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(A) There is not now nor has there ever been
located on any of the Properties, any areas or vessels used or intended for the
treatment, storage or disposal of Hazardous Materials, including, but not
limited to, drum storage areas, surface impoundments, incinerators, landfills,
tanks, lagoons, ponds, waste piles or deep well injunction systems.
(B) No Target Company, in connection with
the Business, has transported for, or arranged for the transportation of,
storage, treatment or disposal, by contract, agreement or otherwise, or arranged
for the transportation, storage, treatment or disposal of any Hazardous Material
at or to any location including, without limitation, any location used for the
treatment, storage or disposal of Hazardous Materials.
4.22 PRODUCTS. Each of the products and services produced, sold or
provided by the Target Companies in connection with the Business during the past
five (5) years is, and at all times has been, in compliance in all material
respects with all applicable federal, state, local and foreign laws and
regulations and is, and at all relevant times during the past five (5) years has
been, fit for the ordinary purposes for which it is intended to be used and
conforms in all material respects to any promises or affirmations of fact made
in connection with the sale of such product or service. There is no design
defect with respect to any of such products, and each of such products contains
adequate warnings, presented in a reasonably prominent manner, in accordance
with applicable laws and current industry practice with respect to its contents
and use.
4.23 PRODUCT LIABILITY. Except as described in SCHEDULE 4.23, there are
no claims, actions, suits, inquiries, proceedings or investigations pending by
or against any Target Company, relating to any products of the Business and
containing allegations that such products are defective or were improperly
designed or manufactured or improperly labeled or otherwise improperly described
for use.
4.24 LITIGATION; OTHER CLAIMS.
(a) Except as described in SCHEDULE 4.24, there are no
notices, claims, actions, suits, inquiries, proceedings, or investigations
against any Target Company, or any of its officers, directors or shareholders,
relating to the Business, Target Companies' employees, or any of the Target
Companies' customers or suppliers (including, without limitation, growers) which
are currently pending or to the knowledge of any Target Company or Partner,
threatened, at law or in equity or before or by any Governmental Entity, or
which challenges or seeks to prevent, enjoin, alter or materially delay any of
the transactions contemplated hereby, nor is any Target Company or Partner aware
of any basis for such claims, actions, suits, inquiries, proceedings, or
investigations; and no Governmental Entity has at any time challenged or
questioned the legal right of any Target Company to process, offer or sell any
of its products or services in the present manner or style thereof.
(b) There are no grievance or arbitration proceedings pending
or to the knowledge of any Target Company or Partner, threatened, and there are
no actual or to the knowledge of any Target Company or Partner, threatened
strikes or work stoppages with respect to the Business or any Target Company's
employees, nor is any Target Company or Partner aware of any basis for such
proceedings or events.
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4.25 DEFAULTS. No Target Company is in default under or with respect to
any judgment, order, writ, injunction or decree of any court or any Governmental
Entity which could reasonably be expected to have a Material Adverse Effect on
the Business. There does not exist any default by any Target Company or by any
other Person, or event that, with notice or lapse of time, or both, would
constitute a default under any agreement entered into by a Target Company as
part of the operations of the Business which default could reasonably be
expected to have a Material Adverse Effect on the Business, and no notices of
breach thereof have been received by any Target Company.
4.26 BROKERS AND FINDERS. Except as described in SCHEDULE 4.26, none of
the Target Companies or Partners, nor any of their respective officers,
directors, partners or employees has employed any broker or finder or incurred
any liability for any brokerage fee, commission or finder's fee in connection
with the transactions contemplated by this Agreement.
4.27 INSURANCE. SCHEDULE 4.27 lists all insurance policies and fidelity
bonds relating to the Business. There is no claim by any Target Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies and bonds. All premiums
due and payable under all such policies and bonds have been paid and each Target
Company is otherwise in material compliance with the terms of such policies and
bonds (or other policies and bonds providing substantially similar insurance
coverage). There is no threatened termination of, or material premium increase
with respect to, any of such policies.
4.28 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, or to the actual or constructive knowledge of any Partner or Target
Company any judgment, injunction, order or decree binding upon any Target
Company which has or could be reasonably expected to have the effect of
prohibiting or impairing any current or Proposed business practice of such
Target Company, any acquisition of property by such Target Company or the
conduct of business by such Target Company as currently conducted or as Proposed
to be conducted except where such consequence would not have a Material Adverse
Effect, individually or in the aggregate on the Business.
4.29 MINUTE BOOKS. The minute books of the Target Companies made
available to New Apio contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation or organization of each such Target Company through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
4.30 CUSTOMERS AND SUPPLIERS. As of the date hereof, no customer which
individually accounted for more than 5% of the gross revenues of the Business
during the 12 month period preceding the date hereof has stated to any Target
Company or Partner that it will stop, or materially decrease the rate of, buying
services or products of the Business, or has at any time on or after December
31, 1998 decreased materially its usage of the services or products of the
Business except to the extent that such cessation or decrease either occurs in
the ordinary course of business, or would not have a Material Adverse Effect on
the Business. As of the date
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hereof, no material supplier of the Business (including, without any limitation
any lessor of real property or any supplier of produce) has indicated that it
will stop, or materially decrease the rate of, supplying materials, products or
services to the Business except to the extent that such cessation or decrease
either occurs in the ordinary course of business, or would not have a Material
Adverse Effect on the Business, individually or in the aggregate. No Target
Company has knowingly breached, so as to provide a benefit to such Target
Company that was not intended by the parties, any agreement with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of the
Business.
4.31 RELATED PARTIES. SCHEDULE 4.31.1 hereto lists each entity (other
than the Target Companies) of which the Partners, in the aggregate, own more
than twenty-five percent of the voting or equity interest ("RELATED PARTY") and
which entity has transacted any business with the Target Companies during the
last twelve months. SCHEDULE 4.31.2 hereto lists each debt owed to any Target
Company by any Unacquired Party, Related Party or Partner or any debt owed by
any Target Company to any Unacquired Party, Related Party or Partner (the
"RELATED PARTY DEBT").
4.32 REAL PROPERTY.
(a) SCHEDULE 4.10 sets forth a list of all of the Properties,
and in the case of any leases, the name of the lessor or lessee, the date of the
lease and each currently effective amendment thereto. All such leases are in
full force and effect against the Target Company which is a party thereto and,
to the knowledge of such Target Company, the other party thereto. All such
current leases are valid and effective in accordance with their respective terms
against such Target Company and to the knowledge of such Target Company, the
other party thereto. The Target Companies have delivered to New Apio a true,
correct and complete copy of each lease identified on SCHEDULE 4.10. The
premises or property described in said leases are presently occupied, used or
subleased by Target Company as lessee under the terms of said leases. The
appropriate Target Company is the legal and equitable owner and holder of the
leasehold interest in each such lease and has all right, title and interest of
the lessee under the terms of said leases, free of all Liens except for the
Permitted Liens and subleases, copies of which have also been listed on SCHEDULE
4.10. No Target Company is in default under any such leases (and has not caused
an event which with notice or lapse of time, or both, would constitute a
default), and to any Target Companies' or Partners' knowledge, the other party
thereto is not in default (and has not caused an event which with notice or
lapse of time, or both, would constitute a default) under any such leases.
(b) Any real property owned or leased by the Business
currently has access to valid easements providing access to public roads,
irrigation, storm and sanitary sewer facilities, telephone, gas and electrical
connections, fire protection, drainage and other public utilities, if and to the
extent necessary for the conduct of the Business as currently conducted and
Proposed to be conducted.
(c) None of the material structures on any real property
included in the Business encroaches upon the real property of another Person,
and no structure of any other Person encroaches upon any real property included
in the Business.
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(d) No violation of any law, regulation or ordinance,
including without limitation, laws, regulations or ordinances relating to
zoning, environmental, city planning or similar matters) relating to the
Business currently exists or has existed at any time during the Target
Companies' ownership of the Business, except for violations which have not had
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Business or the Purchased Assets.
(e) The Target Companies owns without restriction, or have a
valid and enforceable leasehold interest in, each piece of real property
material to the operation of the Business as presently conducted and Proposed to
be conducted. There is no restriction on any Target Company, nor will there be
any restriction on New Apio upon the consummation of this Agreement, that
prevents such parties from owning or leasing real property for use in the
Business as currently conducted or Proposed to be conducted.
(f) Neither the Target Companies nor any Partner possess any
information disclosing any condition or impairments (including the presence of
Hazardous Materials, residual insecticides, herbicides and chemicals) in the
soil quality thereof, which would materially adversely affect the farming
operations currently conducted on the Properties, or as Proposed to be conducted
on the Properties;
(g) The Properties possess water in sufficient quantity and
quality to all the growers leasing such property to conduct their farming
operations in a manner consistent with past farming operations as of the date
hereof;
(h) All wells, pumps and irrigation equipment operated on the
Properties are in reasonable operating condition and repair given the age of
such assets and customary wear and tear experienced in operations normally
conducted on the Properties;
(i) To the knowledge of the Target Companies and Partners the
crop rotation policies on all of the Properties are consistent with good farming
practice and such policies will not result in the inability of future farmers of
such land to achieve production levels similar to past production levels.
4.33 CONTRACTS. Except as listed or described on SCHEDULE 4.33 or any
other Schedule of this Agreement (such contracts, or those which should have
been listed on SCHEDULE 4.33, are herein referred to as the "MATERIAL
CONTRACTS"), as of or on the date hereof, the Target Companies are not a party
to or bound by, any written or oral leases, agreements or other contracts or
legally binding contractual rights or contractual obligations or contractual
commitments (each a "CONTRACT" and collectively, the "CONTRACTS") relating to or
in any way affecting the operation or ownership of the Business that are of a
type described below and no such agreements are currently in negotiation or
proposed:
(a) any consulting agreement pursuant to which the Target
Company is to receive consulting services (other than consulting agreements that
may be terminated by the Company on not more than 30 days notice without
penalty), employment agreement, change-in-control agreement, or collective
bargaining arrangement with any labor union;
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(b) any Contract for capital expenditures or the acquisition
or construction of fixed assets in excess of $100,000;
(c) any Contract for the purchase, maintenance or acquisition,
or the sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is made
in the ordinary course of business and requires aggregate future payments of
less than $100,000);
(d) any Contract, other than trade payables in the ordinary
course of business, relating to the borrowing of money, or the guarantee of
another Person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness, other than any contract with an insurance
carrier under which the Target Company is responsible for the payment of
insurance premiums whether or not such premiums are first collected by the
Target Company;
(e) any Contract granting any Person a Lien (other than
Permitted Liens) on all or any part of the assets of the Target Company;
(f) any Contract for the cleanup, abatement or other actions
in connection with Hazardous Materials (as defined in SECTION 4.21), the
remediation of any existing environmental liabilities or relating to the
performance of any environmental audit or study;
(g) any Contract granting to any Person an option or a first
refusal, first-offer or similar preferential right to purchase or acquire any
material assets of the Target Company;
(h) any Contract with any agent, distributor or representative
which is not terminable by the Target Company upon ninety (90) calendar days or
less notice without penalty;
(i) any Contract under which such Target Company is (A) a
lessee or sublessee of any machinery, equipment, vehicle or other tangible
personal property, or (B) a lessor of any tangible personal property owned by
such Target Company, in either case having an original purchase price or
requiring aggregate lease payments in excess of $100,000;
(j) any Contract under which the Target Company has granted or
received a license or sublicense or under which it is obligated to pay or has
the right to receive a royalty, license fee or similar payment, in either case
which provides for payments over the life of such Contract in excess of
$100,000, except such Contracts with insurance companies whereby the Target
Company is acting as an insurance producer and has the right to receive any
commission payments;
(k) any Contract concerning a Related Party;
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other Person;
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(m) any Contract (A) for purchase or sale by the Target
Company of any real property on which the Target Company conducts any aspect of
the Business, (B) granting any options to lease or purchase all or any portion
of the Properties, or (C) providing for labor, services or materials to the
Properties (including, without limitation, brokerage or management services)
involving aggregate future payments of more than $100,000;
(n) any Contract limiting, restricting or prohibiting the
Target Company from conducting business anywhere in the United States or
elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to
the leased Properties (as defined in SECTION 4.10);
(q) any Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Target Company,
which, if amended, modified or terminated as a result of, relating to or in
connection with a failure to provide prior notice, or gain such consent or
approval, would result in a Material Adverse Effect;
(r) any Contract under which the Target Company would be
considered an employee benefit plan "administrator" as such term is defined in
Section 3(16) of ERISA or a "fiduciary" as such term is defined in Section 3(21)
of ERISA; or
(s) any other Contract, whether or not made in the ordinary
course of business, which involves future payments by the Target Company in
excess of $100,000.
The Target Companies and Partners have provided Landec or its counsel
with a true and complete copy of each written Material Contract and a true and
complete summary of each oral Material Contract, in each case including all
amendments or other modifications thereto. Except as set forth on SCHEDULE 4.33,
each Material Contract is a valid and binding obligation of, and enforceable in
accordance with its terms against the Target Company and, to the knowledge of
the Target Companies and Partners, the other parties thereto, and is in full
force and effect, subject only to bankruptcy, reorganization, receivership and
other laws affecting creditors' rights generally and equitable principles.
Except as set forth on SCHEDULE 4.33, the Target Companies have performed in all
material respects all obligations required to be performed by them as of the
date hereof and will have performed in all material respects all obligations
required to be performed by them as of the Closing under each Material Contract
and the Target Companies and Partners have not, nor, to the knowledge of the
Target Companies and Partners, is any other party to any Material Contract in
breach or default thereunder, and, to the knowledge of the Target Companies and
Partners, there exists no condition which would, with or without the lapse of
time or the giving of notice, or both, constitute a breach or default
thereunder. The Target Companies and Partners have not been notified that any
party to any Material Contract intends to cancel, terminate, not renew, or
exercise an option under any Material Contract, whether in connection with the
transactions contemplated hereby or otherwise.
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4.34 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Target Companies or Partners herein or in any Schedule
hereto, including the Target Company Disclosure Schedule, or certificate
furnished by such Target Company or Partner pursuant to this Agreement, when all
such documents are read together in their entirety, contains or will contain at
the Closing any untrue statement of a material fact, or omits or, to the
knowledge of any Partner or Target Company will omit at the Closing to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
5. CERTAIN SHAREHOLDER REPRESENTATIONS.
Each Partner represents and warrants severally for himself or itself
and not jointly to Landec and New Apio that:
5.1 RESTRICTED SHARES; RULES 144 AND 145. Each Partner is aware that
the Shares must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. Each Partner
is aware of the provisions of Rules 144 and 145 promulgated under the Securities
Act which permit limited resale of shares received in a private placement
subject to the satisfaction of certain conditions, including, among other
things, the existence of a public market for the shares, the availability of
certain current public information about the company, the resale occurring not
less than one year after a party has purchased and paid for the security to be
sold, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and the
number of shares being sold during any three-month period not exceeding
specified limitations. Each Partner is further aware that the Shares shall bear
the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULES 144 AND/OR 145 UNDER THE SECURITIES
ACT OF 1933, AS AMENDED APPLIES AND MAY ONLY BE TRANSFERRED IN
CONFORMITY WITH THE PROVISIONS OF SUCH RULE."
5.2 EXPERIENCE. Each Partner is capable of evaluating the merits and
risks of his or its investment in Landec and has the capacity to protect his or
its own interests. In addition, each Partner recognizes that a holding in Landec
is highly speculative and involves significant risks
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including a complete loss of such holding. Finally, each Partner represents that
he or it is an "ACCREDITED INVESTOR" as defined in Rule 501(a) of Regulation D
of the Securities Act.
5.3 INVESTMENT. Each Partner is acquiring the Shares for investment for
his or its own accounts, not as a nominee or agent, and not with the view to, or
for resale in connection with, any distribution thereof. Each Partner
understands that the Shares have not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon among
other thing, the bona fide nature of the investment intent and the accuracy of
each Partner's representations as expressed herein.
5.4 PUBLIC MARKET; NO FEDERAL OR STATE APPROVAL. Each Partner
understands that while a public market currently exists for the Common Stock of
Landec, that Landec has made no assurances that a public market will continue to
exist in the future. Each Partner understands that no Federal or state agency
has passed upon the Shares or made any finding or determination as to the
fairness of the investment or any recommendation or endorsement of the Shares.
5.5 ACCESS TO DATA. Each Partner has had an opportunity to discuss the
business, management and financial affairs of Landec and New Apio with its
management. Each Partner has also had opportunity to ask questions of officers
of Landec, which questions were answered to his or its satisfaction.
6. REPRESENTATIONS AND WARRANTIES OF LANDEC AND NEW APIO.
Each representation and warranty set forth below is qualified by any
exception or disclosures set forth in the Landec Disclosure Schedule attached
hereto, which exceptions specifically reference the Section(s) to be qualified.
In all other respects, each representation and warranty set out in this Section
6 is not qualified in any way whatsoever, will not merge on Closing or by reason
of the execution and delivery of any agreement, document or instrument at the
Closing, will remain in force on and after the Closing, is given with the
intention that liability is not confined to breaches discovered before Closing,
is separate and independent. Each of Landec and New Apio represents and warrants
to the Target Companies and Partners as follows:
6.1 ORGANIZATION. Landec and New Apio are corporations duly formed and
validly existing under the laws of California and Delaware, respectively, each
of which has full corporate power and authority and the legal right to execute
and deliver this Agreement and all of the other agreements and instruments to be
executed and delivered by them pursuant hereto, and to consummate the
transactions contemplated hereby and thereby.
6.2 AUTHORITY. The execution and delivery of this Agreement (and all
other agreements and instruments contemplated hereunder) by Landec and New Apio,
the performance by Landec and New Apio of its obligations hereunder and
thereunder, and the consummation by Landec and New Apio of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action by the Boards of Directors of Landec and New Apio and the shareholders of
New Apio, and no other act or proceeding on the part of Landec, New Apio or
their respective shareholders is necessary to approve the execution and delivery
of this
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Agreement and such other agreements and instruments, the performance by Landec
and New Apio of their respective obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby. The signatory
officers of Landec and New Apio have the power and authority to execute and
deliver this Agreement and all of the other agreements and instruments to be
executed and delivered by them pursuant hereto, to consummate the transactions
hereby and thereby contemplated and to take all other actions required to be
taken by them pursuant to the provisions hereof and thereof.
6.3 EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly executed and delivered by Landec and New Apio and constitutes, and the
other agreements and instruments to be executed and delivered by them pursuant
hereto, upon their execution and delivery by New Apio, will constitute
(assuming, in each case, the due and valid authorization, execution and delivery
thereof by each of the Target Companies and Partners), legal, valid and binding
agreements of Landec and New Apio, enforceable against them in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium, or other laws affecting the enforcement of creditors'
rights generally or provisions limiting competition, and by equitable
principles.
6.4 CONSENT AND APPROVALS. There is no requirement applicable to Landec
or New Apio to make any filing, declaration or registration with, or to obtain
any permit, authorization, consent or approval of, any Governmental Entity (a
"LANDEC CONSENT") as a condition to the lawful consummation by Landec or New
Apio of the transactions contemplated by this Agreement and the other agreements
and instruments to be executed and delivered by them pursuant hereto, except for
filings (a) which are referred to in the Landec Disclosure Schedule or (b) the
failure of making which would not have a Material Adverse Effect on the
transactions contemplated hereby.
6.5 NO VIOLATION. Neither the execution, delivery and performance of
this Agreement and of all the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (a) conflict with, violate or result in any breach
of the terms, conditions or provisions of the Articles of Incorporation or
Bylaws of Landec or the Certificate of Incorporation or Bylaws of New Apio, (b)
conflict with or result in a violation or breach of, or constitute a default or
require consent of any Person (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any notice, bond, mortgage, indenture, license, franchise, permit, agreement,
lease or other instrument or obligation to which Landec or New Apio is a party
or by which Landec, New Apio or any of their respective Properties or assets may
be bound, or (c) violate any statute, ordinance or law or any rule, regulation,
order, writ, injunction or decree of any Governmental Entity applicable to
Landec or New Apio or by which any of their respective Properties or assets may
be bound.
6.6 ACCESS TO DATA. Landec and New Apio have reviewed all documents,
records and information (including, without limitation, all facts, documents,
records and information pertaining to the Target Companies) which Landec and New
Apio have desired to review in
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connection with their decision to enter into this Agreement and to consummate
the transactions contemplated hereby. Landec and New Apio have relied solely on
their own knowledge, judgment and experience (or that of their advisors) and the
representations contained in this Agreement and the schedules hereto in making
the decision whether to enter into this Agreement and to consummate the
transactions contemplated hereby, and Landec and New Apio have not relied upon
any representation, warranty, statement, advice, document projection or other
information of any type provided by any Target Company or Partner or its or
their directors, officers, employees, partners or agents (whether during Landec
and New Apio's due diligence or otherwise) other than the representations and
warranties of each Target Company and Partner (including all of the schedules
hereto), expressly set forth in this Agreement. Each of Landec and New Apio
acknowledges and agrees that, except for the representations and warranties of
each Target Company and Partner expressly set forth in this Agreement (including
all schedules hereto), none of the Target Companies or Partners nor any of its
or their directors, officers, employees or agents has made or is making, any
representation or warranty, written or oral, to Landec or New Apio concerning
any Target Company or its Business, financial statements, financial condition,
the Business as it is Proposed to be conducted or any other matter whatsoever.
Landec and New Apio further understand and agree that the Geneva Report is
attached hereto and referred to herein solely for the purpose of defining the
term "Business as it is Proposed to be conducted," and for no other purpose and
such attachment and reference thereto shall not serve to incorporate the Geneva
Report into this Agreement in any way or make or deem to make any statement or
term in the Geneva Report (including, without limitation, any financial
projections) a representation or warranty of this Agreement.
6.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Landec has filed and made available to the Partners all
forms, reports and documents required to be filed by Landec with the SEC
(collectively, the "Landec SEC Reports") since October 31, 1998. The Landec SEC
Reports (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Act and/or the Securities Exchange Act
of 1934, as amended, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a subsequent filing, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements in such Landec SEC
Reports, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including,
in each case any related notes) contained in the Landec SEC Reports (the "Landec
Financial Statements") complied as to form in all material respects with the
applicable published rules and regulations of the SEC with respect thereto, was
prepared in accordance with GAAP as consistently applied throughout the periods
involved (except as may be indicated in the notes to such financial statements,
or in the case of unaudited statements, as permitted by Form 10-Q or 8-K
promulgated by the SEC), and fairly presented the consolidated financial
position of Landec as at the respective dates and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were subject to normal and recurring
year-end adjustments which were not material in amount.
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6.8 STATUS OF SHARES. The Shares to be issued and delivered pursuant to
this Agreement and the transactions contemplated hereby as the Merger
Consideration have been duly authorized and, when issued in accordance with the
terms of this Agreement and the transactions contemplated hereby, will be
validly issued, fully paid and nonassessable.
7. COVENANTS.
7.1 ACCESS TO INFORMATION.
(a) During the period from the date of this Agreement until
the Closing, the Target Companies will permit Landec and New Apio upon
reasonable advance notice to make a full and complete investigation of the
Business and to receive from each Target Company all information of such Target
Company relating to the Business. Without limiting this right, the Target
Companies will give to Landec, New Apio and their accountants, legal counsel,
and other representatives full access, during normal business hours, at a
mutually agreeable location arranged in advance, to all of the books, records,
files, documents, Properties, and contracts of the Target Companies relating to
the Business and allow Landec, New Apio and any such representatives to make
copies thereof, all of which shall be made available in an organized fashion and
so as to facilitate an orderly review. This Section 6.1 shall not affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the transactions
contemplated by this Agreement. The Target Companies shall maintain and make
available the information and records specified in this Section 6.1(a) in the
ordinary course of the Target Companies' business and document retention
policies, as if the transactions contemplated by this Agreement had not
occurred.
(b) At all times following the Closing, each party shall
provide the other parties (at such other party's expense) with such reasonable
assistance, including the provision of available relevant records or other
information and reasonable access to and cooperation of any employees, as may be
reasonably requested by either of them in connection with any litigation, any
investigation or inquiry by any Governmental Entity, the preparation of any
financial statement or tax return, any audit or examination by any taxing
authority, or any judicial or administrative proceeding relating to liability
for Taxes.
7.2 THIRD PARTY CONSENTS. The Target Companies, Landec and New Apio
shall use commercially reasonable efforts to obtain, within the applicable time
periods required, all Required Consents (marked with an asterisk), waivers,
permits, consents and approvals and to effect all registrations, filings and
notices with or to third parties or Governmental Entities which are necessary in
order for each of them, respectively, to consummate the transactions
contemplated by this Agreement so as to preserve all rights of, and benefits to,
the New Apio in the Purchased Assets.
7.3 CERTAIN NOTIFICATIONS. At all times prior to the Closing, the
Target Companies, Landec and New Apio shall promptly notify the other party in
writing of the occurrence of any event known to them which will result, or has a
reasonable prospect of resulting, in the failure to satisfy any of the
conditions specified in Section 8 or Section 9 of this Agreement.
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7.4 EFFORTS TO CLOSE. Each of the parties shall use commercially
reasonable efforts (i) to cause to be fulfilled and satisfied all of the
conditions to the Closing set forth in Sections 8 and 9 below, and (ii) to cause
to be performed all of the matters required of it at the Closing.
7.5 TARGET COMPANIES' CONDUCT OF THE BUSINESS PRIOR TO CLOSING. During
the period from the date of this Agreement to the Closing, the Target Companies
will conduct the Business in its ordinary course, consistent with past practice,
and will use all reasonable efforts to preserve intact all rights, privileges,
franchises and other authority of the Business, to retain the employees, and to
maintain favorable relationships with licensors, licensees, suppliers,
contractors, distributors, customers, and others having relationships with the
Business, in each case to the extent the same is in the reasonable opinion of
management of the Target Companies still helpful to the Business. The Target
Companies shall promptly notify Landec and New Apio promptly after they become
aware thereof, of any event or occurrence or emergency not in the ordinary
course of business, and any material event involving the Business. Without
limiting the generality of the foregoing, and except as approved in writing by
New Apio in advance, prior to the Closing, the Target Companies will not:
(a) Cause or permit any amendments to the Articles of
Incorporation, Bylaws or partnership agreement, as applicable;
(b) Except as set forth on the Target Company Disclosure
Schedule, declare or pay any dividends on or made any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
(c) Enter into any contract or commitment, or violate, amend
or otherwise modify or waive any of the terms of any of its contracts, which
could reasonably be expected to have a Material Adverse Effect, individually or
in the aggregate;
(d) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
Target Company Securities;
(e) Transfer to any person or entity any rights to its
Intellectual Property other than in the ordinary course of business consistent
with past practice;
(f) Enter into or amend any agreements pursuant to which any
other party is granted exclusive marketing or other exclusive rights of any
material type or scope with respect to any of its products or technology;
(g) Sell, lease, license or otherwise dispose of or encumber
any of its Properties or assets whose absence would have a Material Adverse
Effect, individually or in the aggregate, on the Business, taken as a whole;
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(h) Incur any indebtedness, including without limitation any
operating lease or line of credit, for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others except borrowings under existing lines of credit;
(i) Pay, discharge or satisfy, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
of any material amount arising other than in the ordinary course of business;
(j) Make any capital expenditures, capital additions or
capital improvements material to the Business in excess of $100,000 in the
aggregate;
(k) Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(l) Terminate or waive any right of material value;
(m) Adopt or amend any employee benefit or stock purchase or
option plan, or hire any new director level or officer level employee, pay any
special bonus or special remuneration to any employee or director, or increase
the salaries or wage rates of its employees in each case other than in the
ordinary course of business, consistent with past practice;
(n) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except in each case grants which are
made in the ordinary course of business in accordance with past practice;
(o) Commence a lawsuit other than for the routine collection
of bills;
(p) Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
business, taken as a whole;
(q) With respect to each of the Acquired Corporations, cease
to qualify as an S corporation for federal and all applicable state income tax
purposes and other than in the ordinary course of business, make or change any
material election in respect of Taxes, adopt or change any accounting method in
respect of Taxes;
(r) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable;
(s) Agree in writing or otherwise to take, any of the actions
described in Sections 7.5(a) through (r) above.
7.6 NO OTHER BIDS. Until the earlier to occur of (a) the Closing or (b)
the termination of this Agreement in accordance with its terms, no Target
Company or Partner shall, and no
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Target Company or Partner shall authorize any of its officers, directors,
partners, employees or other representatives to, directly or indirectly, (i)
initiate, solicit or encourage (including by way of furnishing information
regarding the Business) any inquiries, or make any statements to third parties
which may reasonably be expected to lead to any proposal concerning the sale of
the Target Companies or the Business (whether by way of merger, purchase of
capital shares, purchase of assets or otherwise), or (ii) negotiate, engage in
any substantive discussions, or enter into any agreement, with any Person
concerning the sale of the Target Companies or the Business (whether by way of
merger, purchase of capital shares, purchase of assets or otherwise).
7.7 SECTION 338(h)(10) ELECTIONS.
(a) Each Partner agrees to join with Landec and New Apio in
making an election under Sections 338(h)(10) and 338(g) of the Code and any
corresponding elections permitted under state, local, or foreign tax law
(hereinafter referred to as the "338 ELECTIONS") with respect to the purchase
and sale of the capital stock of South Coast Paper Company, Inc. and Cal-Ex
Trading Company, Inc. hereunder. Each Partner shall (i) take, and cooperate with
Landec and New Apio in taking, all actions necessary and appropriate (including
the filing of such forms, returns, elections, schedules and other documents as
may be required) to effect and preserve timely 338 Elections in accordance with
Section 338 of the Code (and corresponding provisions of California tax law),
and any successor provisions, as promptly as practicable after the Closing, but
not later than the date which is the latest date for making such 338 Elections,
and from time to time thereafter, and (ii) report the sale of such stock
pursuant to this Agreement consistent with the 338 Elections and take no
position contrary thereto or inconsistent therewith in any Return, any
discussion with, or proceeding before any Tax authority or otherwise. The
parties further agree that any reports, filing, schedules, or Returns which any
of the parties may be required to file with the Internal Revenue Service or any
other Tax Authority relative to the allocation of the consideration for such
stock among the assets of the Business will be consistent with the information
set forth in SCHEDULE 7.7 hereto (which shall be prepared and made a part of
this agreement prior to the Closing as provided in Section 7.5). Landec and New
Apio shall not make an election under Section 338 of the Code (and corresponding
provisions of applicable state law) by or on behalf of Pacific West Produce
Marketing, Inc.
(b) Each Partner acknowledges that the filing of the 338
Elections as well as the Acquired Corporations' prior status as entities other
than S-Corporations will give rise to certain tax liabilities for both the
Partners and the Target Companies, pursuant to Sections 338 and 1374 of the Code
and corresponding provisions of California tax law and Cal. Rev. & Tax Code
Section 23802. Each Partner will be responsible for any tax imposed on him or
incurred by the Target Company attributable to the making of the 338 Elections,
and notwithstanding any other provision of this Agreement to the contrary, will
indemnify Landec, New Apio and the Target Companies for such Taxes.
7.8 ADDITIONAL TAX MATTERS.
(a) MERGER. The parties intend that the acquisition by New
Apio of Apio, Inc. will be a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the
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Code and corresponding provisions of state tax laws. Each party to this
Agreement agrees to report such acquisition consistently with such intent and
shall not take any position contrary thereto or inconsistent therewith in any
Return, any discussion with, or proceeding before any Tax Authority or
otherwise. The parties further agree that any reports, filings, schedules or
Returns which any of the parties may be required to file with the Internal
Revenue Service or other Tax Authority relative to the allocation of
consideration for the Target Company Securities among the Target Companies will
be consistent with the allocations set forth in this Agreement and the Schedules
hereto.
(b) TAX PERIODS ENDING ON OR PRIOR TO THE CLOSING. The Target
Companies' Representative shall prepare, or cause to be prepared, the S
Corporation and partnership income and franchise Tax Returns for the Target
Companies (including returns for the S Termination Year (as defined by Section
1362(e) of the Code)) for all periods ending on or prior to the Closing, and the
Target Companies' Representative will file all such Returns by their respective
due dates. The Target Companies' Representative shall permit Landec, New Apio or
their designee to review, comment and approve (which approval shall not be
unreasonably withheld) on each such income and franchise Tax Return prior to
filing. Each Partner shall have paid or shall pay his respective portion of all
income and franchise taxes due with respect to the periods covered by such Tax
Returns relating to Taxes of the Target Companies.
(c) COOPERATION ON TAX MATTERS. Landec, New Apio and the
Partners shall cooperate fully, as and to the extent reasonably requested by the
other party in connection with the filing of tax returns and elections pursuant
to Sections 7.7 and 7.8 as provided further in subsection (g) below.
(d) TAX SHARING AGREEMENTS. Any Tax sharing agreements or
similar agreements in effect with respect to or involving a Target Company shall
be terminated as of the Closing, and as of the Closing, no Target Company shall
be bound thereby or have any liability thereunder.
(e) AMENDED RETURNS. Landec and New Apio covenant and agree
that neither of them will cause or permit any of the Acquired Corporations to
amend any S Corporation Tax Return or file any claim for refund with respect to
such Returns for any period prior to or including the Closing without the
written consent of the Target Companies' Representative, which consent may be
withheld in the absolute discretion of the Target Companies' Representative.
(f) STATUTES OF LIMITATIONS. Neither Landec nor New Apio may
agree to extend or to waive any statue of limitations with respect to any S
Corporation Tax Returns of the Acquired Corporation for any period prior to or
including the Closing without the written consent of the Target Companies'
Representative which consent may be withheld in the absolute discretion of the
Target Companies' Representative.
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(g) TAX CONTESTS.
(i) The Target Companies' Representative shall have
the right, at the Partners' expense to control any audit or examination by any
taxing authority, and to contest, resolve, and defend against any assessment,
notice of deficiency, or other adjustment or proposed adjustment relating to any
and all Taxes of any of the Acquired Corporations, for any Tax proceeding with
respect to the S corporation Returns for periods ending on or before the
Closing. With respect to the items described in the preceding sentence, the
Target Companies' Representative shall consult with Landec with respect to such
proceedings and shall not settle any such proceedings, or file any amended
return relating to such proceedings without the consent of Landec, which consent
shall not be unreasonably withheld.
(ii) Except as provided in the preceding paragraph,
Landec shall have the right, at its expense, to control any audit or examination
by any taxing authority, and to contest, resolve and defend against any
assessment, notice of deficiency or other adjustment or proposed adjustment
relating to any and all Taxes of any of the Acquired Corporations. With respect
to the items described in the preceding sentence, Landec shall consult with the
Target Companies' Representative with respect to the resolution of any such
proceedings to the extent that such resolution would result in the Partners
having any liability for taxes or having an obligation to indemnify under this
Agreement, and Landec will not settle any such proceedings or file any amended
return relating to such a period without the consent of the Target Companies'
Representative (which consent shall not unreasonably be withheld) if such
settlement or amendment would result in the Partners having any liability for
Taxes or having an obligation to indemnify under this Agreement.
(h) TAX CERTIFICATE. The facts and representations set forth
in the tax representation letter delivered by Apio, Inc. to Orrick, Herrington &
Sutcliffe LLP pursuant to Section 8.14 are true and will continue to be true as
of the Effective Time.
7.9 POST-CLOSING ACCESS TO INFORMATION. If, after the Closing, in order
properly to operate the Business or prepare documents or reports required to be
filed with governmental authorities or New Apio's financial statements, it is
necessary that New Apio obtain additional information within a Partner's
possession relating to the Business, such Partner will furnish or cause its
representatives to furnish such information to New Apio at New Apio's expense.
Such information shall include, without limitation, all agreements between such
Partner and any Person relating to the Business. The Partners shall maintain and
make available the information and records specified in this Section 7.9 for a
period of seven (7) years after the Closing or shall give New Apio a reasonable
opportunity to take possession of any such documents which the Partner is going
to destroy or have destroyed.
7.10 POST-CLOSING COOPERATION. Each of the Partners agrees that, if
reasonably requested by New Apio, it will cooperate with New Apio, at New Apio's
expense, in enforcing the terms of any agreements between such Partner and any
third party involving the Business, including without limitation terms relating
to confidentiality and the protection of intellectual property rights and the
lease or purchase of real property. In the event that New Apio is unable
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to enforce its real or intellectual property rights against a third party as a
result of a rule or law barring enforcement of such rights by a transferee of
such rights, such Partner agrees to reasonably cooperate with New Apio by
assigning to New Apio such rights as may be required by New Apio to enforce its
real or intellectual property rights in its own name. If such assignment still
does not permit New Apio to enforce its real or intellectual property rights
against the third party, such Partner agrees to initiate proceedings against
such third party in such Partner's name, provided that New Apio shall be
entitled to participate in such proceedings and provided further that New Apio
shall be responsible for the expenses of such proceedings.
7.11 PUBLIC ANNOUNCEMENTS. On and prior to the Closing Date, New Apio
and the Target Companies' Representative shall advise and confer with each other
prior to the issuance of any reports, statements or releases concerning this
Agreement (including the exhibits and schedules hereto) and the transactions
contemplated herein. Neither New Apio nor any Target Company or Partner will
make any public disclosure prior to the Closing or with respect to the Closing
unless both parties agree on the text and timing of such public disclosure;
PROVIDED, HOWEVER, that nothing contained herein shall prevent either party at
any time from furnishing any information to any Governmental Entity. Immediately
after this Agreement is signed, all of the parties will make public
announcements regarding the transactions contemplated hereby; the text of such
public announcements will be reviewed by the parties prior to release.
7.12 POST-CLOSING ACTIONS. Subsequent to the Closing, each Partner
shall, from time to time, execute and deliver, upon the request of New Apio, all
such other and further materials and documents and instruments of conveyance,
transfer or assignment as may reasonably be requested by New Apio to effect,
record or verify the transfer to, and vesting in New Apio, of such Target
Company's right, title and interest in and to the Business and the Target
Company Securities, free and clear of all Liens, in accordance with the terms of
this Agreement.
7.13 COLLECTION OF ACCOUNTS RECEIVABLE. Landec and New Apio agree that
New Apio will be permitted to collect all accounts receivable of the Target
Companies that accrued prior to the Closing substantially in accordance with the
methods used by each such Target Company to collect the same. If more than one
invoice is outstanding for a customer, and it is not otherwise clear after
investigation which invoice a particular payment relates to, the "first-in,
first-out" principle shall be applied in determining the invoice to which a
payment relates. Neither Landec nor New Apio shall direct or encourage any
account debtor to specify the invoice to which a payment relates other than
pursuant to the "first-in, first-out" principle. Prior to any claim against any
Target Company or Partner by Landec or New Apio hereunder for the non-collection
of any account, the Target Companies' Representative shall be notified of the
delinquent account by Landec or New Apio and thereafter given a period of sixty
(60) days in which to be able to attempt to collect the same.
7.14 RELEASE OF GUARANTEES. New Apio shall use all commercially
reasonable efforts and good faith to have the Partners and their spouses
released from any and all guarantees on any indebtedness that they personally
guaranteed for the benefit of the Target Companies as set forth on SCHEDULE
7.14, with all such guarantees being assumed by New Apio or Landec, if necessary
to achieve such releases. If any guaranteed indebtedness is repaid in full prior
to the Closing and
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such guarantees shall as a result thereof have no further force and effect, then
New Apio shall not be obligated to obtain release of such guarantee. In the
event that New Apio cannot obtain such releases from the lenders of any such
guaranteed indebtedness, New Apio agrees to indemnify, defend and hold harmless
the Partners and their spouses against any and all claims made under such
guarantees.
7.15 NO DISPARAGEMENT. From and after the Closing, the Partners shall
not, in any way or to any person or entity or governmental or regulatory body or
agency, denigrate or derogate Landec or any of its direct or indirect
subsidiaries, or any officer, director or employee, or any product or service or
procedure of any such company whether or not such denigrating or derogatory
statements shall be true and are based on acts or omission which are learned by
the Partners from and after the date hereof or on acts or omissions which occur
from and after the date hereof, or otherwise. A statement shall be deemed
denigrating or derogatory to any person or entity if it adversely affects the
regard or esteem in which such person or entity is held by investors, lenders or
licensing, rating or regulatory entities. Without limiting the generality of the
foregoing, none of the Partners shall directly or indirectly in any way in
respect of any such company or any such directors or officers, communicate with,
or take any action which is adverse to the position of any such company with any
person, entity or governmental or regulatory body or agency who or which has
dealings or prospective dealings with any such company or jurisdiction or
prospective jurisdiction over such company. This paragraph does not apply to the
extent that testimony is required by legal process; PROVIDED, that Landec has
received not less than five (5) days' prior written notice of such proposed
testimony or such lesser notice as the Partners shall have received.
7.16 FORM S-8. As soon as practicable after the Closing, Landec shall
file a registration statement on Form S-8 (or any successor or other appropriate
form) under the Securities Act with respect to the shares of Landec Common Stock
subject to the options granted under the Tompkins Employment Agreement.
7.17 APS. New Apio agrees to indemnify and hold harmless the Partners
who are partners of APS against any liabilities of APS incurred by APS prior to
Closing which are reflected in the Unaudited Financials or incurred in the
ordinary course of business since September 30, 1999, except for liabilities not
covered in the foregoing clause that are or should have been disclosed on the
Target Company Disclosure Schedule.
8. CONDITIONS TO LANDEC'S AND NEW APIO'S OBLIGATIONS.
The obligations of Landec and New Apio under this Agreement are subject
to the fulfillment, prior to or on the Closing, of each of the following
conditions, all or any of which may be waived by Landec and New Apio in writing,
except as otherwise provided by law:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE; CERTIFICATE.
(a) The representations and warranties of the Target Companies
and Partners contained in this Agreement shall be true and correct in every
material respect as of the date hereof (for purposes of the foregoing clause,
the term "material" shall mean a matter which has
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or would reasonably be expected to result in Damages (as hereinafter defined) in
excess of $250,000);
(b) There shall have been no act of fraud or intentional
misrepresentation by any Partner or Target Company in connection with the
negotiation and execution of this Agreement any related agreements;
(c) Each Target Company shall have performed and complied with
all of its agreements, covenants and conditions required by this Agreement to be
performed or complied with by them prior to or on the Closing;
(d) The conditions set forth in this Section 8 shall have been
fulfilled or satisfied, unless otherwise waived in writing by Landec and New
Apio; and
(e) Landec and New Apio shall have received a certificate,
dated as of the Closing, signed and verified by an officer or partner of each
Target Company on behalf of such Target Company certifying to the matters set
forth in Sections 8.1(a), (b) and (c) above.
8.2 CONSENTS. All Governmental Authorizations and Required Consents
shall have been obtained.
8.3 NO PROCEEDINGS OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation before
any Governmental Entity shall have been commenced and be pending against any of
the parties, or any of their respective Affiliates, associates, officers or
directors, seeking to prevent transactions contemplated by this Agreement or
asserting that the Merger or the sale of the Target Company Securities, would be
illegal or create liability for damages.
8.4 DOCUMENTS. This Agreement, the exhibits and schedules attached
hereto, and any other instruments of conveyance and transfer and all other
documents to be delivered by the Target Companies at the Closing shall have been
delivered and be in full force and effect.
8.5 GOVERNMENTAL FILINGS. The parties shall have made any required
filing with Governmental Entities in connection with this Agreement and the
exhibit agreements, and any approvals related thereto shall have been obtained
or any applicable waiting periods shall have expired or terminated. If a
proceeding or review process by a Governmental Entity is pending in which a
decision is expected, New Apio shall not be required to consummate the
transactions contemplated by this Agreement until such decision is reached or
rendered, notwithstanding New Apio's legal ability to consummate the
transactions contemplated by this Agreement prior to such decision being reached
or rendered.
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8.6 LEGAL OPINION. Landec and New Apio shall have received a legal
opinion from McCutchen, Doyle, Brown & Enersen, LLP, legal counsel to the Target
Companies, dated the Closing, in the form attached hereto as EXHIBIT C-1.
8.7 SHAREHOLDER APPROVAL. If such approval is required, the
shareholders of Landec shall have approved the transactions contemplated hereby
in a manner approved by the SEC and the NASD.
8.8 AVAILABILITY OF TARGET COMPANIES' REPRESENTATIVE. The Target
Companies' Representative shall not have died, or in the reasonable, good faith
judgment of Landec become permanently disabled or temporarily disabled for a
period in excess of one hundred twenty (120) days.
8.9 ADDITIONAL AGREEMENTS. Nicholas Tompkins shall have entered into
the Employment Agreement attached hereto as EXHIBIT B (the "TOMPKINS EMPLOYMENT
AGREEMENT"), the parties shall have entered into the Escrow Agreement attached
hereto as Exhibit A, and Nicholas Tompkins, San Ysidro Farms and Edward Silva &
Sons shall have entered into the Farmer Agreements and the related Crop Exhibits
and Edward W. Silva, Jr., Larry J. Silva, Roy E. Killgore, and John W. Maulhardt
shall have entered into the Non-Competition Agreements (collectively, the
"GROWER AGREEMENTS") attached hereto as EXHIBIT E and Tim Murphy shall have
entered into the Employment Agreement attached hereto as EXHIBIT F (the "MURPHY
EMPLOYMENT AGREEMENT").
8.10 TERMINATION OF RELATED PARTY DEBT. Each Related Party Debt owed to
or guaranteed by any Target Company shall have been satisfied, and in the case
of any guarantees, shall have been released. The note payable of Pacific West
Produce Marketing, Inc. with Fred Berger will have been assumed by the
shareholders of Pacific West Produce Marketing, Inc.
8.11 GUARANTEE RELEASE AND INDEMNIFICATION. Each outstanding guarantee
of any Target Company that relates to an obligation of any Related Party,
including but not limited to, such guarantees listed on Schedule 4.15, shall
have been released; provided that to the extent that any Target Company has not
been released from any such guarantee, the Partners agree to protect, defend,
indemnify and hold harmless, Landec, New Apio and each of their respective
Affiliates from and against any and all losses, costs, damages, liabilities fees
(including without limitation reasonable attorneys' fees) and expenses that
Landec, New Apio or any of their respective Affiliates incurs by reason of or in
connection with any claim, demand, action or cause of action resulting from any
such guarantee.
8.12 TRANSFER OF OWNERSHIP IN UNACQUIRED PARTIES. To the extent that
any Target Company owns or maintains an ownership interest in any Unacquired
Party, such ownership interest shall have been transferred by such Target
Company without any liability to the Target Company.
8.13 FIRPTA MATTERS. At the Closing, the Target Companies shall deliver
to Landec separate statements (in such form as may be reasonably requested by
counsel to Landec) signed under penalty of perjury by each of the Partners,
certifying as to such Partner's non-foreign status
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for purposes of U.S. income taxation and setting forth such Partner's tax
identification number and home or principal address.
8.14 TAX OPINION. Landec shall have received an opinion from Orrick,
Herrington & Sutcliffe LLP, in the form and substance reasonably satisfactory to
Landec, dated as of the Closing, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. Prior to the
Closing, Apio, Inc. shall execute and deliver to Orrick, Herrington & Sutcliffe
LLP a tax representation letter in customary form reasonably satisfactory to
such counsel, which may be relied upon by such counsel in connection with its
legal opinion contemplated by this Sections 8.13.
9. CONDITIONS TO TARGET COMPANIES' AND PARTNERS' OBLIGATIONS.
The obligations of the Target Companies and Partners under this
Agreement are subject to the fulfillment, prior to or on the Closing, of each of
the following conditions, all or any of which may be waived in writing by the
Target Companies' Representative, except as otherwise provided by law:
9.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE.
(a) The representations and warranties of Landec and New Apio
contained in this Agreement shall be true and correct in all material respects
as of the date hereof;
(b) Landec and New Apio shall have performed and complied with
all of its agreements, covenants and conditions required by this Agreement to be
performed or complied with by them prior to or on the Closing;
(c) The conditions set forth in this Section 9 shall have been
fulfilled or satisfied, unless otherwise waived in writing by the Target
Companies' Representative.
(d) The Target Companies shall have received certificates,
dated as of the Closing, signed and verified by officers of Landec and New Apio,
respectively, on behalf of such entities, certifying to the matters set forth in
Sections 9.1(a) and 9.1(b).
9.2 CONSENTS. All Landec Consents shall have been obtained.
9.3 NO PROCEEDING OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation before
any Governmental Entity shall have been commenced and be pending against any of
the parties, or any of their respective Affiliates, associates, officers or
directors, seeking to prevent transactions
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contemplated by this Agreement or asserting that the Merger, or the transfer or
sale of the Target Company Securities would be illegal or create liability for
damages.
9.4 GOVERNMENTAL FILINGS. The parties shall have made any filing
required with Governmental Entities, and any approvals shall have been obtained
or any applicable waiting periods shall have expired or terminated. If a
proceeding or review process by a Governmental Entity is pending in which a
decision is expected, Target Company shall not be required to consummate the
transactions contemplated by this Agreement until such decision is reached or
rendered, notwithstanding Target Company's legal ability to consummate the
transactions contemplated by this Agreement prior to such decision being reached
or rendered.
9.5 LEGAL OPINION. The Target Companies shall have received a legal
opinion from Orrick, Herrington & Sutcliffe LLP, legal counsel to Landec and New
Apio, dated the Closing, in the form attached hereto as EXHIBIT B-2.
9.6 ADDITIONAL AGREEMENTS. Landec shall have entered into the Tompkins
Employment Agreement, Stock Option Agreements and Registration Rights Agreement,
the Murphy Employment Agreement, the Indemnification Agreements and Confidential
Information Agreements between New Apio and Tompkins and Murphy, the Pledge and
Security Agreement and the Escrow Agreement.
9.7 INTELLIPAC CONTRIBUTION. Landec shall have conveyed the Intellipac
business and assets to New Apio pursuant to the Contribution Agreement attached
hereto as EXHIBIT D.
10. ESCROW AND INDEMNIFICATION.
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Closing, and all representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the transactions contemplated hereby and continue
until the date three (3) years from the Closing (the "INDEMNITY TERMINATION
DATE"); PROVIDED that if any claims for indemnification have been asserted with
respect to any such representations, warranties and covenants prior to the
Indemnity Termination Date, the representations, warranties and covenants on
which any such claims are based shall continue in effect until final resolution
of any claims, and PROVIDED, FURTHER, that representations, warranties and
covenants relating to Taxes including those contained in Sections 7.7 and 7.8
and the representations and warranties listed in Section 4.20(b) (to the extent
that such breach of Section 4.20(b) relates to any act or omission to act by any
Target Company or Partner prior to January 1, 1997) shall survive until 30 days
after expiration of all applicable statutes of limitation. All covenants to be
performed after the Closing shall continue indefinitely.
10.2 INDEMNIFICATION BY PARTNERS.
(a) INDEMNIFICATION. Subject to the limitations set forth in
this Section 10.2, from and after the Effective Time, each of the Partners agree
to protect, defend, indemnify and hold harmless Landec, New Apio and each of
their respective Affiliates, officers, directors,
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employees, representatives and agents (each of the foregoing Persons is
hereinafter referred to in this section individually as an "INDEMNIFIED PERSON"
and collectively as "INDEMNIFIED PERSONS") from and against any and all losses,
costs, damages, liabilities, fees (including without limitation reasonable
attorneys' fees) and expenses (collectively, the "DAMAGES"), that any
Indemnified Person incurs by reason of or in connection with (i) any claim,
demand, action or cause of action resulting from any misrepresentation, breach
of, or default in connection with, any of the representations, warranties,
covenants or agreements of the Target Companies or the Partners contained in
this Agreement, including any schedules attached hereto or certificates
referenced herein to be delivered at Closing; (ii) the failure of any Partner to
make any Purchase Price Adjustment payment to New Apio; (iii) all Taxes
resulting from the 338 Elections (or any comparable elections under foreign,
state or local tax law) contemplated by Section 7.7, (iv) all Taxes of the
Target Companies for any period prior to and including the Closing, (v) all
Taxes resulting from the Merger failing to qualify as a reorganization under
Section 368(a) of the Code, including but not limited to Taxes imposed under
Section 1374 of the Code (or comparable provisions under foreign, state or local
tax law), or (vi) any claim, demand, action or cause of action alleging that any
Indemnified Person is liable for any indebtedness, liability or obligation of
any Unacquired Party, whether such indebtedness, liability or obligation arose
prior to or following the Closing. Such indemnity will be joint and several
among the Partners with respect to clauses (ii) through (vi) of the foregoing
sentence, but several and not joint in accordance with the pro rata portions set
forth on Schedule 10.2 with respect to clause (i) of the foregoing sentence;
provided that the several and not joint indemnity with respect to clause (i)
shall be (I) joint and several as among Kathleen and Nicholas Tompkins, (II)
joint and several as among Roy Killgore, John Maulhardt and San Ysidro Farms,
and (III) joint and several as among Edward Silva, Larry Silva, Edward Silva &
Sons, Inc., the Edward W. Silva, Jr. Revocable Trust dated August 6, 1989, and
the Larry J. Silva Revocable Trust Dated July 31, 1990. Damages in each case
shall be net of (A) the amount of any insurance proceeds and indemnity and
contribution actually recovered by or on behalf of Landec and/or New Apio, and
(B) the value of any net tax benefit realized by an Indemnified Party in
connection with the Damages suffered by such Indemnified Party which forms the
basis of the Indemnifying Person's liability hereunder. Solely, in determining
the amount of any Damages attributable to a breach, any materiality standard
contained in a representation, warranty or covenant of the Partner or Target
Company shall be disregarded.
(b) LIMITATION OF DAMAGES; BASKET. Notwithstanding the
foregoing the following limitations shall exist on the indemnification
provisions set forth in this Section 10.2:
(i) EXCEPTIONS. There shall be no threshold, basket
or other limitation on (I) the indemnity obligations of the Partners with
respect to their Tax responsibilities hereunder, (II) any act of fraud by any
Target Company or Partner, (III) any liability associated with a breach of the
representations and warranties listed in Section 4.20(b) (to the extent that
such breach relates to any act or omission to act by any Target Company or
Partner prior to January 1, 1997), or (IV) any liability associated with the
non-performance of any of the covenants or agreements of the Target Companies or
the Partners contained in this Agreement, including any schedules attached
hereto or certificates referenced herein to be delivered at Closing.
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(ii) BASKET. No Indemnified Party may receive any
payment pursuant to clause (i) of the first sentence of Section 10.2(a) unless
and until a certificate signed by an Indemnified Party has been provided to the
Target Companies' Representative identifying (I) Damages in the aggregate amount
in excess of $425,000 which have been actually incurred by the Indemnified
Parties in the aggregate, and which amount shall not be recoverable by such
Indemnified Party or (II) the basis for a claim under Section (b)(i) above.
(iii) LIMITATIONS ON INDEMNIFICATION. Except for
Timothy Murphy, Nicholas Tompkins and Kathleen Tompkins (the "PRIMARY
PARTNERS"), to whom this sentence shall not apply, the liability of each of the
other Partners (the "OTHER PARTNERS") under clause (i) of the first sentence of
Section 10.2(a) hereof with respect to claims asserted prior to the Indemnity
Termination Date shall be satisfied solely out of the Escrow Shares allocated to
the Other Partners as set forth in SCHEDULE 2.3(c). In addition, in no event
shall the aggregate liability of the Primary Partners under clause (i) of the
first sentence of Section 10.2(a) hereof with respect to claims filed prior to
the Indemnity Termination Date exceed twenty-five percent (25%) of the total
amount of the Purchase Price that is eventually paid to the Primary Partners
pursuant to Article 2 (valuing the Landec Common Stock, for purposes of this
Section, at $6.00 per share) (the "TOTAL AMOUNT"), and PROVIDED FURTHER that in
no event shall the aggregate liability of the Primary Partners under clause (i)
of the first sentence of Section 10.2(a) hereof with respect to claims filed
after the first anniversary of the Closing exceed fifteen percent (15%) of the
Total Amount and PROVIDED FURTHER STILL, in no event shall the aggregate
liability of the Primary Partners under clause (i) of the first sentence of
Section 10.2(a) hereof with respect to claims filed after the second anniversary
of the Closing exceed ten percent (10%) of the Total Amount. The parties hereto
hereby agree that Landec and New Apio shall have a right of set-off against any
elements of the Purchase Price (including the Escrow Consideration) which are
unpaid in order to satisfy (I) indemnification obligations of the Partners which
are either unsatisfied as of the date the right to such payments are earned, or
are owed as a result of an increase in the limits on indemnification contained
herein resulting from an increase in the Total Amount, or (II) payment
obligations of Landec, New Apio and the Target Companies to the Partners.
(iv) ENVIRONMENTAL MATTERS. In addition to the other
provisions of this Section 10.2, in the event that any breach of the
representations and warranties contained in Section 4.21 (Environmental Matters)
to which Landec or New Apio is entitled to indemnification is initially
discovered as a result of an action undertaken by Landec or New Apio which is
not (i) required by any applicable Environmental Laws or any governmental agency
or authority or any court, or any order, decree or directive of any of the same,
or (ii) associated with any due diligence conducted in connection with any
financing or acquisition sought by Landec or New Apio with respect to the
operations of the Business or the Properties, the Partners shall only be
obligated to pay eighty (80%) percent of all Damages associated with such
breach.
10.3 ESCROW PERIOD. Subject to the following requirements, (a) the
Escrow Shares of the Primary Partners (the "PRIMARY ESCROW SHARES") shall be
retained by the Escrow Agent for a period of one (1) year from the Closing (the
"PRIMARY ESCROW TERMINATION DATE") and (b) the Escrow Shares held by the Other
Partners (the "SECONDARY ESCROW SHARES") shall be retained by
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the Escrow Agent for a period of three (3) years from the Closing (the
"SECONDARY ESCROW TERMINATION DATE"). Upon the Primary Escrow Termination Date,
subject to the terms and conditions of the Escrow Agreement, the Escrow Agent
shall deliver to the Primary Partners all of their remaining Primary Escrow
Shares PROVIDED, HOWEVER, that the number of Primary Escrow Shares, which, in
the reasonable judgment of Landec and New Apio, subject to the subsequent
arbitration of the claim in the manner provided in the Escrow Agreement, is
necessary to satisfy any outstanding or pending claims shall remain subject to
the Escrow Agreement. Upon the Secondary Escrow Termination Date, subject to the
terms and conditions of the Escrow Agreement, the Escrow Agent shall deliver to
the Other Partners all of their remaining Secondary Escrow Shares; PROVIDED,
HOWEVER, that the number of Secondary Escrow Shares which, in the reasonable
judgment of Landec and New Apio, subject to the subsequent arbitration of the
claim in the manner provided in the Escrow Agreement, is necessary to satisfy
any outstanding or pending claims shall remain subject to the Escrow Agreement.
10.4 METHOD OF ASSERTING CLAIMS. All claims for indemnification by any
Indemnified Person with respect to the Primary Partners pursuant to this Section
10 during the period prior to the Primary Escrow Termination Date shall be made
in accordance with the provisions of the Escrow Agreement. After the Primary
Escrow Termination Date, the parties shall resolve any disputes with respect to
the Primary Partners in accordance with the arbitration provisions of Section
13.2 hereof. All claims for indemnification by any Indemnified Person with
respect to the Other Partners pursuant to this Section 10 during the period
prior to the Secondary Escrow Termination Date shall be made in accordance with
the provisions of the Escrow Agreement.
10.5 NOTICE OF CLAIM. If any action or proceeding is commenced, or if
any claim, demand or assessment is asserted, in respect of which any Indemnified
Person proposes to hold any other party liable under Section 10.2 (a) or (b) of
this Agreement, such Indemnifying Person shall have no liability therefor if the
Indemnified Person shall not have notified the Indemnifying Person of such
action, proceeding, claim demand or assessment within ninety (90) days after the
Indemnified Person acquires knowledge thereof to the extent that the
Indemnifying Person establishes that it has been prejudiced by such delay.
Without limiting the liability set forth above, (i) the Indemnifying Person may
control the defense of any such action, proceeding, claim, demand or assessment
at their sole cost with counsel of their own choosing (reasonably satisfactory
to the Indemnified Person) and (ii) neither any of the Indemnified Persons nor
their successors or assigns shall admit any liability with respect thereto or
settle, compromise, pay or discharge the same without the prior written consent
of such Indemnifying Persons so long as the Indemnifying Persons are defending
the same in good faith, and each Indemnified Person (and its successors and
assigns) shall cooperate with such Indemnifying Persons in the defense thereof
and shall accept any settlement thereof recommended by a majority in interest of
the Indemnifying Persons so long as (a) the amount of such settlement is paid in
its entirety by such Indemnifying Persons, (b) injunctive or other equitable
relief would not be imposed upon the Indemnified Person and (c) such settlement
would not lead to liability or create financial or other obligation on the part
of the Indemnified Person for which the Indemnified Person is not entitled to be
indemnified.
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11. LANDEC STOCK.
11.1 REGISTRATION REQUIREMENTS.
(a) SHELF REGISTRATION. Landec shall use reasonable commercial
efforts to prepare and file with the Securities and Exchange Commission (the
"SEC") a Registration Statement pursuant to Rule 415 (or any appropriate similar
rule that may be adopted by the SEC) under the Securities Act covering 833,333
shares of the Landec Common Stock (the "REGISTRABLE SECURITIES") issued as part
of the Merger Consideration (including any amendment thereto, the "SHELF
REGISTRATION") not later than sixty (60) days after the Closing (the "FILING
DATE"). The Shelf Registration shall be on Form S-3 or another appropriate form
permitting registration of such Landec Common Stock for resale by the Partners
from time to time. Each Partner agrees to furnish promptly to Landec in writing
all information required from time to time to be disclosed in order to make the
information previously furnished to Landec by such holder not misleading.
(b) EFFECTIVENESS. Landec shall use reasonable commercial
efforts to cause the Shelf Registration to become effective under the Securities
Act not later than 120 days after the Closing (the "EFFECTIVE DATE"). Subject to
the requirements of the Securities Act including, without limitation,
requirements relating to updating through post-effective amendments, prospectus
supplements or otherwise, Landec shall use its reasonable commercial efforts to
keep the Shelf Registration continuously effective and in compliance with the
Securities Act until the earlier of (i) the date one (1) year following the
Effective Date, or (ii) such date as all of the Registrable Securities have been
resold; provided, however, that in the event of a Suspension Period, as set
forth in Section 11.1(c) hereof, Landec shall extend the period of effectiveness
of such Shelf Registration by the number of days of each such Suspension Period.
Landec shall use reasonable commercial efforts to take such actions under the
laws of various states as may be required, from time to time during the
effectiveness of the Shelf Registration (and subject to Partners' compliance
with their obligations hereunder), to cause the resale of the Registrable
Securities pursuant to the Shelf Registration to be lawful. Landec will use its
reasonable commercial efforts to cause, as of the Effective Date, all the
Registrable Securities to be listed for quotation on the Nasdaq NMS.
(c) SUSPENSION PERIODS. Following the effectiveness of the
Shelf Registration filed pursuant to this Section, Landec may, at any time,
suspend the effectiveness of such Shelf Registration for up to thirty (30) days,
as appropriate (a "SUSPENSION PERIOD"), by giving notice to each Partner, if
Landec shall have determined, through action by its Board of Directors and
confirmed by its securities counsel, that Landec may be required to disclose any
material corporate development, which disclosure, in the judgment of Landec's
Board of Directors, could reasonably be expected to have a material adverse
effect on Landec; and at least two (2) business days prior to implementing any
such Suspension Period, Landec shall deliver to each Partner a certificate to
that effect. Notwithstanding the foregoing, no more than two (2) Suspension
Periods may occur in any calendar year. The period of any such suspension of the
registration statement shall be added to the period of time Landec agrees to
keep the Shelf Registration effective as provided in Section 11.1(b). Landec
shall use its reasonable commercial efforts to limit the duration and number of
any Suspension Periods, including, without limitation,
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preparing and filing with the SEC post-effective amendments to the Shelf
Registration and/or prospectus supplements to the prospectus included in the
Shelf Registration. Each Partner agrees that, upon receipt of notice from Landec
of a Suspension Period in accordance with the provisions of this Section
11.1(c), such Partner shall forthwith discontinue disposition of shares covered
by such registration statement or prospectus in accordance with the provisions
of this Section 11.1(c) until such Partner (i) is advised in writing by Landec
that the applicable Suspension Period has been terminated and the use of the
prospectus may be resumed, (ii) has received copies of a supplemental or amended
prospectus, if applicable, and (iii) has received copies of any additional or
supplemental filings which are incorporated or deemed to be incorporated by
reference in such prospectus which Landec shall use commercially reasonable
efforts to distribute as soon as is practicable. Each Partner shall treat any
information relating to a Suspension Period, including its receipt of notice of
a Suspension Period, as confidential information of Landec, and shall not use or
disclose any such information except with the prior written consent of Landec.
(d) REGISTRATION EXPENSES. Landec shall pay all Registration
Expenses (as defined below) in connection with any registration, qualification
or compliance hereunder, and each Partner shall pay all Selling Expenses (as
defined below) and other expenses that are not Registration Expenses relating to
the Landec Common Stock resold by such Partner. "Registration Expenses" shall
mean all expenses, except for Selling Expenses, incurred by Landec in complying
with the registration provisions herein described, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and expenses in connection with listing the Landec Common
Stock for quotation on Nasdaq NMS, fees and disbursements of counsel for and the
independent auditors of Landec, blue sky fees and expenses and the expense of
any special audits incident to or required by any such registration. "Selling
Expenses" shall mean selling commissions, underwriting fees and stock transfer
taxes applicable to the Landec Common Stock and all fees and disbursements of
counsel for any Partner.
(e) NOTIFICATION. In addition to Landec's other obligations
under this Section 11.1, in connection with the registration of the Landec
Common Stock on the Shelf Registration, Landec shall:
(i) As promptly as practicable after becoming aware
of such event, notify each Partner of the occurrence of any event, as a result
of which the prospectus included in the Shelf Registration, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Shelf Registration and supplement to the
prospectus to correct such untrue statement or omission, and deliver a number of
copies of such supplement and amendment to each Partner as such Partner may
reasonably request; and
(ii) As promptly as practicable after becoming aware
of such event, notify each Partner who holds Landec Common Stock being sold of
the issuance by the SEC of any stop order or other suspension of the
effectiveness of the Shelf Registration at the earliest
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possible time and take all lawful action to effect the withdrawal, recession or
removal of such stop order or other suspension; and
(iii) With a view to making available to the Partners
the benefits of Rule 144 under the Securities Act ("RULE 144") and any other
rule or regulation of the SEC that may at any time permit a Partner to sell
Landec Common Stock to the public without registration or pursuant to
registration, Landec covenants and agrees to use its reasonable commercial
efforts to: (i) make and keep public information available, as those terms are
understood and defined in Rule 144, until the earlier of (A) the date that is
one (1) year from the date of the Closing or (B) such date as all of the Landec
Common Stock shall have been resold; and (ii) file with the SEC in a timely
manner all reports and other documents required of Landec under the Exchange
Act.
(f) INDEMNIFICATION AND CONTRIBUTION.
(i) Landec agrees to indemnify and hold harmless each
Partner from and against any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) to which such Partner (including for such
purpose its officers, directors, partners, attorneys and agents) may become
subject (under the Securities Act or otherwise) to the extent such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon, any untrue statement of a material fact
contained in the Shelf Registration or the prospectus (including any supplement)
contained therein or arise out of, or are based upon, the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in light of the circumstances under which they were made in
the case of the prospectus), not misleading, or to the extent arising out of any
failure by Landec to fulfill any undertaking included in the Shelf Registration,
and Landec will, on a quarterly basis, reimburse such Partner for any legal or
other expenses reasonably incurred in investigating or defending any such
action, proceeding or claim; provided, however, that Landec shall not be liable
in any such case to the extent that such loss, claim, damage or liability arises
out of, or is based upon (a) an untrue statement made in such Shelf Registration
in reliance upon and in conformity with information furnished to Landec by or on
behalf of such Partner, (b) the failure of such Partner to comply with the
covenants and agreements contained in this Agreement, or (c) any untrue
statement in any prospectus that is corrected in any subsequent prospectus that
was delivered to the Partner prior to the pertinent sale or sales by the
Partner.
(ii) Each Partner, severally and not jointly, agrees
to indemnify and hold harmless Landec (including for such purpose its officers,
directors, partners, attorneys and agents) from and against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) to which
Landec may become subject (under the Securities Act or otherwise) to the extent
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Shelf Registration or the
prospectus (including any supplement) contained therein or to the extent arising
out of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in light of the circumstances under which they were made in the case of
the prospectus), not misleading, in each case, to the extent, but only to the
extent, that such untrue statement or
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alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to Landec by or on
behalf of such Partner specifically for use in preparation of the Shelf
Registration.
(iii) Promptly after receipt by any indemnified
person of a notice of a claim or the beginning of any action in respect of which
indemnity is to be sought against an indemnifying person pursuant to this
Section 11.1(f), such indemnified person shall notify the indemnifying person in
writing of such claim or of the commencement of such action (but the omission to
so notify the indemnifying party shall not relieve it from any liability that it
otherwise may have to the indemnified party, except to the extent that the
indemnifying party is materially prejudiced by reason of such failure), and,
subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person and the indemnifying person shall have
been notified thereof, the indemnifying person shall be entitled to participate
therein, and, to the extent that it shall wish, the indemnifying party may
assume the defense thereof, with counsel reasonably satisfactory to the
indemnified person. After notice from the indemnifying person to such
indemnified person of the indemnifying person's election to assume the defense
thereof, the indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the indemnified person for the same counsel to represent
both the indemnified person and such indemnifying person or any affiliate or
associate thereof, the indemnified person shall be entitled to retain its own
counsel at the expense of such indemnifying person. If the indemnifying party
shall assume the defense of any such claim, it shall not, without prior written
consent of the indemnified party (which consent shall not unreasonably be
withheld), settle or compromise any such claim or consent to the entry of any
judgment that does not include an unconditional release of the indemnified party
from all liabilities with respect to such claim or judgment. Further, no
indemnifying party shall have any obligation with respect to any settlement
entered into by an indemnified party without the prior written approval of this
indemnifying party.
(iv) If the indemnification provided for in this
Section 11.1(f) is unavailable to or insufficient to hold harmless an
indemnified party under subsection (i) or (ii) above in respect of any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of Landec on the one hand and the
Partners on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by Landec on
the one hand or a Partner on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Landec and the Partners agree that it would not be just
and equitable if contribution pursuant to this subsection (iv) were determined
by pro rata allocation (even if the Partners were
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treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to above in this subsection (iv) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the foregoing, (A) no Partner shall be required to contribute
any amount in excess of the net proceeds to it of the Registrable Securities
sold to pursuant to the Shelf Registration and (B) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Partners' obligations in this
subsection (iv) to contribute are several in proportion to their respective
sales of Landec Common Stock to which such loss relates and not joint.
12. TERMINATION.
12.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:
(a) By written consent of New Apio and all of the Target
Companies and Partners;
(b) By New Apio, if any of the Target Companies goes into
liquidation, has an application or order made for its winding up or dissolution,
has a resolution passed or steps taken to pass a resolution for its winding up
or dissolution, becomes unable to pay its debts as and when they fall due, or
has a receiver, receiver and manager, administrator, liquidator, provisional
liquidator, official manager or administrator appointed to it or any of its
assets;
(c) By any Target Company, if Landec or New Apio goes into
liquidation, has an application or order made for its winding up or dissolution,
has a resolution passed or steps taken to pass a resolution for its winding up
or dissolution, becomes unable to pay its debts as and when they fall due, or
has a receiver, receiver and manager, administrator, liquidator, provisional
liquidator, official manager or administrator appointed to it or any of its
assets;
(d) By any party if any Governmental Entity shall have issued
an order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement which
order, decree or ruling has not been removed before February 28, 2000;
(e) By any party if the Closing has not occurred on or before
February 28, 2000.
12.2 PROCEDURE FOR TERMINATION. In the event of termination of this
Agreement by any or all of the parties pursuant to Section 12.1, written notice
shall be given to each other party specifying the provision of Section 12.1,
pursuant to which such termination is made.
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12.3 FEES AND EXPENSES. Subject to the provisions of Section 12.4
below, whether or not the transactions contemplated by this Agreement are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation the fees
and expenses of its advisers, accountants and legal counsel) shall be paid by
the party incurring such expense. If the Closing occurs, the Target Companies
shall not be liable for any such fees, expenses, disbursements paid or accrued
by, or charged to, the Target Companies or the Partners to the extent not paid
prior to the Closing or not included in the Closing Balance Sheet.
13. MISCELLANEOUS.
13.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived with the written consent of Landec, New Apio and the Target Companies'
Representative or their respective successors and assigns. Any amendment or
waiver effected in accordance with this Section 13.1 shall be binding upon the
parties and their respective successors and assigns.
13.2 ARBITRATION. Any and all disputes between the parties arising
under this Agreement shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as in
effect at the time of any such dispute, and the award of the arbitrator shall be
final and binding on the parties. The arbitration shall be conducted in San
Jose, California before a single arbitrator. Any award of the arbitrator may be
enforced in any court of competent jurisdiction. The prevailing party in any
such arbitration proceeding shall be entitled to recover their attorneys' fees,
all reasonable out-of-pocket expenses and disbursements, and any and all charges
which maybe made for the cost of the arbitration and the fees of the arbitrator.
13.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
13.4 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.
13.5 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.
13.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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13.7 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice, and (a) if to Landec or New Apio, with a copy to Orrick, Herrington &
Sutcliffe LLP, Menlo Park, CA 94025, Attention: Geoffrey P. Leonard (facsimile:
(650) 614-7401) or (b) if to a Partner, with a copy to McCutchen, Doyle, Brown
and Enersen, LLP, Three Embarcadero Center, San Francisco, CA 94111, Attention:
Henry Evans, Jr. (facsimile: (415) 393-2286).
13.8 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 order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. 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.
13.9 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein are the product of all of the parties hereto, and constitute the entire
agreement between such parties pertaining to the subject matter hereof and
thereof, and merge all prior negotiations and drafts of the parties with regard
to the transactions contemplated herein and therein. Any and all other written
or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.
13.10 ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
13.11 LANDEC PAYMENT OBLIGATIONS. Notwithstanding any provisions of
this Agreement to the contrary, Landec agrees to be and hereby is jointly and
severally liable for any payment due by New Apio to the Target Companies or the
Partners hereunder.
[The Remainder of this Page Intentionally Left Blank]
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This Agreement has been duly executed and delivered by the duly
authorized officers of the Target Companies, the Partners, Landec and New Apio
as of the date first above written.
LANDEC CORPORATION APIO, INC.
/s/ Gary T. Steele /s/ Tim Murphy
- ---------------------------------- -----------------------------------
Gary T. Steele, President & CEO Tim Murphy, President
BUSH ACQUISITION CORPORATION CAL EX TRADING COMPANY
/s/ Gary T. Steele /s/ Nicholas Tompkins
- ---------------------------------- -----------------------------------
Gary T. Steele, President and CEO Nicholas Tompkins, President
SOUTH COAST PAPER COMPANY,
INC.
/s/ Timothy Murphy
-----------------------------------
Timothy Murphy, President
PACIFIC WEST PRODUCE
MARKETING, INC.
/s/ Nicholas Tompkins
-----------------------------------
Nicholas Tompkins, President
APIO PRODUCE SALES
/s/ Nicholas Tompkins
-----------------------------------
Nicholas Tompkins, General Partner
<PAGE>
THE PARTNERS:
/s/ Nicholas Tompkins
-----------------------------------
Nicholas Tompkins
/s/ Kathleen Tompkins
-----------------------------------
Kathleen Tompkins
/s/ Timothy Murphy
-----------------------------------
Timothy Murphy
/s/ Edward Silva, Jr.
-----------------------------------
Edward Silva, Jr.
/s/ Larry Silva
-----------------------------------
Larry Silva
/s/ John Maulhardt
-----------------------------------
John Maulhardt
/s/ Roy Killgore
-----------------------------------
Roy Killgore
EDWARD SILVA & SONS, INC.
/s/ Edward Silva Jr.
-----------------------------------
Edward Silva Jr., President
<PAGE>
THE EDWARD W. SILVA JR.
REVOCABLE TRUST DATED
AUGUST 6, 1989
/s/ Edward Silva Jr.
-----------------------------------
Edward Silva Jr., Trustee
THE LARRY J. SILVA REVOCABLE
TRUST DATED JULY 31, 1990
/s/ Larry Silva
-----------------------------------
Larry Silva, Trustee
SAN YSIDRO FARMS
/s/ John Maulhardt
-----------------------------------
John Maulhardt, General Partner
<PAGE>
Exhibit 4.1
LANDEC CORPORATION
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
NOVEMBER 19, 1999
<PAGE>
LANDEC CORPORATION
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "AGREEMENT") is
made as of the 19th day of November, 1999 by and between Landec Corporation, a
California corporation (the "COMPANY"), and Frederick Frank (the "PURCHASER").
The parties hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
1.1 SALE AND ISSUANCE OF PREFERRED STOCK.
(a) As of the Closing (as defined below) Company will
have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of 50,000 shares of Series A-1 Preferred Stock, $0.001 par value, and
116,667 shares of Series A-2 Preferred Stock, $0.001 par value, each having the
rights, preferences, privileges and restrictions set forth in the Certificate of
Determination of Rights, Preferences and Privileges of Series A Preferred Stock
attached to this Agreement as EXHIBIT B (the "CERTIFICATE OF DETERMINATION"),
and shall have filed the Certificate of Determination with the California
Secretary of State. As used herein, the term "Series A Preferred Stock" shall
refer to each of the SERIES A-1 PREFERRED STOCK and the Series A-2 Preferred
Stock.
(b) Subject to the terms and conditions of this
Agreement, the Purchaser agrees to purchase at the Closing and the Company
agrees to sell and issue to the Purchaser at the Closing that number of shares
of Series A Preferred Stock set forth opposite the Purchaser's name on EXHIBIT A
attached hereto at a purchase price of $60.00 per share. The shares of Series A
Preferred Stock issued to the Purchaser pursuant to this Agreement shall be
hereinafter referred to as the "STOCK", and the Common Stock of the Company
issuable upon conversion of the Stock shall be hereinafter referred to as the
"CONVERTED COMMON STOCK".
1.2 CLOSING; DELIVERY.
(a) The purchase and sale of the Stock shall take
place at the offices of Orrick, Herrington & Sutcliffe LLP, 1020 Marsh Road,
Menlo Park, California, at 10:00 a.m., on November 19, 1999, or at such other
time and place as the Company and the Purchaser mutually agree upon, orally or
in writing (which time and place are designated as the "CLOSING").
(b) At the Closing, the Company shall deliver to the
Purchaser a certificate representing the Stock being purchased thereby against
payment of the purchase price therefor by certified check or by wire transfer to
the Company's bank account.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants to the Purchaser as follows:
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2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business or properties.
2.2 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Standstill
Agreement in the form attached hereto as EXHIBIT C (the "STANDSTILL AGREEMENT")
to be executed by the Purchaser, the performance of all obligations of the
Company hereunder and thereunder and the authorization, issuance and delivery of
the Stock and the Converted Common Stock (together, the "SECURITIES") has been
taken or will be taken prior to the Closing, and the Agreement, when executed
and delivered by the Company, shall constitute a valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
2.3 VALID ISSUANCE OF SECURITIES. The Stock that is being
issued to the Purchaser hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the
Standstill Agreement and those set forth under the Certificate of Determination
and applicable state and federal securities laws. Based in part upon the
representations of the Purchaser in this Agreement and subject to the provisions
of Section 2.5 below, the Stock will be issued in compliance with all applicable
federal and state securities laws. The Converted Common Stock has been duly and
validly reserved for issuance, and upon issuance in accordance with the terms of
the Certificate of Determination, shall be duly and validly issued, fully paid
and nonassessable and free of restrictions on transfer other than restrictions
on transfer under this Agreement, the Standstill Agreement and applicable
federal and state securities laws and will be issued in compliance with all
applicable federal and state securities laws.
2.4 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Standstill Agreements, except for such
filings as may be required to be made with the Securities and Exchange
Commission (the "SEC") and the Nasdaq National Market and similar filings under
applicable state securities laws.
2.5 DISCLOSURE. The Company has furnished the Purchaser with
true and complete copies of all documents (other than preliminary materials)
filed with the SEC (the "SEC") since January 1, 1998 (the "SEC DOCUMENTS"). As
of their respective filing dates, the
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<PAGE>
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933 (the "SECURITIES ACT") or the Securities Exchange Act of
1934 (the "EXCHANGE ACT"), as applicable. Neither the Agreement nor any of the
SEC Documents as of their respective dates included an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents (the "FINANCIAL STATEMENTS") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto. The Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the Company and any subsidiaries at the dates thereof and the consolidated
results of their operations and consolidated cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal, recurring
adjustments).
2.6 CHANGES. Except as disclosed herein or in reports filed
with the SEC by the Company, since July 31, 1999, there has not been (a) any
change in the assets, liabilities, financial condition, business prospects or
operations of the Company from those reflected in the Financial Statements,
except changes in the ordinary course of business which, individually and in the
aggregate, have not had a material adverse effect on the Company and its
subsidiaries considered as one enterprise; (b) any material change or amendment
to a contract or arrangement by which the Company or any of its assets or
properties is bound or subject and filed as an exhibit to the SEC Documents; (c)
any resignation or termination of employment, or to the Company's knowledge, any
impending resignation or termination of employment, of any executive officer or
of the Company; or (d) any declaration or payment of any dividend or other
distribution of assets of the Company.
2.7 INDIVIDUAL PURCHASER. The Company hereby understands and
agrees that the Purchaser is purchasing solely in his individual and personal
capacity and not as a representative or officer, director or employee of Lehman
Brothers, and that Lehman Brothers shall have no liability whatsoever with
respect to any obligations of the Purchaser hereunder, including but not limited
to the obligation to purchase the Stock in accordance with the terms and
conditions hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. This Agreement and the Standstill
Agreement has been duly authorized by all necessary corporate action on the part
of the Purchaser and, when executed and delivered by Purchaser, will constitute
valid and legally binding obligations of Purchaser, enforceable in accordance
with their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies.
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<PAGE>
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with Purchaser in reliance upon Purchaser's representation to the Company, which
by Purchaser's execution of this Agreement, Purchaser hereby confirms, that the
Securities to be acquired by Purchaser will be acquired for investment for
Purchaser's own account, not as a nominee or agent for any person or entity,
including but not limited to Lehman Brothers, and not with a view to the resale
or distribution of any part thereof, and that Purchaser has no present intention
of selling, granting any participation in, or otherwise distributing the same.
By executing this Agreement, Purchaser further represents that Purchaser does
not presently have any contract, undertaking, agreement or arrangement with any
person or entity, including but not limited to Lehman Brothers, to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities. Such Purchaser represents that it has full
power and authority to enter into this Agreement.
3.3 DISCLOSURE OF INFORMATION. Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has reviewed the SEC Documents. Purchaser understands that such
discussions, as well as the written information issued by the Company, were
intended to describe the aspects of the Company's business which it believes to
be material.
3.4 RESTRICTED SECURITIES. Purchaser understands that the
Securities have not been registered under the Securities Act, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of such Purchaser's representations as expressed herein.
Purchaser understands that the Securities are "restricted securities" under
applicable U.S. federal and state securities laws and that, pursuant to these
laws, Purchaser must hold the Securities indefinitely unless they are registered
with the SEC and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. Purchaser acknowledges
that if an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time and
manner of sale, the holding period for the Securities, and on requirements
relating to the Company which are outside of such Purchaser's control, and which
the Company may not be able to satisfy.
3.5 LEGENDS. Purchaser understands that the Securities and
any securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
4
<PAGE>
(b) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.
3.6 ACCREDITED INVESTOR. Purchaser is an accredited investor
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.7 FOREIGN INVESTORS. Purchaser is a United States person
(as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended). Purchaser's subscription and payment for and continued beneficial
ownership of the Securities, will not violate any applicable securities or other
laws of Purchaser's jurisdiction.
3.8 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Standstill Agreement, except for such
filings as may be required to be made with the SEC and the Nasdaq National
Market. and similar filings under applicable state securities laws.
4. REGISTRATION REQUIREMENTS.
4.1 SHELF REGISTRATION. The Company shall use reasonable
commercial efforts to prepare and file with the Securities and Exchange
Commission (the "SEC") a Registration Statement pursuant to Rule 415 (or any
appropriate similar rule that may be adopted by the SEC) under the Securities
Act covering the Converted Common Stock (including any amendment thereto, the
"SHELF REGISTRATION") not later than sixty (60) days after the Closing (the
"FILING DATE"). The Shelf Registration shall be on Form S-3 or another
appropriate form permitting registration of such Converted Common Stock for
resale by the Purchaser from time to time. The Purchaser agrees to furnish
promptly to the Company in writing all information required from time to time to
be disclosed in order to make the information previously furnished to the
Company by such holder not misleading.
4.2 EFFECTIVENESS. The Company shall use reasonable
commercial efforts to cause the Shelf Registration to become effective under the
Securities Act not later than one hundred twenty (120) days after the Closing
(the "EFFECTIVE DATE"). Subject to the requirements of the Securities Act
including, without limitation, requirements relating to updating through
post-effective amendments, prospectus supplements or otherwise, the Company
shall use its reasonable commercial efforts to keep the Shelf Registration
continuously effective and in compliance with the Securities Act until the
earlier of (i) the date twelve (12) months following the Effective Date, or (ii)
such date as all of the Converted Common Stock have been resold; provided,
however, that in the event of a Suspension Period, as set forth in Section 4.3
hereof, the Company shall extend the period of effectiveness of such Shelf
Registration by the number of days of each such Suspension Period. The Company
shall use reasonable commercial efforts to take such actions under the laws of
various states as may be required, from time to time during the effectiveness of
the Shelf Registration (and subject to Purchaser's compliance with its
5
<PAGE>
obligations hereunder), to cause the resale of the Converted Common Stock
pursuant to the Shelf Registration to be lawful.
4.3 SUSPENSION PERIODS. Following the effectiveness of the
Shelf Registration filed pursuant to this Section, the Company may, at any time,
suspend the effectiveness of such Shelf Registration for up to thirty (30) days,
as appropriate (a "SUSPENSION PERIOD"), by giving notice to the Purchaser, if
the Company shall have determined, through action by its Board of Directors,
that the Company may be required to disclose any material corporate development,
which disclosure, in the judgment of the Company's Board of Directors, could
reasonably be expected to have a material adverse effect on the Company; and at
least two (2) business days prior to implementing any such Suspension Period,
the Company shall deliver to the Purchaser a certificate to that effect.
Notwithstanding the foregoing, no more than two (2) Suspension Periods may occur
in any calendar year. The period of any such suspension of the registration
statement shall be added to the period of time the Company agrees to keep the
Shelf Registration effective as provided in Section 4.2. The Company shall use
its reasonable commercial efforts to limit the duration and number of any
Suspension Periods, including, without limitation, preparing and filing with the
SEC post-effective amendments to the Shelf Registration and/or prospectus
supplements to the prospectus included in the Shelf Registration. The Purchaser
agrees that, upon receipt of notice from the Company of a Suspension Period in
accordance with the provisions of this Section 4.3, the Purchaser shall
forthwith discontinue disposition of shares covered by such registration
statement or prospectus in accordance with the provisions of this Section 4.3
until the Purchaser (i) is advised in writing by the Company that the applicable
Suspension Period has been terminated and the use of the prospectus may be
resumed, (ii) has received copies of a supplemental or amended prospectus, if
applicable, and (iii) has received copies of any additional or supplemental
filings which are incorporated or deemed to be incorporated by reference in such
prospectus. The Purchaser shall treat any information relating to a Suspension
Period, including its receipt of notice of a Suspension Period, as confidential
information of the Company, and shall not use or disclose any such information
except with the prior written consent of the Company.
4.4 REGISTRATION EXPENSES. The Company shall pay all
Registration Expenses (as defined below) in connection with any registration,
qualification or compliance hereunder, and the Purchaser shall pay all Selling
Expenses (as defined below) and other expenses that are not Registration
Expenses relating to the Converted Common Stock resold by such Purchaser.
"Registration Expenses" shall mean all expenses, except for Selling Expenses,
incurred by the Company in complying with the registration provisions herein
described, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and expenses in connection
with listing the Converted Common Stock for quotation on Nasdaq NMS, fees and
disbursements of counsel for and the independent auditors of the Company, blue
sky fees and expenses, the expense of any special audits incident to or required
by any such registration and the reasonable fees and expenses of one special
counsel to the Purchaser. "Selling Expenses" shall mean selling commissions,
underwriting fees and stock transfer taxes applicable to the Converted Common
Stock.
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4.5 NOTIFICATION. In addition to the Company's other
obligations under this Section 4, in connection with the registration of the
Converted Common Stock on the Shelf Registration, the Company shall:
(a) As promptly as practicable after becoming aware
of such event, notify the Purchaser of the occurrence of any event, as a result
of which the prospectus included in the Shelf Registration, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Shelf Registration and supplement to the
prospectus to correct such untrue statement or omission, and deliver a number of
copies of such supplement and amendment to the Purchaser as the Purchaser may
reasonably request; and
(b) As promptly as practicable after becoming aware
of such event, notify the Purchaser who holds Converted Common Stock being sold
of the issuance by the SEC of any stop order or other suspension of the
effectiveness of the Shelf Registration at the earliest possible time and take
all lawful action to effect the withdrawal, recession or removal of such stop
order or other suspension; and
(c) With a view to making available to the Purchaser
the benefits of Rule 144 under the Securities Act ("RULE 144") and any other
rule or regulation of the SEC that may at any time permit the Purchaser to sell
Converted Common Stock to the public without registration or pursuant to
registration, the Company covenants and agrees to use its reasonable commercial
efforts to: (i) make and keep public information available, as those terms are
understood and defined in Rule 144, until the earlier of (A) the date that is
thirty (30) months from the date of the Closing or (B) such date as all of the
Converted Common Stock shall have been resold; and (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the
Exchange Act.
4.6 INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold
harmless the Purchaser from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which the
Purchaser (including for such purpose its officers, directors, partners,
attorneys and agents) may become subject (under the Securities Act or otherwise)
to the extent such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement of a material fact contained in the Shelf Registration or the
prospectus (including any supplement) contained therein or arise out of, or are
based upon, the omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in light of the
circumstances under which they were made in the case of the prospectus), not
misleading, or to the extent arising out of any failure by the Company to
fulfill any undertaking included in the Shelf Registration, and the Company
will, on a quarterly basis, reimburse the Purchaser for any legal or other
expenses reasonably incurred in investigating or defending any such action,
proceeding or claim; provided, however, that the Company shall not be liable in
any such case to the extent that such loss, claim, damage or
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liability arises out of, or is based upon (i) an untrue statement made in such
Shelf Registration in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Purchaser, (ii) the failure of the
Purchaser to comply with the covenants and agreements contained in this
Agreement, or (iii) any untrue statement in any prospectus that is corrected in
any subsequent prospectus that was delivered to the Purchaser prior to the
pertinent sale or sales by the Purchaser.
(b) Each Purchaser, severally and not jointly,
agrees to indemnify and hold harmless the Company (including for such purpose
its officers, directors, partners, attorneys and agents) from and against any
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) to which the Company may become subject (under the Securities Act or
otherwise) to the extent such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the Shelf
Registration or the prospectus (including any supplement) contained therein or
to the extent arising out of, or are based upon, the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in light of the circumstances under
which they were made in the case of the prospectus), not misleading, in each
case, to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of the Purchaser specifically for use in preparation of the Shelf
Registration.
(c) Promptly after receipt by any indemnified
person of a notice of a claim or the beginning of any action in respect of which
indemnity is to be sought against an indemnifying person pursuant to this
Section 4.6, such indemnified person shall notify the indemnifying person in
writing of such claim or of the commencement of such action (but the omission to
so notify the indemnifying party shall not relieve it from any liability that it
otherwise may have to the indemnified party, except to the extent that the
indemnifying party is materially prejudiced and forfeits substantive rights and
defenses by reason of such failure), and, subject to the provisions hereinafter
stated, in case any such action shall be brought against an indemnified person
and the indemnifying person shall have been notified thereof, the indemnifying
person shall be entitled to participate therein, and, in the case of any claim
as to which both the indemnified party and the indemnifying party are parties,
to the extent that it shall wish, the indemnifying party may assume the defense
thereof, with counsel reasonably satisfactory to the indemnified person. After
notice from the indemnifying person to such indemnified person of the
indemnifying person's election to assume the defense thereof, the indemnifying
person shall not be liable to such indemnified person for any legal expenses
subsequently incurred by such indemnified person in connection with the defense
thereof; provided, however, that if there exists or shall exist a conflict of
interest that would make it inappropriate in the reasonable judgment of the
indemnified person for the same counsel to represent both the indemnified person
and such indemnifying person or any affiliate or associate thereof, the
indemnified person shall be entitled to retain its own counsel at the expense of
such indemnifying person. If the indemnifying party shall assume the defense of
any such claim, it shall not, without prior written consent of the indemnified
party (which consent shall not unreasonably be withheld), settle or compromise
any such claim or consent to the entry of any
8
<PAGE>
judgment that does not include an unconditional release of the indemnified party
from all liabilities with respect to such claim or judgment. Further, no
indemnifying party shall have any obligation with respect to any settlement
entered into by an indemnified party without the prior written approval of this
indemnifying party.
(d) If the indemnification provided for in this
Section 4.6 is unavailable to or insufficient to hold harmless an indemnified
party under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Purchaser
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Purchaser on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, or liabilities (or actions in respect thereof) referred to
above in this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
4.7 NASDAQ NMS LISTING. The Company shall use its reasonable
commercial efforts to cause the Converted Common Stock to be listed for
inclusion on the Nasdaq National Market System no later than on the Effective
Date.
5. FINDER'S FEE. At the Closing, the Company shall pay to the
Purchaser a finders' fee in the amount of $800,000 in consideration of the
Purchaser's arrangement of the financing.
6. CONDITIONS OF THE PURCHASER'S OBLIGATIONS AT THE CLOSING. The
obligations of the Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
9
<PAGE>
6.2 PERFORMANCE. The Company shall have performed and
complied with all covenants, agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
6.3 COMPLIANCE CERTIFICATE. The President of the Company
shall deliver to the Purchaser at the Closing a certificate certifying that the
conditions specified in Sections 6.1 and 6.2 have been fulfilled.
6.4 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be obtained and effective as of
the Closing.
6.5 OPINION OF COMPANY COUNSEL. The Purchaser shall have
received from Orrick, Herrington & Sutcliffe LLP, counsel for the Company, an
opinion, dated as of the Closing, in substantially the form of EXHIBIT D.
6.6 CERTIFICATE OF DETERMINATION. The Company shall have
filed the Certificate of Determination with the Secretary of State of California
on or prior to the date of the Closing, and the Certificate of Determination
shall continue to be in full force and effect as of the date of the Closing.
6.7 STANDSTILL AGREEMENT. The Company and the Purchaser shall
have executed and delivered a Standstill Agreement between the Company and the
Purchaser in the form attached hereto as EXHIBIT C.
6.8 GOVERNMENTAL CONSENTS. There shall have been obtained at
or prior to the date of the Closing such permits or authorizations, and there
shall been taken such other action, as may be required by any regulatory
authority having jurisdiction over the parties and the subject matter and the
actions herein proposed to be taken.
6.9 LEGAL INVESTMENT. At the time of the Closing the purchase
and sale of the Stock shall be legally permitted by all laws and regulations to
which the Purchaser and the Company are subject.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to the Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in Section 3 shall be true and correct in all
material respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
10
<PAGE>
7.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchaser on or prior to the
Closing shall have been performed or complied with in all material respects.
7.3 QUALIFICATIONS. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be obtained and effective as of
the Closing.
7.4 STANDSTILL AGREEMENT. The Company and the Purchaser shall
have executed and delivered a Standstill Agreement between the Company and the
Purchaser.
7.5 GOVERNMENTAL CONSENTS. There shall have been obtained at
or prior to the date of the Closing such permits or authorizations, and there
shall been taken such other action, as may be required by any regulatory
authority having jurisdiction over the parties and the subject matter and the
actions herein proposed to be taken.
7.6 LEGAL INVESTMENT. At the time of the Closing the purchase
and sale of the Stock shall be legally permitted by all laws and regulations to
which the Purchaser and the Company are subject.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in
this Agreement, the warranties, representations and covenants of the Company and
the Purchaser contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing for a period of one (1)
year following the Closing.
8.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.3 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.
8.4 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.
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8.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon delivery, when
delivered personally or by overnight courier 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, addressed to the party to be notified at
such party's address as set forth below or on EXHIBIT A hereto, or as
subsequently modified by written notice, and (a) if to the Company, with a copy
to
Orrick, Herrington & Sutcliffe LLP
1020 Marsh Road
Menlo Park, CA 94025
Fax: 650-614-7464
Attn: Geoffrey P. Leonard
or (b) if to the Purchaser, with a copy to
Alan C. Mendelson, Esq.
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
8.7 FINDER'S FEE. Except for the finder's fee set forth in
Section 5, each party represents that it neither is, nor will be, obligated for
any other finder's fee or commission in connection with this transaction. The
Purchaser agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless the Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible other than that described
in this Section 8.7.
8.8 FEES AND EXPENSES. Each party shall pay its own fees and
expenses, irrespective of whether the Closing occurs; provided, however, in the
event that the Closing occurs, the Company will pay, concurrent with the
Closing, the reasonable fees and expenses of Cooley Godward LLP, special counsel
to the Purchaser in an amount not to exceed $7,500.
8.9 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
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8.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended with the written consent of the Company and the holders of at least a
majority of the Converted Common Stock. Any amendment or waiver effected in
accordance with this Section 9.10 shall be binding upon the Purchaser and each
transferee of the Stock (or the Common Stock issuable upon conversion thereof),
each future holder of all such securities, and the Company.
8.11 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
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
8.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of any of the Stock, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.13 ENTIRE AGREEMENT. This Agreement, and the documents
referred to herein constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof, and any and all other written or oral
agreements existing between the parties hereto are expressly canceled.
8.14 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 THE 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 Pages Follow]
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The parties have executed this Series A Preferred Stock Purchase
Agreement as of the date first written above.
COMPANY:
LANDEC CORPORATION
By: /s/ Gary T. Steele
------------------------------------
Gary T. Steele, President and CEO
Address: Landec Corporation
3603 Haven Avenue
Menlo Park, CA 94025
Tel: (650) 306-1650
Fax: (650) 261-3616
PURCHASER:
/s/ Frederick Frank
-----------------------------------------
Frederick Frank
Address: 109 East 91st Street
New York, NY 10128
Tel: (212) 526-3262
Fax: (212) 526-3738
<PAGE>
Exhibit 99.1
FOR IMMEDIATE RELEASE
CONTACT: Joy T. Fry
Vice President, Administration
(650) 306-1650
LANDEC CORPORATION ACQUIRES APIO, INC.;
$158 MILLION COMPANY IS ONE OF NATION'S LEADING MARKETERS OF
SPECIALTY PACKAGED FRESH AND WHOLE PRODUCE
(MENLO PARK, CA), December 3, 1999--Landec Corporation (NASDAQ National
Market System Symbol: LNDC), said today it has acquired Apio, Inc. and certain
related entities, of Guadalupe, California, one of the nation's leading
marketers and packers of produce and specialty packaged fresh-cut vegetables
with annual sales of approximately $158 million.
Upon closing, Landec paid $23.9 million in cash and stock for Apio,
which will operate as a wholly owned subsidiary of Landec. Additional terms of
the agreement include up to $16.75 million in future payments over five years,
with $10.0 million of that amount based on Apio achieving certain performance
milestones. The transaction, accounted for as a purchase, creates a combined
company with approximately $200 million in revenues. Landec will begin reporting
combined results for the first quarter ending January 30, 2000 and expects to be
profitable in its current fiscal year ending October 31, 2000. Combined results
will include an intangible amortization charge resulting from this acquisition
estimated at approximately $1.3 million in fiscal year 2000.
To fund the transaction, Landec issued 2.5 million shares of common
stock to the prior owners of Apio. The company has replaced a portion of the
existing bank debt with a $11.25 million term note and entered into a new $12
million line of credit agreement with the Bank of America. In a separate
transaction, Landec has sold $10 million of preferred stock to a private,
long-term, investor at a $6.00 per share equivalent price. Under the terms of
these transactions, Landec has agreed to effect the registration of
approximately 2.5 million shares of Landec common stock by March 31, 2000.
With fiscal 1998 revenues of approximately $158 million, the privately
held Apio has realized a compounded annual growth in revenues of over 11 percent
over the past five years and has been profitable since inception. Nick Tompkins,
a founder and the chief
<PAGE>
LANDEC CORPORATION ACQUIRES APIO, INC./Page 2 of 3
- --------------------------------------------------
executive officer of Apio, will remain in his current position and join Landec
as senior vice president.
"This highly strategic acquisition is the culmination of a very
successful three year relationship with Apio and catapults us to a leadership
position in the fast-growing, specialty packaged fresh-cut produce arena, an
estimated multi-billion dollar market in the U.S. alone," said Gary T. Steele,
president and chief executive officer of Landec. "We will now own and operate a
highly integrated food business with strong grower relationships for sourcing
quality produce, along with proprietary packaging technology, strength in
national distribution, a strong retail and club store customer base and an
excellent management team."
For the past three years, Landec and Apio have commercially marketed
products that use Landec's Intellipac-TM- breathable membranes for pre-made film
bags, film roll stock, and trays used in Apio's "Eat Smart-TM-" fresh-cut
produce. The "Eat Smart" product line is currently available in some 3,000
retail supermarkets and 500 club stores throughout the country and includes
products such as party trays, 12-ounce pre-cuts, and mini-snack packs.
Landec's Intellipac breathable membranes help extend produce shelf life
by selectively managing the internal atmosphere of a package to optimally fit
the requirements of living, respiring produce. The breathable membranes are
based on the company's proprietary Intelimer-Registered Trademark- technology
that can be customized to maintain an optimal oxygen and carbon dioxide
environment inside a package for preserving perishable produce.
"This is a great fit for both companies," Apio's Tompkins noted. "It
facilitates the combination of Landec's proprietary technology with Apio's
extensive presence in the produce market through its broad base of customers and
strongly positions us as a leader in one of the nation's fastest-growing food
categories.
"Landec's packaging technology creates conditions that provide a high
level of quality and freshness at the point of purchase and offers major
advantages to retailers and consumers by extending shelf life, reducing product
shrink and preserving the fresh taste, smell and appearance of fresh-cut produce
in a highly convenient package," Tompkins added. "Consequently, we believe this
marriage of companies will enable us to more quickly expand "Eat Smart"
offerings to other vegetables, as well as fruits, and increase Apio's
penetration of the growing export market."
Steele noted that prior to its acquisition, Apio was Landec's largest
customer in the specialty packaged fresh-cut produce business. "Because the
produce arena is a highly diverse market, we believe that we will be able to
maintain existing customer relationships for our unique packaging technology, as
well as develop new ones."
<PAGE>
LANDEC CORPORATION ACQUIRES APIO, INC./PAGE 3 of 3
"This transaction is consistent with Landec's strategy of building a
vertically integrated business with manufacturing, marketing and distribution
capabilities in each of our core markets," he continued. "A number of factors,
including Apio's significant grower relationships in California's key
agricultural areas and strong retail and club store distribution capabilities,
made the company a highly desirable acquisition. In addition, this transaction
will help accelerate our plan to be profitable during the current fiscal year."
Founded in 1979, Apio harvests, packs, cools and markets vegetables and
fruits on a contract basis for growers in California's Santa Maria, San Joaquin
and Imperial Valleys and in Arizona and Mexico. The company currently has
approximately 18,000 acres under contract, including access to approximately 20
percent of the farmable land in the Santa Maria Valley. During 1998, Apio
shipped more than 21 million cartons of produce to some 700 customers including
leading supermarket retailers, wholesalers, food service suppliers and club
stores throughout the country. Apio operates five warehouses and seven buying
offices in California and Arizona and currently has 124 employees. Steele said
that he expects all employees, including members of senior management, will
remain with Apio and that current operations will be maintained.
Landec Corporation designs, develops, manufactures and sells
temperature-activated and other specialty polymer products for a variety of
food, industrial and agricultural applications. The company's
temperature-activated polymer products are based on its proprietary Intelimer
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.
Except for the historical information contained herein, the matters
discussed in this news release are forward-looking statements that involve
certain risks and uncertainties that could cause actual results to differ
materially, including such factors among others, as the integration of Apio, the
timing and amount of expenses associated with expanding operations, the
uncertainty relating to the integration of new business acquisitions, the amount
and timing of developing funding and license fees from the company's
collaborative partners upon which the company is substantially dependent and
which the company cannot predict, the timing of regulatory approvals and new
product introductions, the mix between pilot production of new products and
full-scale manufacturing of existing products, the mix between domestic and
international sales, and the risk factors listed in the company's Form 10-K for
the fiscal year 1998 and Form 10-Q for the fiscal quarter ended July 31, 1999
(See item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations). 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.
A conference call will be held at 6:00 a.m., Pacific Standard Time,
today, December 3, to discuss this transaction. The dial in number is (415)
537-1957 and the reservation number is 13730779.
