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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _____ to _________.
Commission file number: 0-27446
LANDEC CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3025618
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3603 HAVEN AVENUE
MENLO PARK, CALIFORNIA 94025
(Address of principal executive offices)
Registrant's telephone number, including area code:
(650) 306-1650
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was approximately $91,028,000 as of January 7, 2000, based upon
the closing sales price on the NASDAQ National Market reported for such date.
Shares of Common Stock and Convertible Preferred Stock held by each officer and
director and by each person who owns 10% or more of the outstanding Common Stock
and Convertible Preferred Stock have been excluded from such calculation in that
such persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of January 7, 2000, there were 15,922,331 shares of Common Stock and
166,667 shares of Convertible Preferred Stock, convertible into ten shares of
Common Stock for each share of Preferred Stock, par value $0.001 per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its
2000 Annual Meeting of Shareholders, which statement will be filed not later
than 120 days after the end of the fiscal year covered by this report, are
incorporated by reference in Part III hereof.
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LANDEC CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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Item No. Page
Part I
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1. Business.......................................................................... 3
2. Properties........................................................................ 17
3. Legal Proceedings................................................................. 17
4. Submission of Matters to a Vote of Security Holders............................... 17
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters............. 18
6. Selected Consolidated Financial Data.............................................. 20
Management's Discussion and Analysis of Financial Condition and Results of
7. Operations........................................................................ 21
7A. Quantitative and Qualitative Disclosures about Market Risk........................ 32
8. Financial Statements and Supplementary Data....................................... 32
Changes in and Disagreements with Accountants on Accounting and Financial
9. Disclosure........................................................................ 32
Part III
10. Directors and Executive Officers of the Registrant................................ 33
11. Executive Compensation............................................................ 33
12. Security Ownership of Certain Beneficial Owners and Management.................... 33
13. Certain Relationships and Related Transactions.................................... 33
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................. 34
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PART I
ITEM 1. BUSINESS
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this Report and, in particular,
the factors described in Item 7 under "Additional Factors That May Affect Future
Results."
GENERAL
Landec Corporation and its subsidiaries ("Landec" or the "Company")
design, develop, manufacture and sell temperature-activated and other specialty
polymer products for a variety of food products, agricultural products,
specialty industrial and medical applications. This proprietary polymer
technology is the foundation, and a key differentiating advantage, upon which
the Company has built its business.
Landec's Food Products Technology business, operated through its wholly
owned subsidiary Apio, combines Landec's proprietary food packaging technology
with the capabilities of a large national food supplier and value-added produce
processor. This combination was consummated in December 1999 when the Company
acquired Apio, Inc. and certain related entities (collectively "Apio").
The Company's Agricultural Seed Technology business, operated through
its wholly owned subsidiary Intellicoat Corporation ("Intellicoat"), combines
Landec's proprietary seed coating technology with the unique direct marketing,
telephone sales and e-commerce distribution capabilities of Fielder's Choice
Direct ("Fielder's Choice"). In September 1997, Intellicoat acquired Fielder's
Choice, a direct marketer of hybrid seed corn.
In addition to its two core businesses, the Company also operates a
Technology Licensing/Research and Development Business which licenses products
outside of Landec's core businesses to industry leaders such as Alcon
Laboratories, Inc. ("Alcon") and Hitachi Chemicals. It also engages in research
and development activities with companies such as ConvaTec, a division of
Bristol Myers Squibb.
To support the polymer manufacturing needs of the core businesses,
Landec has developed and acquired lab scale and pilot plant capabilities in
Menlo Park, California and scale-up and commercial manufacturing capabilities at
its Dock Resins Corporation subsidiary ("Dock Resins") in Linden, New Jersey. In
April 1997, Landec acquired Dock Resins, a manufacturer and marketer of
specialty acrylic and other polymers. In addition to providing manufacturing
capabilities, Dock Resins sells industrial specialty products under the
Doresco-TM- trademark which are used by more than 300 customers throughout the
United States in the coatings, printing inks, laminating and adhesives markets.
The Company's core polymer products are based on its patented
proprietary Intelimer-registered Tradmark- polymers, which differ from other
polymers in that they can be customized to abruptly change their physical
characteristics when heated or cooled through a pre-set temperature switch.
For instance, Intelimer polymers can change within the space of one or two
DEG. Celsius from a slick, non-adhesive state to a highly tacky, adhesive
state; from an impermeable state to a highly permeable state; or from a solid
state to a viscous state. These abrupt changes are repeatedly reversible and
can be tailored by Landec to occur at specific temperatures, thereby offering
substantial competitive advantages in the Company's target markets.
Historically, the Company had managed its operations in three business
segments - Food Products Technology, Agricultural Seed Technology and Industrial
High Performance Materials. However, in conjunction with the acquisition of Apio
on December 2, 1999, the Company is now focusing on two vertically integrated
core businesses - Food Products Technology and Agricultural Seed Technology.
Although not a core business, the Company continues to pursue, mostly with
partners, opportunities both domestically and internationally with its
industrial products focusing primarily on catalysts, resins, formulated products
and adhesives.
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The principal products and services offered by the Company in its two
core businesses - Food Products Technology and Agricultural Seed Technology -
and in the technology licensing and research and development are described
below. Financial information concerning the industry segments for which the
Company reported its operations during fiscal years 1997 through 1999 is
summarized in Note 13 to the Consolidated Financial Statements.
The Company was incorporated in California on October 31, 1986. The
Company completed its initial public offering in 1996 and is listed on the
Nasdaq National Market under the symbol "LNDC."
TECHNOLOGY OVERVIEW
Polymers are important and versatile materials found in many of the
products of modern life. Certain polymers, such as cellulose and natural rubber,
occur in nature. Man-made polymers include nylon fibers used in carpeting and
clothing, coatings used in paints and finishes, plastics such as polyethylene,
and elastomers used in automobile tires and latex gloves. Historically,
synthetic polymers have been designed and developed primarily for improved
mechanical and thermal properties, such as strength and the ability to withstand
high temperatures. Improvements in these and other properties and the ease of
manufacturing of synthetic polymers have allowed these materials to replace
wood, metal and natural fibers in many applications over the last 40 years. More
recently, scientists have focused their efforts on identifying and developing
sophisticated polymers with novel properties for a variety of commercial
applications.
Landec's Intelimer polymers are a proprietary class of synthetic
polymeric materials that respond to temperature changes in a controllable,
predictable way. Typically, polymers gradually change in adhesion, permeability
and viscosity over broad temperature ranges. Landec's Intelimer materials, in
contrast, can be designed to exhibit abrupt changes in permeability, adhesion
and/or viscosity over temperature ranges as narrow as 1DEG.C to 2DEG.C.
These changes can be designed to occur at relatively low temperatures
(0DEG.C to 100DEG.C) that are relatively easy to maintain in industrial
and commercial environments. FIGURE 1 illustrates the effect of temperature on
Intelimer materials as compared to typical polymers.
[GRAPHIC]
Landec's proprietary polymer technology is based on the structure and
phase behavior of Intelimer materials. The abrupt thermal transitions of
specific Intelimer materials are achieved through the use of chemically precise
hydrocarbon side chains that are attached to a polymer backbone. Below a
pre-determined switch temperature, the
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polymer's side chains align through weak hydrophobic interactions resulting in a
crystalline structure. When this side chain crystallizable polymer is heated to,
or above, this switch temperature, these interactions are disrupted and the
polymer is transformed into an amorphous, viscous state. Because this
transformation involves a physical and not a chemical change, this process is
repeatedly reversible. Landec can set the polymer switch temperature anywhere
between 0DEG.C to 100DEG.C by varying the length of the side chains. The
reversible transitions between crystalline and amorphous states are illustrated
in FIGURE 2 below.
[GRAPHIC]
Side chain crystallizable polymers were first discovered by academic
researchers in the mid-1950's. These polymers were initially considered to be
merely of scientific curiosity from a polymer physics perspective, and, to the
Company's knowledge, no significant commercial applications were pursued. In the
mid-1980's, Dr. Ray Stewart, the Company's founder, became interested in the
idea of using the temperature-activated permeability properties of these
polymers to deliver various materials such as drugs and pesticides. After
forming Landec in 1986, Dr. Stewart subsequently discovered broader utility for
these polymers. After several years of basic research, commercial development
efforts began in the early 1990's, resulting in initial products in mid-1994.
Landec's Intelimer materials are generally synthesized from long chain
acrylic monomers that are derived primarily from natural materials such as
soybean and corn oils, and are highly purifiable and designed to be manufactured
economically through known polymerization processes. Intelimer materials can be
made into many different forms, including films, coatings, microcapsules and
discreet forms.
DESCRIPTION OF CORE BUSINESS
The Company participates in two core segments- Food Products Technology
and Agricultural Seed Technology. Outside of these two core segments, Landec
will license technology and conduct on going research and development through
its Technology Licensing/Research & Development Business.
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[GRAPH]
FOOD PRODUCTS TECHNOLOGY BUSINESS
Landec began marketing in late 1995 its proprietary Intelimer-based
breathable membranes for use in the fresh-cut produce packaging market, the
fastest growing segment in the food market. Landec's unique technology enabled
Landec's customers to enter into and develop new businesses in this fresh-cut
produce market (also known as the "value-added" market). In December 1999,
Landec acquired Apio, Landec's largest customer in the Food Products Technology
business and one of the nation's leading marketers and packers of produce and
specialty packaged fresh-cut vegetables. With approximately $158 million in
revenue in 1998, Apio provides year-round access to produce, utilizes
state-of-the-art fresh-cut produce processing technology and distributes to 9 of
the top 10 U.S. retail chains and major club stores. Landec's proprietary
Intelimer-based packaging business has been combined with Apio into a wholly
owned subsidiary which retains the Apio, Inc. name. This vertical integration
within the Food Products Technology business places Landec in the unique
position of providing the fresh-cut and whole produce market with both
technology and access to larger end users/customers.
INTELLIPAC-TM- BREATHABLE MEMBRANES
Certain types of fresh-cut produce can spoil or discolor rapidly when
packaged in conventional packaging materials and are therefore limited in their
ability to be distributed broadly to markets. The Company's Intellipac
breathable membranes facilitate the packaging of fresh-cut produce.
Fresh-cut produce is pre-washed, cut and packaged in a form that is
ready to use by the consumer and is thus typically sold at premium price levels.
According to the Produce Marketing Association, in 1998, the total U.S. fresh
produce market exceeded $100 billion. Of this, U.S. retail sales of fresh-cut
produce grew almost 20 percent to an estimated $7 billion. The Company believes
that the growth of this market has been driven by consumer demand and the
willingness to pay for convenience, labor savings and uniform quality relative
to produce prepared at the point of sale. The International Fresh Cut Produce
Associates estimates that by 2003, U.S. retail sales of fresh-cut produce could
be as much as $19 billion.
Although fresh-cut produce companies have had success in the salad
market, the industry has been slow to diversify into other fresh-cut vegetables
or fruits due to limitations in film materials used to package the fresh-cut
produce. After harvesting, vegetables and fruits continue to respire, consuming
oxygen and releasing carbon dioxide. Too much or too little oxygen can result in
premature spoilage and decay and promote the growth of contaminants and
microorganisms that jeopardize inherent food safety. Conventional packaging
films used today, such as polyethylene and polypropylene, can be made with
modest permeability to oxygen and carbon dioxide, but often do not provide the
optimal atmosphere for the produce packaged. Shortcomings of currently used
materials have not significantly
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hindered the growth in the fresh-cut salad market because lettuce, unlike many
vegetables and fruits, has low respiration requirements.
The respiration rate of fresh-cut produce varies from vegetable to
vegetable and from fruit to fruit. The challenge facing the industry is to
develop packaging for the high respiring, high value and shelf life sensitive
fresh-cut vegetable and fruit markets. The Company believes that today's
conventional packaging films face numerous challenges in adapting to meet the
diversification of pre-cut vegetables and fruits evolving in the industry
without compromising shelf life and produce quality. To mirror the growth
experienced in the fresh-cut salad market, the markets for high respiring
vegetables and fruits such as broccoli, cauliflower, berries and stone fruit
(peaches, apricots, nectarines) will require a more versatile and sophisticated
packaging solution such as the Company's Intellipac breathable membranes.
The respiration rate of fresh-cut produce also varies with
temperature. As temperature increases, fresh-cut produce generally respires at a
higher rate, which speeds up the aging process, resulting in shortened shelf
life and increased potential for decay, spoilage, loss of texture and
dehydration. As fresh-cut produce is transported from the processing plant
through the refrigerated distribution chain to foodservice locations or retail
stores, and finally to the ultimate consumer, temperatures can fluctuate
significantly. Therefore, temperature control is a constant challenge in
preserving the quality of fresh-cut produce -- a challenge few current packaging
films can fulfill. The Company believes that its temperature-responsive
Intellipac technology will respond well to the challenges of the fresh-cut
distribution process.
Using its Intelimer technology, Landec has developed Intellipac
breathable membranes that it believes address many of the shortcomings of
conventional materials. A membrane is applied over a small cutout section or an
aperture of a flexible film bag. This highly permeable "window" acts as the
mechanism to transmit the majority of the gas transmission properties required
for the entire package. These membranes are designed to provide three principal
benefits:
- HIGH PERMEABILITY. Landec's Intellipac breathable membranes are
designed to permit transmission of oxygen and carbon dioxide at 300
times the rate of conventional packaging films. The Company believes
that these higher permeability levels will facilitate the packaging
diversity required to market many types of fresh-cut produce.
- ABILITY TO ADJUSTABLY SELECT OXYGEN AND CARBON DIOXIDE. Conventional
packaging films diffuse gas transfer in and out of packages at an
equal rate or fixed ratio of 1.0. Intellipac packages can be tailored
with carbon dioxide to oxygen transfer ratios ranging from 1.0 to 12.0
and selectively transmit oxygen and carbon dioxide at optimum rates to
sustain the quality and shelf life of produce.
- TEMPERATURE RESPONSIVENESS. Landec has developed breathable membranes
that can be designed to increase or decrease in permeability in
response to environmental temperature changes. The Company has
developed packaging that responds to higher oxygen requirements at
elevated temperatures but is also reversible, and returns to its
original state as temperatures decline.
Landec believes that growth of the overall produce market will be
driven by the increasing demand for the convenience of fresh-cut produce. This
demand will in turn require packaging that facilitates the quality and shelf
life of produce transported to fresh-cut processors in bulk and pallet
quantities. The Company believes that in the future its Intellipac breathable
membranes will be useful for packaging a diverse variety of fresh-cut produce
products. Potential opportunities for using Landec's technology outside of the
fresh-cut produce market exist in cut flowers and in other food products.
Landec is working with leaders in the fresh-cut food service, club
store and retail grocery markets. The Company believes it will have growth
opportunities for the next several years through new customers and products in
the United States, expansion of its existing customer relationships, and through
export and shipments of specialty packaged foods.
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Landec manufactures its Intellipac breathable membranes with selected
qualified contract manufacturers and markets and sells Intellipac breathable
membranes directly to food processors.
APIO, INC.
In December 1999, Landec completed the acquisition of Apio and certain
related entities. Landec paid $23.9 million in cash and Landec Common Stock for
Apio. An additional $16.75 million in future payments over the next five years
may be paid, $10.0 million of which is based on Apio achieving certain
performance milestones. Apio had revenue of approximately $158 million in 1998,
has realized a compounded annual growth in revenues of over 19% between 1996 and
1998 and is profitable.
Based in Guadalupe, California, Apio consists of two major businesses
- -- traditional whole produce harvesting, packing and marketing and specialty
packaged fresh-cut value-added processed products that are pre-cut, washed and
packaged in Landec's Intellipac packaging. The traditional produce business
includes harvesting, packing, cooling and marketing of vegetables and fruits on
a contract basis for growers in California's Santa Maria, San Joaquin and
Imperial Valleys and in Arizona and Mexico. Apio currently has approximately
18,000 acres under contract, including access to approximately 20 percent of the
farmable land in the Santa Maria Valley. The fresh-cut value-added processing
business, developed within the last 4 years, sources a variety of fresh-cut
vegetables to 9 of the top 10 retail grocery chains representing over 3,000
retail stores and to over 500 club stores. 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 United States and internationally, primarily in Asia.
There are four major distinguishing characteristics of Apio that
provide it a competitive advantage in the Food Products Technology market:
- Apio has structured its business as a full service provider of
vegetables, fruits, and fresh-cut value-added produce. As retail and
club store chains consolidate, Apio is well positioned as a single
source of a broad range of products.
- Apio is unique in that it takes on less farming risk than its
competitors. Apio reduces its farming risk by not taking ownership of
farmland, and instead, will contract with growers for produce and
charge for services that include packing, cooling, shipping and
marketing. In many cases, Apio does not take title to the produce but
receives a margin for services rendered. The year-round sourcing of
produce is a key component to both the traditional produce business as
well as the fresh-cut value-added processing business.
- Apio strategically invested in the rapidly growing fresh-cut
value-added business. Apio's new 35,000 square foot value-added plant
operates during the peak seasons two 10-hour shifts per day, seven days
a week. Apio has one of the very few temperature controlled value-added
processing plants in the U.S. Ninety percent of Apio's value-added
products utilize Landec's proprietary Intellipac membrane technology.
Apio is also focused on developing its "Eat Smart" brand name for all
of its fresh-cut value-added products.
- Apio is uniquely positioned to benefit from the growth in export sales
to Asia and Europe over the next decade with its export business,
CalEx. Through CalEx, Apio is currently one of the largest U.S.
exporters of broccoli to Asia.
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AGRICULTURAL SEED TECHNOLOGY BUSINESS
Landec formed its Intellicoat subsidiary in 1995. Intellicoat's
strategy is to build a vertically integrated seed technology company based on
Intellicoat's proprietary seed coating technology and its direct marketing,
telephonic sales and electronic commerce capabilities.
INTELLICOAT SEED COATINGS
Landec has developed and, through Intellicoat, is conducting field
trials of its Intellicoat seed coatings, an Intelimer-based agricultural
material designed to control seed germination timing, increase crop yields and
extend the crop planting windows. These coatings are initially being applied to
corn, soybean, cotton and canola seeds. According to the U.S. Agricultural
Statistics Board, the total planted acreage in 1998 in North America for corn,
soybean, cotton and canola seed exceeded 77.6 million, 77.2 million, 14.6
million and 1.1 million, respectively.
Currently, farmers are required to predict the proper time to plant
seeds. If the seeds are planted too early, they may rot or suffer chilling
injury due to the absorption of water at cold soil temperatures. If they are
planted too late, the growing season may end prior to the crop reaching full
maturity. In either case, the resulting crop yields are sub-optimal. Moreover,
the planting window can be fairly brief, requiring the farmer to focus almost
exclusively on planting during this time. Seeds also germinate at different
times due to variations in absorption of water, thus providing for variations in
the growth rate of the crops.
The Company's Intellicoat seed coating prevents planted seeds from
absorbing water when the ground temperature is below the coating's pre-set
switch. Intellicoat seed coatings are designed to enable coated seeds to be
planted early without risk of chilling damage caused by the absorption of water
at cold soil temperatures. As spring advances and soil temperatures rise to the
pre-determined switch temperature, the polymer's permeability increases and the
coated seeds absorb water and begin to germinate. The Company believes that
Intellicoat seed coatings provide the following advantages: more flexible timing
for planting, avoidance of chilling injury, uniform germination and crop growth,
and protection against harmful fungi. As a result, the Company believes that
Intellicoat seed coatings offer the potential for significant improvements in
crop yields.
Based on the success of fiscal year 1999's field trials, the Company
will be selectively marketing its inbred corn seed coating products beginning in
fiscal year 2000 through regional and national seed companies in the United
States. This application is targeted to approximately 640,000 acres of farmland
in ten states. In addition, Intellicoat seed coatings are being tested with
numerous collaborators for the relay cropping of wheat and soybean. Relay
cropping of wheat and soybeans will allow farmers to plant and harvest two crops
during the year on the same acre of land, providing significant financial
benefit for the farmer. Intellicoat plans to expand its testing of the relay
cropping system in the spring of 2000 and assuming expanded field trials are
successful, expects to commercially launch the technology in the spring of 2001.
This application is targeted to approximately 10 million acres of farmland in
six states. Future crops under consideration include cotton, canola, sugar beets
and other vegetables.
FIELDER'S CHOICE DIRECT (THE DIRECT MARKETING, TELEPHONIC SALES AND
E-COMMERCE COMPANY)
In September 1997, Intellicoat completed the acquisition of Fielder's
Choice, a direct marketer of hybrid seed corn to farmers. Landec paid
approximately $3.6 million in cash and direct acquisition costs and $5.2 million
in Landec Common Stock for the Company. Terms of the agreement include
additional consideration in the form of a cash earn-out based on future
performance. Fielder's Choice had sales of approximately $13.3 million and $15.2
million in the twelve months ended October 31, 1998 and October 31, 1999,
respectively.
Based in Monticello, Indiana, Fielder's Choice offers a comprehensive
line of corn hybrids to more than 16,000 producer seed customers in over forty
states through direct marketing programs. The success of Fielder's Choice comes,
in part, from its expertise in selling directly to the farmer producer,
bypassing the traditional and costly farmer-dealer system. The Company believes
that this direct channel of distribution provides a 35% cost advantage to its
farmer producers.
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In order to support its direct marketing programs, Fielder's Choice has
developed proprietary direct marketing, telephonic sales and e-commerce
information technology, called "The Farmer First System", that enables
state-of-the-art methods for communicating with a broad array of farmers. This
proprietary direct marketing information technology includes a current database
of over 60,000 farmers. In August 1999, the Company launched the seed industry's
first comprehensive e-commerce website. This new website furthers the Company's
ability to provide a high level of consultation to Fielder's Choice customers,
backed by a six day a week call center capability that enables the Company to
use the internet as a natural extension of its direct marketing strategy.
The acquisition of Fielder's Choice was strategic in providing a
cost-effective vehicle for Intellicoat seed coating products when they are ready
for commercial production. The Company believes that the combination of a direct
channel of distribution, telephonic and electronic commerce capabilities will
enable Intellicoat to more quickly achieve meaningful market penetration.
TECHNOLOGY LICENSING/RESEARCH & DEVELOPMENT BUSINESSES
The Company believes its technology has commercial potential in a wide
range of industrial, consumer and medical applications beyond those identified
in its core businesses. In order to exploit these opportunities, the Company has
entered into licensing and collaborative corporate agreements for product
development and/or distribution in certain fields.
INDUSTRIAL MATERIALS AND ADHESIVES
Landec's industrial products development strategy is to focus on
catalysts, resins, fully-formulated products and adhesives in the polymer
materials market. During the product development stage, the Company identifies
corporate partners to support the ongoing development and testing of these
products, with the ultimate goal of licensing the applications at the
appropriate time.
INTELIMER POLYMER SYSTEMS. The Company is developing catalysts,
curative, and curing agent systems based on its Intelimer technology for use in
one-package thermoset products. These systems can incorporate catalysts,
curatives and curing agents in a unique polymer envelope that prevents
interaction by these agents with the resin when the polymer envelope is in its
impermeable state. This characteristic allows all components of the thermoset
product to be pre-mixed and stored at room temperature, and provides longer
shelf life. Landec's unique polymer envelope system can be designed with a
pre-set opening temperature switch to correspond with elevated temperatures used
during standard manufacturing processes. When the thermoset system is exposed to
the pre-set switch temperature, the Intelimer polymer abruptly changes to its
permeable state, exposing the catalyst to the resin and initiating the curing
process. In addition, the Intelimer polymer can be designed to change state over
a predetermined temperature range in order to achieve a desired reaction time.
Thermoset catalyst systems can eliminate the need for costly on-site
mixing equipment and because thermosets can be pre-mixed by the manufacturer,
will minimize sub-optimal product performance due to incorrect component mixing
ratios. Furthermore, since the thermosets will not cure until exposed to
elevated temperatures, pot life should be extended, resulting in significantly
reduced waste and labor expense. The Company believes that the ability to
control reaction time also provides advantages over existing thermoset systems
and can enhance the throughput of targeted manufacturing customers. Landec
received the R&D 100 Award from R&D Magazine for its Intelimer Polymer Systems
product line in 1997 in recognition of the unique capabilities of this
technology. Certain Intelimer Polymer Systems products are in field trials with
some large industrial companies, which, if approved, will be ready for
commercial introduction during the next year.
AEROMARK-TM- 80. Landec announced in December 1998, the introduction of
its first fully-formulated product, Aeromark 80, using the Company's proprietary
Intelimer catalyst technology. Aeromark 80 and other related products under
development are targeted to the rapidly growing prototyping/design market
estimated to exceed $100 million a year in sales. Landec's initial focus is with
large volume users such as major automakers and aerospace manufacturers. Landec
has been testing materials with several large European automotive companies and
is currently scaling manufacturing at a contract manufacturing site in
Switzerland.
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DOCK RESINS. In April 1997, Landec completed the acquisition of Dock
Resins, a privately-held manufacturer and marketer of specialty acrylic and
other polymers based in Linden, New Jersey. Landec paid approximately $13.7
million in cash, a promissory note and direct acquisition costs and $2.1 million
in Landec Common Stock to acquire Dock Resins. The acquisition of Dock Resins
was strategic in providing the Company with immediate access to large-scale
polymer manufacturing as well as a built-in customer base and national
distribution network. Dock Resins has a track record of growth in revenues and
earnings and a strong management team under the leadership of Dock Resins' Chief
Executive Officer, Dr. A. Wayne Tamarelli.
Dock Resins also sells products under the Doresco trademark which are
used by more than 300 customers throughout the United States and other countries
in the coatings, printing inks, laminating and adhesives markets. Dock Resins is
a leading supplier of proprietary polymers including acrylic, methacrylic,
alkyd, polyester, urethane and polyamide polymers to film converters engaged in
hot stamping, decorative wood grain, automotive interiors, holograms, and metal
foil applications. Dock Resins also supplies products to a number of other
markets such as graphic arts, automotive refinishing, construction,
pressure-sensitive adhesives, paper coatings, caulks, concrete curing compounds
and sealers. Dock Resins had sales of approximately $15.4 million and $14.0
million in the twelve months ended October 31, 1998 and October 31, 1999,
respectively.
HITACHI CHEMICAL. The Company entered into two separate collaborations
with Hitachi Chemical ("Hitachi") in the areas of industrial adhesives and
Intelimer Polymer Systems. On October 1, 1994, the Company entered into a
non-exclusive license agreement for seven years with Hitachi in the industrial
adhesives area. The agreement provides Hitachi with a non-exclusive license to
manufacture and sell products using Landec's Intelimer materials in certain
Asian countries. Landec received up-front license fees upon signing the
agreement and is entitled to future royalties based on net sales by Hitachi of
the licensed products. Any fees paid to the Company are non-refundable.
On August 10, 1995, the Company entered into the second collaboration
with Hitachi in the Intelimer Polymer Systems area. The agreement provided
Hitachi with an exclusive license to use and sell Landec's Intelimer Polymer
Systems in industrial latent curing products in certain Asian countries. Landec
is entitled to be the exclusive supplier of Intelimer Polymer Systems to Hitachi
for at least seven years after commercialization. Landec received an up-front
license payment upon signing this agreement and research and development funding
over three years and is entitled to receive future royalties based on net sales
by Hitachi of the licensed products. Any fees paid to the Company are
non-refundable. This agreement has been converted to a non-exclusive agreement
except for one application field.
NITTA CORPORATION. On March 14, 1995, the Company entered into a
license agreement with Nitta Corporation ("Nitta") in the industrial adhesives
area. The agreement provides Nitta with a co-exclusive license to manufacture
and sell products using Landec's Intelimer materials in certain Asian countries.
Landec received up-front license fees upon signing the agreement and is entitled
to future royalties based on net sales by Nitta of the licensed products. Any
fees paid to the Company are non-refundable. This agreement is terminable at
Nitta's option. Nitta and the Company entered into an additional exclusive
license arrangement in February 1996 covering Landec's medical adhesives
technology for use in Asia. The Company received up-front license fees upon
execution of the agreement and research and development payments and is entitled
to receive future royalties under this agreement. Any fees paid to the Company
are non-refundable. Nitta and the Company also entered into another worldwide
exclusive agreement on January 1, 1998 in the area of industrial adhesives
specific to one field of electronic polishing adhesives. The Company received
research and development payments as a part of this agreement.
MEDICAL APPLICATIONS
PORT-TM- OPHTHALMIC DEVICES. Landec developed the PORT (Punctal
Occluder for the Retention of Tears) ophthalmic device initially to address a
common, yet poorly diagnosed condition known as dry eye that is estimated to
affect 30 million Americans annually. The device consists of a physician-applied
applicator containing solid Intelimer material that transforms into a flowable,
viscous state when heated slightly above body temperature. After inserting the
Intelimer material into the lacrimal drainage duct, it quickly solidifies into a
form-fitting, solid plug. Occlusion of the
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<PAGE>
lacrimal drainage duct allows the patient to retain tear fluid and thereby
provides relief and therapy to the dry eye patient.
The PORT product is currently in human clinical trials. Landec and its
partner, Alcon, a wholly-owned subsidiary of Nestle S.A., believe that PORT
plugs will have additional ophthalmic applications beyond the dry eye market.
This would include applications for people who cannot wear contact lenses due to
limited tear fluid retention and patients receiving therapeutic drugs via eye
drops that require longer retention in the eye.
In December 1997, Landec licensed the rights to worldwide
manufacturing, marketing and distribution of its PORT ophthalmic device to
Alcon. Under the terms of the transaction, Landec received an up-front cash
payment of $500,000, a $1 million milestone payment in November 1998, research
and development funding and will receive ongoing royalties of 12.5% on product
sales of each PORT device over an approximately 15-year period. In September
1999, Alcon submitted a 510K application to the FDA seeking approval to
commercially sell the PORT device. Landec will continue to provide development
support on a contract basis through the FDA approval process and product launch.
CONVATEC. On October 11, 1999, the Company entered into a joint
development agreement with ConvaTec, a division of Bristol Myers Squibb, under
which Landec will develop adhesive film products for selected ConvaTec medical
products. Landec is receiving support funding for this program. Upon completion
of this agreement, the companies have the option to consider a license and
supply agreement where Landec would supply materials to ConvaTec for use in
specific medical devices.
SALES AND MARKETING
Each of the Company's core businesses are supported by dedicated sales
and marketing resources. The Company intends to develop its internal sales
capacity as more products progress toward commercialization and as business
volume expands geographically.
FOOD PRODUCTS TECHNOLOGY BUSINESS
In the Intellipac breathable membrane business, there are a limited
number of suppliers of fresh-cut produce, most of whom are located in the
western United States. The Company currently has a small internal sales force
targeted at this concentrated marketplace. Apio has over 22 sales people,
located in central California and throughout the U.S., supporting both the
traditional produce marketing business and the specialty packaged value-added
produce business.
AGRICULTURAL SEED TECHNOLOGY BUSINESS
In preparation for the first launch of coated inbred corn seed products
in fiscal year 2000, the Intellicoat seed coating business has identified a
small internal sales force to target a very focused group of seed customers. For
future coated seed products that are sold directly to farmers, the Company will
utilize over 35 direct seed sales consultants located in Monticello, Indiana.
These consultants also support Fielder's Choice in its direct marketing of corn
seed. Customer contacts are made based on direct responses and inquiries from
customers.
OTHER
Dock Resins sales are carried out through a small direct sales group
and network of existing manufacturers' representatives and distributed through
public warehouses. Sales are supported by internal sales and technical service
resources at Dock Resins. Intelimer Polymer Systems sales are made through a
small, technically oriented, internal sales organization in the U.S. and in
Europe through Akzo Nobel and Aero Consultants Ltd. A.G., international
distributors.
-12-
<PAGE>
MANUFACTURING
Landec intends to control the manufacturing of its own products
whenever possible, as it believes that there is considerable manufacturing
margin opportunity in its products. In addition, the Company believes that
know-how and trade secrets can be better maintained by Landec retaining
manufacturing capability in-house.
POLYMER MANUFACTURING - DOCK RESINS CORPORATION
Dock Resins has manufacturing facilities that are flexible and
adaptable to a wide range of processes. Its capabilities include various
polymerization processes, grafting, dispersing, blending, pilot plant scale-ups
and general synthesis. The Company has increased the capacity of these
facilities in 1998 and 1999. Dock Resins' policy is to be a leader in safety,
health and environmental protection. In 1998 and 1999, Dock Resins passed a
voluntary comprehensive health and safety evaluation by the United States
Occupational Safety and Health Administration (OSHA). As a result, OSHA awarded
recognition to Dock Resins as a Merit Site in 1998 and a Star Site in 1999 in
OSHA's Voluntary Protection Program.
FOOD PRODUCTS TECHNOLOGY BUSINESS
The manufacturing process for the Company's initial Intellipac
breathable membrane products is comprised of polymer manufacturing, membrane
coating and label conversion. The Company currently has the majority of its
Intellipac breathable membrane products manufactured by selected outside
contract manufacturers. Landec has recently scaled up a significant portion of
label conversion manufacturing in Menlo Park to meet the increasing product
demand and provide additional developmental capabilities.
Apio processes all of its fresh-cut value-added products in a 35,000
square foot, state-of-the-art processing facility located in Guadalupe,
California. The Company is currently running two shifts per day, seven days a
week, and utilizes contract laborers from a third party contact labor supplier.
Cooling of produce is done through third parties and Apio Cooling, a separate
company of which Apio has a 60% ownership interest and is the general partner.
AGRICULTURAL SEED TECHNOLOGY BUSINESS
The Company is currently in the process of scaling up the manufacturing
coating process in Menlo Park, California to support the launch of its inbred
corn product and extend field trials of its wheat/soybean relay product.
Fielder's Choice purchases its hybrid seed corn from an established producer
under an exclusive purchase agreement.
GENERAL.
Many of the raw materials used in manufacturing certain of the
Company's products are currently purchased from a single source, including
certain monomers used to synthesize Intelimer polymers and substrate materials
for the Company's breathable membrane products. In addition, virtually all of
the hybrid corn varieties sold by Fielder's Choice are purchased from a single
source. Upon manufacturing scale-up and as hybrid corn sales increase, the
Company may enter into alternative supply arrangements. Although to date the
Company has not experienced difficulty acquiring materials for the manufacture
of its products nor has Fielder's Choice experienced difficulty in acquiring
hybrid corn varieties, no assurance can be given that interruptions in supplies
will not occur in the future, that the Company will be able to obtain substitute
vendors, or that the Company will be able to procure comparable materials or
hybrid corn varieties at similar prices and terms within a reasonable time. Any
such interruption of supply could have a material adverse effect on the
Company's ability to manufacture and distribute its products and, consequently,
could materially and adversely affect the Company's business, operating results
and financial condition.
Landec has historically relied on the guidance of Good Manufacturing
Practices ("GMP") in developing standardized research and manufacturing
processes and procedures. Having entered into licensing agreements for the PORT
device, the Company is no longer required to adhere to GMPs. The Company desires
to maintain an externally audited quality system and has achieved ISO 9001
registration for the Menlo Park research and development site in
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<PAGE>
fiscal year 1999. Such registration is required in order for the Company to sell
product to certain potential customers, primarily in Europe.
RESEARCH AND DEVELOPMENT
Landec is focusing its research and development resources on both
existing and new applications of its Intelimer technology. Expenditures for
research and development in fiscal year 1999 were $5.8 million, compared with
$5.7 million in fiscal year 1998. Fiscal year 1998 expenditures for research and
development increased 24% from fiscal year 1997 expenditures of $4.6 million. In
fiscal year 1999, research and development expenditures funded by corporate
partners were $770,000, compared with $1.4 million in fiscal year 1998 and
$863,000 in fiscal year 1997. The Company may continue to seek funds for applied
materials research programs from U.S. government agencies as well as from
commercial entities. The Company anticipates that it will continue to have
significant research and development expenditures in order to maintain its
competitive position with a continuing flow of innovative, high-quality products
and services. As of October 31, 1999, Landec had 29 employees engaged in
research and development (and a total of eight Ph.D.s in the Company) with
experience in polymer and analytical chemistry, product application, product
formulation, mechanical and chemical engineering.
COMPETITION
The Company operates in highly competitive and rapidly evolving fields,
and new developments are expected to continue at a rapid pace. Competition from
large food packaging and agricultural companies is expected to be intense. In
addition, the nature of the Company's collaborative arrangements and its
technology licensing business may result in its corporate partners and licensees
becoming competitors of the Company. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than the Company, and many have substantially greater
experience in conducting field trials, obtaining regulatory approvals and
manufacturing and marketing commercial products. There can be no assurance that
these competitors will not succeed in developing alternative technologies and
products that are more effective, easier to use or less expensive than those
which have been or are being developed by the Company or that would render the
Company's technology and products obsolete and non-competitive.
PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in large part on its ability to obtain
patents, maintain trade secret protection and operate without infringing on the
proprietary rights of third parties. The Company has been granted eleven U.S.
patents with expiration dates ranging from 2006 to 2015 and has filed
applications for additional U.S. patents, as well as certain corresponding
patent applications outside the United States, relating to the Company's
technology. The Company's issued patents include claims relating to
compositions, devices and use of a class of temperature sensitive polymers that
exhibit distinctive properties of permeability, adhesion and viscosity. There
can be no assurance that any of the pending patent applications will be
approved, that the Company will develop additional proprietary products that are
patentable, that any patents issued to the Company will provide the Company with
competitive advantages or will not be challenged by any third parties or that
the patents of others will not prevent the commercialization of products
incorporating the Company's technology. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate any of
the Company's products or design around the Company's patents. Any of the
foregoing results could have a material adverse effect on the Company's
business, operating results and financial condition.
The commercial success of the Company will also depend, in part, on its
ability to avoid infringing patents issued to others. The Company has received,
and may in the future receive, from third parties, including some of its
competitors, notices claiming that it is infringing third party patents or other
proprietary rights. If the Company were determined to be infringing any
third-party patent, the Company could be required to pay damages, alter its
products or processes, obtain licenses or cease certain activities. In addition,
if patents are issued to others which contain claims that compete or conflict
with those of the Company and such competing or conflicting claims are
ultimately determined to be valid, the Company may be required to pay damages,
to obtain licenses to these patents, to develop or obtain alternative technology
or to cease using such technology. If the Company is required to obtain any
licenses, there can
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<PAGE>
be no assurance that the Company will be able to do so on commercially favorable
terms, if at all. The Company's failure to obtain a license to any technology
that it may require to commercialize its products could have a material adverse
impact on the Company's business, operating results and financial condition.
Litigation, which could result in substantial costs to the Company, may
also be necessary to enforce any patents issued or licensed to the Company or to
determine the scope and validity of third-party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to and diversion of effort by the Company, even if the eventual
outcome is favorable to the Company. Any such litigation or interference
proceeding, regardless of outcome, could be expensive and time consuming and
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require the Company to
cease using such technology and consequently, could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition to patent protection, the Company also relies on trade
secrets, proprietary know-how and technological advances which the Company seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.
GOVERNMENT REGULATIONS
The Company's products and operations are subject to substantial
regulation in the United States and foreign countries.
FOOD PRODUCTS TECHNOLOGY BUSINESS
The Company's food packaging products are subject to regulation under
the Food, Drug and Cosmetic Act ("FDC Act"). Under the FDC Act any substance
that when used as intended may reasonably be expected to become, directly or
indirectly, a component or otherwise affect the characteristics of any food may
be regulated as a food additive unless the substance is generally recognized as
safe. Food additives may be substances added directly to food, such as
preservatives, or substances that could indirectly become a component of food,
such as waxes, adhesives and packaging materials.
A food additive, whether direct or indirect, must be covered by a
specific food additive regulation issued by the FDA. The Company believes its
Intellipac breathable membrane products are not subject to regulation as food
additives because these products are not expected to become a component of food
under their expected conditions of use. If the FDA were to determine that the
Company's Intellipac breathable membrane products are food additives, the
Company may be required to submit a food additive petition. The food additive
petition process is lengthy, expensive and uncertain. A determination by the FDA
that a food additive petition is necessary would have a material adverse effect
on the Company's business, operating results and financial condition.
The Company's agricultural operations are subject to a variety of
environmental laws including the Food Quality Protection Act of 1966, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive
Environmental Response, Compensation and Liability Act. Compliance with these
laws and related regulations is an ongoing process. Environmental concerns are,
however, inherent in most agricultural operations, including those conducted by
the Company, and there can be no assurance that the cost of compliance with
environmental laws and regulations will not be material. Moreover, it is
possible that future developments, such as increasingly strict environmental
laws and enforcement policies thereunder, and further restrictions on the use of
manufacturing chemicals could result in increased compliance costs.
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<PAGE>
As a result of the Apio acquisition, the Company is subject to USDA
rules and regulations concerning the safety of the food products handled and
sold by Apio, and the facilities in which they are packed and processed. Failure
to comply with the applicable regulatory requirements can, among other things,
result in fines, injunctions, civil penalties, suspensions or withdrawal of
regulatory approvals, product recalls, product seizures, including cessation of
manufacturing and sales, operating restrictions and criminal prosecution.
AGRICULTURAL SEED TECHNOLOGY BUSINESS
The Company's agricultural products are subject to regulations of the
United States Department of Agriculture ("USDA") and the EPA. The Company
believes its current Intellicoat seed coatings are not pesticides as defined in
the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA") and are not
subject to pesticide regulation requirements. The process of meeting pesticide
registration requirements is lengthy, expensive and uncertain, and may require
additional studies by the Company. There can be no assurance that future
products will not be regulated as pesticides. In addition, the Company believes
that its Intellicoat seed coatings will not become a component of the
agricultural products which are produced from the seeds to which the coatings
are applied and therefore are not subject to regulation by the FDA as a food
additive. While the Company believes that it will be able to obtain approval
from such agencies to distribute its products, there can be no assurance that
the Company will obtain necessary approvals without substantial expense or
delay, if at all.
POLYMER MANUFACTURE
The Company's manufacture of polymers is subject to regulation by the
EPA under the Toxic Substances Control Act ("TSCA"). Pursuant to TSCA,
manufacturers of new chemical substances are required to provide a
Pre-Manufacturing Notice ("PMN") prior to manufacturing the new chemical
substance. After review of the PMN, the EPA may require more extensive testing
to establish the safety of the chemical, or limit or prohibit the manufacture or
use of the chemical. To date, PMNs submitted by the Company have been approved
by the EPA without any additional testing requirements or limitation on
manufacturing or use. In addition, the ongoing manufacture of Dock Resins'
existing product line is subject to state and federal environmental and safety
regulations. No assurance can be given that the EPA will grant similar approval
for future PMNs submitted by the Company.
OTHER
The Company and its products under development may also be subject to
other federal, state and local laws, regulations and recommendations. Although
Landec believes that it will be able to comply with all applicable regulations
regarding the manufacture and sale of its products and polymer materials, such
regulations are always subject to change and depend heavily on administrative
interpretations and the country in which the products are sold. There can be no
assurance that future changes in regulations or interpretations made by the FDA,
EPA or other regulatory bodies, with possible retroactive effect, relating to
such matters as safe working conditions, laboratory and manufacturing practices,
environmental controls, fire hazard control, and disposal of hazardous or
potentially hazardous substances will not adversely affect the Company's
business. There can also be no assurance that the Company will not be required
to incur significant costs to comply with such laws and regulations in the
future, or that such laws or regulations will not have a material adverse effect
upon the Company's ability to do business. Furthermore, the introduction of the
Company's products in foreign markets may require obtaining foreign regulatory
clearances. There can be no assurance that the Company will be able to obtain
regulatory clearances for its products in such foreign markets.
EMPLOYEES
As of October 31, 1999, Landec had 173 full-time employees, of whom 64
were dedicated to research, development, manufacturing, quality control and
regulatory affairs and 109 were dedicated to sales, marketing and administrative
activities. As of December 31, 1999, with the inclusion of Apio, Landec had 316
full-time employees. Landec intends to recruit additional personnel in
connection with the development, manufacturing and marketing of its products.
None of Landec's employees is represented by a union, and Landec believes
relationships with its employees are good.
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ITEM 2. PROPERTIES
The Company has offices in Menlo Park, California, Linden, New Jersey
and Monticello, Indiana. During fiscal year 1999, the Landec operations located
in Menlo Park, California expanded its warehouse and manufacturing space by
6,000 square feet to support the manufacturing efforts of the Intellipac
breathable membrane business. Apio, which was acquired in December 1999, has
facilities in Guadalupe and Reedley, California.
These properties are described below:
<TABLE>
<CAPTION>
Acres
Business of Lease
Location Segment Ownership Facilities Land Expiration
- -------------------- ---------------- ---------------- -------------------------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Menlo Park, CA All Leased 21,000 square feet of office and -- 12/31/01(1)
laboratory space
Menlo Park, CA All Subleased 11,000 square feet of warehouse -- 7/31/02(1)
and manufacturing space
Linden, NJ Industrial Owned 22,000 square feet of office, 2.1 --
High laboratory, production,
Performance warehouse, and ancillary space
Materials
Monticello, IN Agricultural Owned 19,400 square feet of office 0.5 --
Seed space
Technology
Guadalupe, CA Food Products Owned 94,000 square feet of office 11.6 --
Technology space, manufacturing and cold
storage.
Reedley, CA Food Products Owned 152,600 square feet of office 19.3 --
Technology space, manufacturing and cold
storage.
</TABLE>
(1) Lease contains one two-year renewal option.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the Company's fiscal year ending October 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded on the Nasdaq National Market under the
symbol "LNDC". The following table sets forth for each period indicated the high
and low sales prices for the Common Stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
Fiscal Year 1999
- ----------------
High Low
---- ---
<S> <C> <C>
4th Quarter ending October 31, 1999.......................................$8.41 $2.63
3rd Quarter ending July 31, 1999..........................................$4.06 $3.00
2nd Quarter ending April 30, 1999.........................................$5.13 $3.38
1st Quarter ending January 31, 1999.......................................$6.00 $4.00
<CAPTION>
Fiscal Year 1998
- ----------------
High Low
---- ---
<S> <C> <C>
4th Quarter ending October 31, 1998.......................................$6.00 $3.25
3rd Quarter ending July 31, 1998..........................................$7.25 $5.50
2nd Quarter ending April 30, 1998.........................................$7.81 $4.50
1st Quarter ending January 31, 1998.......................................$5.13 $3.13
</TABLE>
There were approximately 136 holders of record of 15,922,331 shares of
outstanding Common Stock as of January 7, 2000. Since holders are listed under
their brokerage firm's names, the actual number of shareholders is higher. The
Company has not paid any dividends on the Common Stock since its inception. The
Company presently intends to retain all future earnings, if any, for its
business and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.
In connection with the sale of Series D Preferred Stock in July 1993,
the Company issued warrants to purchase 186,349 shares of Common Stock at an
exercise price of $4.31 per share for $5,357 in cash. In a cashless exercise
during fiscal year 1998, 46,587 shares were issued in exchange for the warrants.
In October 1998, certain directors and officers of the Company
purchased 200,425 shares of Common Stock for between $3.75 and $3.94 per share
for $776,000.
Pursuant to a Series A Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated November 19, 1999, by and among the Company and
Frederick Frank, the Company 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 Company issued 166,667 shares of Preferred stock of the Company
at $60.00 per share (representing 1,666,670 shares of Common Stock on a
converted basis).
In connection with the Company's acquisition of Apio on December 2,
1999, the prior owners of Apio received 2.5 million shares of Common Stock. As
compensation for services rendered by Lehman Brothers Inc. in connection with
the closing of the Apio acquisition, the Company issued 62,500 shares of Common
Stock to Lehman Brothers, Inc. at $6.25 per share.
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<PAGE>
The issuance of securities in this Item 5 was deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Act"), in
reliance on Section 4(2) of the Act as a transaction by an issuer not involving
any public offering. The recipients of the securities in such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities issued in such transaction.
The recipients were given adequate access to information about the Company.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with the
information contained in Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements contained in Item 8 of
this report.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------
STATEMENT OF OPERATIONS DATA: 1999 1998 1997 1996 1995
---------- ------------ ----------- ----------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales.....................................$ 33,927 $ 31,664 $ 8,653 $ 371 $ 14
Research and development revenues................. 770 1,352 863 1,096 796
License fees...................................... 750 500 -- 600 2,650
---------- ------------ ----------- ----------- ------------
Total revenues................................. 35,447 33,516 9,516 2,067 3,460
Operating costs and expenses:
Cost of product sales............................. 21,476 20,308 6,215 422 9
Research and development.......................... 5,758 5,713 4,608 3,588 3,175
Selling, general and administrative............... 11,192 10,835 4,664 2,367 1,332
Purchased in-process research and development..... -- -- 3,022 -- --
---------- ------------ ----------- ----------- ------------
38,426 36,856 18,509 6,377 4,516
---------- ------------ ----------- ----------- ------------
Operating loss....................................... (2,979) (3,340) (8,993) (4,310) (1,056)
---------- ------------ ----------- ----------- ------------
Interest income...................................... 363 737 1,726 1,546 281
Interest expense..................................... (99) (137) (319) (59) (106)
---------- ------------ ----------- ----------- ------------
Loss from continuing operations before income taxes.. (2,715) (2,740) (7,586) (2,823) (881)
Provision for income taxes........................... (54) (150) -- -- --
---------- ------------ ----------- ----------- ------------
Loss from continuing operations...................... (2,769) (2,890) (7,586) (2,823) (881)
---------- ------------ ----------- ----------- ------------
Discontinued Operations:
Loss from discontinued QuickCast operations....... -- -- (1,059) (1,377) (1,878)
Gain on disposal of QuickCast operations.......... -- -- 70 -- --
---------- ------------ ----------- ----------- ------------
Loss from discontinued operations.................... -- -- (989) (1,377) (1,878)
---------- ------------ ----------- ----------- ------------
Net loss.............................................$ (2,769) $ (2,890) $(8,575) $(4,200) $ (2,759)
========== ============ =========== =========== ============
Basic and diluted net loss per share:
Continuing operations.............................$ (.21) $ (.23) $ (.68) $ (.37) $ (.74)
Discontinued operations........................... -- -- (.09) (.18) (1.59)
---------- ------------ ----------- ----------- ------------
Basic and diluted net loss per share.................$ (.21) $ (.23) $ (.77) $ (.55) $ (2.33)
========== ============ =========== =========== ============
Shares used in computing basic and diluted net loss
per share......................................... 13,273 12,773 11,144 7,699 1,182
========== ============ =========== =========== ============
<CAPTION>
OCTOBER 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ------------- ----------- ----------- ------------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term investments....$ 3,203 $ 10,177 $ 14,669 $ 36,510 $ 5,549
Total assets......................................... 40,708 42,356 50,160 38,358 7,347
Redeemable convertible preferred stock............... -- -- -- -- 31,276
Accumulated deficit.................................. (45,528) (42,756) (39,858) (31,278) (26,538)
Total shareholders' equity (net capital deficiency)..$ 31,761 $ 33,688 $ 35,615 $ 36,640 $ (26,429)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements contained in Item 8 of this report.
Except for the historical information contained herein, the matters discussed in
this report are forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Potential risks and uncertainties include,
without limitation, those mentioned in this report and, in particular, the
factors described below under "Additional Factors That May Affect Future
Results".
OVERVIEW
Since its inception in October 1986, the Company has been primarily
engaged in the research and development of its Intelimer technology and related
products. The Company has launched four product lines from this core development
QuickCast-TM- splints and casts, in April 1994, which was subsequently sold to
Bissell Healthcare Corporation in August 1997; Intellipac breathable membranes
for the fresh-cut produce packaging market, in September 1995; Intelimer Polymer
Systems for the industrial specialties market in June 1997; and Intellicoat
coated inbred corn seeds in the Fall of 1999.
On December 2, 1999, the Company acquired Apio, Inc and certain related
entities ("Apio"). Apio is a leading marketer and packer of produce and
specialty packaged fresh-cut vegetables. See "Business - Description of Core
Business: Food Products Technology Business - Apio, Inc.
During fiscal years 1997 through 1999, the Company managed its
operations in three business segments - Food Products Technology, Agricultural
Seed Technology and Industrial High Performance Materials.
With the acquisition of Apio, the Company will be focusing on two
vertically integrated core businesses - Food Products Technology and
Agricultural Seed Technology. The Food Products Technology segment combines the
Company's Intellipac breathable membrane technology with Apio's fresh-cut
produce business. The Agricultural Seed Technology segment integrates the
Intellicoat seed coating technology with Fielder's Choice's direct marketing,
telephonic sales and e-commerce distribution capabilities. The Company also
operates a Technology Licensing/Research and Development business which develops
products to be licensed outside of the Company's core businesses.
Dock Resins, the Company's polymer manufacturer supports the needs of
these core businesses and manufactures products for the specialty polymer
industry and Intelimer Polymer Systems customers.
The Company has been unprofitable during each fiscal year since its
inception. From inception through October 31, 1999, the Company's accumulated
deficit was $45.5 million. The Company may incur additional losses in the
future. The amount of future net profits, if any, is highly uncertain and there
can be no assurance that the Company will be able to reach or sustain
profitability for an entire fiscal year.
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RESULTS OF OPERATIONS
The Company's results of operations reflect only the continuing
operations of the Company and do not include the results of the discontinued
QuickCast operation.
FISCAL YEAR ENDED OCTOBER 31, 1999 COMPARED TO FISCAL YEAR ENDED
OCTOBER 31, 1998
Total revenues were $35.4 million for fiscal year 1999 compared to
$33.5 million for fiscal year 1998. Revenues from product sales increased to
$33.9 million in fiscal year 1999 from $31.7 million in fiscal year 1998
primarily due to increased product sales from Fielder's Choice and Intellipac
breathable membrane products which increased from $13.3 million and $2.9
million, respectively, in fiscal year 1998 to $15.2 million and $4.5 million,
respectively, during fiscal year 1999. The increase in Fielder's Choice revenues
was primarily due to increased per unit sales prices, and the increase in
Intellipac breathable membrane revenues was primarily due to the introduction of
various new products and increased volumes for existing products. These
increases were partially offset by a decrease in Dock Resins product sales from
$15.4 million during fiscal year 1998 to $14.0 million during fiscal year 1999.
This decrease is a result of the overall weakness in the chemical industry
during fiscal year 1999. Revenues from research and development funding were
$770,000 for fiscal year 1999 compared to $1.4 million for fiscal year 1998. The
decrease in research and development revenues was primarily due to the
completion of research and development arrangements with Hitachi Chemical and
Nitta Corporation in fiscal year 1998. Revenues from license fees during fiscal
year 1999 were $750,000 compared to $500,000 during fiscal year 1998. The
increase in revenues from license fees was due to a payment received from Alcon
in fiscal year 1999 upon meeting a certain milestone related to the licensing
agreement for the PORT ophthalmic devices. With the acquisition of Apio, the
Company expects future revenues to be significantly higher.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $21.5 million for fiscal year 1999 compared to $20.3 million
for fiscal year 1998. Cost of product sales as a percentage of product sales
decreased to 63% in fiscal year 1999 from 64% in fiscal year 1998. The decrease
in the cost of product sales as a percentage of product sales in fiscal year
1998 as compared to fiscal year 1999 was primarily the result of higher average
selling prices of Fielder's Choice products, partially offset by start-up costs
associated with establishing a new manufacturing facility in Menlo Park for
Intellipac breathable membrane products. The Company anticipates future cost of
product sales, in absolute dollars, to be significantly higher due to the
acquisition of Apio. Cost of product sales as a percentage of product sales is
expected to increase due to Apio's current mix of products having lower
percentage margins than Landec's other businesses. However, gross margins in
absolute dollars are expected to significantly increase due to Apio's high sales
volume.
Research and development expenses were $5.8 million for fiscal year
1999 compared to $5.7 million for fiscal year 1998. The Company's research and
development expenses consist primarily of expenses involved in product
development process scale-up, patent activities related to the Company's side
chain crystallizable polymer technology, and research and development expenses
related to Dock Resins products. The increase in research and development
expenses in fiscal year 1999 compared to fiscal year 1998 was primarily due to
increased development costs for the Company's Intellicoat seed coating products,
partially offset by a reduction in costs in the Industrial High Performance
Materials area. In future periods, the Company expects that spending for
research and development will continue to increase in absolute dollars, although
it will decrease significantly as a percentage of total revenues due to the
acquisition of Apio.
Selling, general and administrative expenses were $11.2 million for
fiscal year 1999 compared to $10.8 million for fiscal year 1998, an increase of
4%. Selling, general and administrative expenses consist primarily of sales and
marketing expenses associated with the Company's product sales, business
development expenses, and staff and administrative expenses. Specifically, sales
and marketing expenses increased to $6.2 million for fiscal year 1999, from $5.9
million for fiscal year 1998. Beginning fiscal year 2000, total selling, general
and administrative spending is expected to increase significantly, due to the
acquisition of Apio, although as a percentage of total revenues it is expected
to decrease.
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Net interest income was $264,000 for fiscal year 1999 compared to
$600,000 for fiscal year 1998. The decrease during fiscal year 1999 as compared
to fiscal year 1998 was due principally to less cash being available for
investing.
FISCAL YEAR ENDED OCTOBER 31, 1998 COMPARED TO FISCAL YEAR ENDED
OCTOBER 31, 1997
Total revenues were $33.5 million for fiscal year 1998 compared to $9.5
million for fiscal year 1997. Revenues from product sales increased to $31.7
million in fiscal year 1998 from $8.7 million in fiscal year 1997 due primarily
to $13.3 million of product sales from Fielder's Choice, which was acquired in
September 1997; and an increase of $8.0 million of product sales from Dock
Resins, which was acquired in April 1997. Also contributing to the increase were
Intellipac breathable membrane product sales which increased from $1.2 million
in fiscal year 1997 to $2.9 million in fiscal year 1998, due primarily to an
increase in unit sales and the introduction of several new products. Revenues
from research and development funding were $1.4 million for fiscal year 1998
compared to $863,000 for fiscal year 1997. The increase in research and
development revenues was primarily due to the agreement with Alcon for the
funding of the PORT program. Revenues from license fees during fiscal year 1998
were $500,000 compared to none during fiscal year 1997. The increase in license
fees revenue was due to a payment in the first quarter of fiscal year 1998 under
the PORT license agreement with Alcon.
Cost of product sales consists of material, labor and overhead. Cost of
product sales was $20.3 million for fiscal year 1998 compared to $6.2 million
for fiscal year 1997. Cost of product sales as a percentage of product sales
decreased to 64% in fiscal year 1998 from 72% in fiscal year 1997. The decrease
in the cost of product sales as a percentage of product sales in fiscal year
1998 as compared to fiscal year 1997 was primarily the result of higher margins
resulting from product sales of Fielder's Choice and Dock Resins products.
Research and development expenses were $5.7 million for fiscal year
1998 compared to $4.6 million for fiscal year 1997, an increase of 24%. The
increase in research and development expenses in fiscal year 1998 compared to
fiscal year 1997 was primarily due to increased development costs for the
Company's Intellipac and Intellicoat seed coating products and a full year of
development costs related to Dock Resins products.
Selling, general and administrative expenses were $10.8 million for
fiscal year 1998 compared to $4.7 million for fiscal year 1997, an increase of
130%. Selling, general and administrative expenses increased primarily as a
result of an entire year of expenses and amortization of goodwill for Dock
Resins and Fielder's Choice, which were acquired during fiscal year 1997.
Specifically, sales and marketing expenses increased to $5.9 million for fiscal
year 1998, from $1.8 million for fiscal year 1997.
Net interest income was $600,000 for fiscal year 1998 compared to $1.4
million for fiscal year 1997. The decrease during fiscal year 1998 as compared
to fiscal year 1997 was due principally to less cash being available for
investing.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1999 the Company had cash, cash equivalents and
short-term investments of $3.2 million, a net decrease of $7.0 million from
$10.2 million as of October 31, 1998. This decrease was primarily due to cash
used in operations of $3.6 million and the purchase of $3.7 million of property,
plant and equipment partially offset by cash provided by financing activities of
approximately $710,000 from primarily the sale of Common Stock and repayment of
notes receivable from shareholders. The cash used in operations was primarily
comprised of planned purchases of Fielder's Choice corn seed inventory to
support the fiscal year 2000 growing season and deferred expenses associated
with the Apio acquisition which were recorded to other current assets.
The majority of the Company's $3.7 million of property and equipment
expenditures during fiscal year 1999 was incurred for building improvement and
equipment upgrade expenditures at Dock Resins to expand capacity, and purchasing
quality assurance equipment to support the development of Intellipac and
Intellicoat products.
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Subsequent to fiscal year end, and as a result of raising $10 million
upon the sale of Preferred Stock and securing a new $11.25 million term debt
agreement to acquire Apio, Inc., the Company's cash balance increased to over $8
million. In addition, Apio entered into a new $12 million line of credit
agreement with Bank of America. The term debt and line of credit agreements
("loan agreements") contain restrictive covenants which require Apio to meet
certain financial tests, including minimum levels of EBITDA, minimum fixed
charge coverage ratio, minimum current ratio, minimum adjusted net worth and
maximum leverage ratios. These requirements and ratios generally become more
restrictive over time. The loan agreement, through restricted payment covenants,
limits the ability of Apio to make cash payments to Landec, until the
outstanding balance is reduced to an amount specified in the loan agreement.
In addition to the cash raised during the acquisition of Apio Inc.,
the Company is currently in the process of establishing a credit facility to
be used to fund the expansion of the manufacturing capabilities of
Intellicoat seed coating products. The Company believes that with these new
facilities, along with existing cash and cash equivalents will be sufficient
to finance operational and capital requirements for the foreseeable future.
The Company may, however, raise additional funds during the next twelve
months through an equity financing. If such financing does occur it will have
a dilutive effect on current shareholders. The Company's future capital
requirements will depend on numerous factors, including the progress of its
research and development programs; the development of commercial scale
manufacturing capabilities; the development of marketing, sales and
distribution capabilities; the ability of the Company to maintain existing
collaborative and licensing arrangements and establish and maintain new
collaborative and licensing arrangements; the timing and amount, if any, of
payments received under licensing and research and development agreements;
the costs involved in preparing, filing, prosecuting, defending and enforcing
intellectual property rights; the ability to comply with regulatory
requirements; the emergence of competitive technology and market forces; the
effectiveness of product commercialization activities and arrangements; the
seasonal needs to fund growing costs to ensure adequate and consistent supply
of produce; and other factors. If the Company's currently available funds,
together with the internally generated cash flow from operations, are not
sufficient to satisfy its financing needs, the Company would be required to
seek additional funding through other arrangements with collaborative
partners, bank borrowings and public or private sales of its securities.
There can be no assurance that additional funds, if required, will be
available to the Company on favorable terms if at all.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company desires to take advantage of the "Safe Harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and of Section 21E and
Rule 3b-6 under the Securities Exchange Act of 1934. Specifically, the Company
wishes to alert readers that the following important factors, as well as other
factors including, without limitation, those described elsewhere in this report,
could in the future affect, and in the past have affected, the Company's actual
results and could cause the Company's results for future periods to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update such
forward-looking statements.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT. The Company has
incurred net losses in each fiscal year since its inception, including a net
loss of $2.8 million for fiscal year 1999. The Company's accumulated deficit as
of October 31, 1999 totaled $45.5 million. The Company may incur additional
losses in the future. The amount of future net profits, if any, is highly
uncertain and there can be no assurance that the Company will be able to reach
or sustain profitability for an entire fiscal year.
THE COMPANY'S SUBSTANTIAL INDEBTEDNESS COULD LIMIT ITS FINANCIAL AND
OPERATING FLEXIBILITY AND SUBJECT IT TO OTHER RISKS. Upon the closing of the
Apio acquisition, the Company's total debt, including current maturities and
capital lease obligations, increased to approximately $22 million and the total
debt to equity ratio was approximately 40%. This level of indebtedness could
have significant consequences because:
- a substantial portion of the Company's net cash flow from operations
must be dedicated to debt service and will not be available for other
purposes;
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- the Company's ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions may be
limited; and
- the Company's level of indebtedness may limit its flexibility in
reacting to changes in the industry and economic conditions generally.
The Company's ability to service its indebtedness will depend on its future
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, some of which are beyond the Company's
control. If the Company were unable to service its debt, it would be forced to
pursue one or more alternative strategies such as selling assets, restructuring
or refinancing its indebtedness or seeking additional equity capital, which
might not be successful and which could substantially dilute the ownership
interest of existing shareholders.
In addition, Apio is subject to various financial and operating covenants
under its term debt and line of credit facilities (the "loan agreement"),
including minimum levels of EBITDA, minimum fixed charge coverage ratio, minimum
current ratio, minimum adjusted net worth and maximum leverage ratios. These
requirements and ratios generally become more restrictive over time. The loan
agreement limits the ability of Apio to make cash payments to Landec until the
outstanding balance is reduced to an amount specified in the loan agreement. The
Company has pledged substantially all of Apio's assets to secure its bank debt.
The Company's failure to comply with the obligations under the loan agreement,
including maintenance of financial ratios, could result in an event of default,
which, if not cured or waived, would permit acceleration of the indebtedness due
under the loan agreement. Any such violations of its obligations under the loan
agreement could have a material adverse effect on the Company's business,
results of operations and financial condition.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. In the past, the Company's
results of operations have varied significantly from quarter to quarter and such
fluctuations are expected to continue in the future. Historically, the Company's
corn seed distributor, Fielder's Choice, has been the primary source of these
fluctuations, as its revenues and profits are concentrated over a few months
during the spring planting season (generally during the Company's second
quarter). In addition, Apio can be heavily affected by seasonal and weather
factors which could impact quarterly results. The Company's earnings in its Food
Products Technology business will be sensitive to price fluctuations in the
fresh vegetables and fruits markets. Excess supplies can cause intense price
competition. Other factors affecting the Company's food and/or agricultural
operations include the seasonality of its supplies, the ability to process
produce during critical harvest periods, the timing and effects of ripening, the
degree of perishability, the effectiveness of worldwide distribution systems,
the terms of various federal and state marketing orders, total worldwide
industry volumes, the seasonality of consumer demand, foreign currency
fluctuations, foreign importation restrictions and foreign political risks. As a
result of these and other factors, the Company expects to continue to experience
fluctuations in quarterly operating results, and there can be no assurance that
the Company will be able to reach or sustain profitability for an entire fiscal
year.
UNCERTAINTY RELATING TO INTEGRATION OF APIO AND OTHER NEW BUSINESS
ACQUISITIONS. The Company's acquisition of Apio involves the integration of
Apio's operations into the Company. The integration will require the dedication
of management resources in order to achieve the anticipated operating
efficiencies of the acquisition. No assurance can be given that difficulties
encountered in integrating the operations of Apio into the Company will be
overcome or that the benefits expected from such integration will be realized.
The difficulties in combining Apio and the Company's operations are exacerbated
by the necessity of coordinating geographically separate organizations,
integrating personnel with disparate business backgrounds and combining
different corporate cultures. The process of integrating operations could cause
an interruption of, or loss of momentum in, the activities of the combined
company's business. Difficulties encountered or additional costs incurred in
connection with the acquisition and the integration of the operations of Apio
and the Company could have a material adverse effect on the business, results of
operations and financial condition of the Company.
The successful integration of other new business acquisitions may
require substantial effort from the Company's management. The diversion of the
attention of management and any difficulties encountered in the transition
process could have a material adverse effect on the Company's ability to realize
the anticipated benefits of
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the acquisitions. The successful combination of new businesses also requires
coordination of research and development activities, manufacturing, and sales
and marketing efforts. In addition, the process of combining organizations could
cause the interruption of, or a loss of momentum in, the Company's activities.
There can be no assurance that the Company will be able to retain key
management, technical, sales and customer support personnel, or that the Company
will realize the anticipated benefits of the acquisitions, and the failure to do
so would have a material adverse effect on the Company's business, results of
operations and financial condition.
EARLY COMMERCIALIZATION OF CERTAIN PRODUCTS; DEPENDENCE ON NEW PRODUCTS AND
TECHNOLOGIES; UNCERTAINTY OF MARKET ACCEPTANCE. The Company is in the early
stage of product commercialization of certain Intellipac breathable membrane,
Intellicoat seed coating and Intelimer polymer systems products and many of its
potential products are in development. The Company believes that its future
growth will depend in large part on its ability to develop and market new
products in its target markets and in new markets. In particular, the Company
expects that its ability to compete effectively with existing food products,
agricultural, industrial and medical companies will depend substantially on
successfully developing, commercializing, achieving market acceptance of and
reducing the cost of producing the Company's products. In addition, commercial
applications of the Company's temperature switch polymer technology are
relatively new and evolving. There can be no assurance that the Company will be
able to successfully develop, commercialize, achieve market acceptance of or
reduce the costs of producing the Company's new products, or that the Company's
competitors will not develop competing technologies that are less expensive or
otherwise superior to those of the Company. There can be no assurance that the
Company will be able to develop and introduce new products and technologies in a
timely manner or that new products and technologies will gain market acceptance.
The failure to develop and successfully market new products would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The success of the Company in generating significant sales of its
products will depend in part on the ability of the Company and its partners and
licensees to achieve market acceptance of the Company's new products and
technology. The extent to which, and rate at which, market acceptance and
penetration are achieved by the Company's current and future products are a
function of many variables including, but not limited to, price, safety,
efficacy, reliability, conversion costs and marketing and sales efforts, as well
as general economic conditions affecting purchasing patterns. There can be no
assurance that markets for the Company's new products will develop or that the
Company's new products and technology will be accepted and adopted. The failure
of the Company's new products to achieve market acceptance would have a material
adverse effect on the Company's business, results of operations and financial
condition.
COMPETITION AND TECHNOLOGICAL CHANGE. The Company operates in highly
competitive and rapidly evolving fields, and new developments are expected to
continue at a rapid pace. Competition from large food products, agricultural,
industrial and medical companies is expected to be intense. In addition, the
nature of the Company's collaborative arrangements may result in its corporate
partners and licensees becoming competitors of the Company. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company, and may have
substantially greater experience in conducting clinical and field trials,
obtaining regulatory approvals and manufacturing and marketing commercial
products. There can be no assurance that these competitors will not succeed in
developing alternative technologies and products that are more effective, easier
to use or less expensive than those which have been or are being developed by
the Company or that would render the Company's technology and products obsolete
and non-competitive.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON THIRD PARTIES. The
Company's success is dependent in part upon its ability to manufacture its
products in commercial quantities in compliance with regulatory requirements and
at acceptable costs. There can be no assurance that the Company will be able to
achieve this.
Although the Company believes Dock Resins will provide Landec with
practical knowledge in the scale-up of Intelimer polymer products, production in
commercial-scale quantities may involve technical challenges for the Company.
The Company anticipates that a portion of the Company's products will be
manufactured in the Linden, New Jersey facility acquired in the purchase of Dock
Resins. The Company's reliance on this facility involves a number of potential
risks, including the unavailability of, or interruption in access to, certain
process technologies and reduced control over delivery schedules, and low
manufacturing yields and high manufacturing costs. The
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Company may also need to consider seeking collaborative arrangements with other
companies to manufacture certain of its products. If the Company becomes
dependent upon third parties for the manufacture of its products, then the
Company's profit margins and its ability to develop and deliver such products on
a timely basis may be adversely affected. Moreover, there can be no assurance
that such parties will adequately perform and any failures by third parties may
impair the Company's ability to deliver products on a timely basis, impair the
Company's competitive position, or may delay the submission of products for
regulatory approval. In late fiscal 1999, in an effort to reduce reliance on
third party manufacturers, the Company began the set up of a manufacturing
operation at its facility in Menlo Park, California, for the production of
Intellipac breathable membrane products. There can be no assurance that the
Company can successfully operate a manufacturing operation at acceptable costs,
with acceptable yields, and retain adequately trained personnel. The occurrence
of any of these factors could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS. Many of the raw materials used in
manufacturing certain of the Company's products are currently purchased from a
single source, including certain monomers used to synthesize Intelimer polymers
and substrate materials for the Company's breathable membrane products. In
addition, virtually all of the hybrid corn varieties sold by Fielder's Choice
are purchased from a single source. Upon manufacturing scale-up and as hybrid
corn sales increase, the Company may enter into alternative supply arrangements.
Although to date the Company has not experienced difficulty acquiring materials
for the manufacture of its products nor has Fielder's Choice experienced
difficulty in acquiring hybrid corn varieties, no assurance can be given that
interruptions in supplies will not occur in the future, that the Company will be
able to obtain substitute vendors, or that the Company will be able to procure
comparable materials or hybrid corn varieties at similar prices and terms within
a reasonable time. Any such interruption of supply could have a material adverse
effect on the Company's ability to manufacture and distribute its products and,
consequently, could materially and adversely affect the Company's business,
results of operations and financial condition.
PATENTS AND PROPRIETARY RIGHTS. The Company's success depends in large part
on its ability to obtain patents, maintain trade secret protection and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that any pending patent applications will be approved, that the
Company will develop additional proprietary products that are patentable, that
any patents issued to the Company will provide the Company with competitive
advantages or will not be challenged by any third parties or that the patents of
others will not prevent the commercialization of products incorporating the
Company's technology. Furthermore, there can be no assurance that others will
not independently develop similar products, duplicate any of the Company's
products or design around the Company's patents. The Company has received, and
may in the future receive, from third parties, including some of its
competitors, notices claiming that it is infringing third party patents or other
proprietary rights. If the Company were determined to be infringing any
third-party patent, the Company could be required to pay damages, alter its
products or processes, obtain licenses or cease certain activities. If the
Company is required to obtain any licenses, there can be no assurance that the
Company will be able to do so on commercially favorable terms, if at all.
Litigation, which could result in substantial costs to and diversion of effort
by the Company, may also be necessary to enforce any patents issued or licensed
to the Company or to determine the scope and validity of third-party proprietary
rights. Any such litigation or interference proceeding, regardless of outcome,
could be expensive and time consuming and could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology and,
consequently, could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business - Patents and
Proprietary Rights" in Item 1.
ENVIRONMENTAL REGULATIONS. Federal, state and local regulations impose
various environmental controls on the use, storage, discharge or disposal of
toxic, volatile or otherwise hazardous chemicals and gases used in certain
manufacturing processes, including those utilized by Dock Resins. As a result of
historic off-site disposal practices, Dock Resins was recently involved in two
actions seeking to compel the generators of hazardous waste to remediate
hazardous waste sites. Dock Resins has been informed by its counsel that it was
a DE MINIMIS generator to these sites, and these actions have been settled
without the payment of any material amount by the Company. In addition, the New
Jersey Industrial Site Recovery Act ("ISRA") requires an investigation and
remediation of any industrial establishment, like Dock Resins, which changes
ownership. This statute was activated by the Company's acquisition of Dock
Resins. Dock Resins has completed its investigation of the site, delineated the
limited areas of
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concern on the site, and completed the bulk of the active remediation required
under the statute. The costs associated with this effort are being borne by the
former owner of Dock Resins, and counsel has advised Dock Resins and the Company
that funds of the former owner required by ISRA to be set aside for this effort
are sufficient to pay for the successful completion of remedial activities at
the site. In most cases, the Company believes its liability will be limited to
sharing clean-up or other remedial costs with other potentially responsible
parties. Any failure by the Company to control the use of, or to restrict
adequately the discharge of, hazardous substances under present or future
regulations could subject it to substantial liability or could cause its
manufacturing operations to be suspended and could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that changes in environmental regulations will not
impose the need for additional capital equipment or other requirements.
The Company's agricultural operations are subject to a variety of
environmental laws including the Food Quality Protection Act of 1966, the Clean
Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the
Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive
Environmental Response, Compensation and Liability Act. Compliance with these
laws and related regulations is an ongoing process. Environmental concerns are,
however, inherent in most agricultural operations, including those conducted by
the Company, and there can be no assurance that the cost of compliance with
environmental laws and regulations will not be material. Moreover, it is
possible that future developments, such as increasingly strict environmental
laws and enforcement policies thereunder, and further restrictions on the use of
manufacturing chemicals could result in increased compliance costs.
ADVERSE GROWING CONDITIONS. The Company's Food Products and Agricultural
Seed Technology businesses are subject to weather conditions that affect
commodity prices, crop yields, and decisions by growers regarding crops to be
planted. Crop diseases and severe conditions, particularly weather conditions
such as floods, droughts, frosts, windstorms and hurricanes may adversely affect
the supply of vegetables and fruits used in the Company's business, reduce the
sales volumes and increase the unit production costs. Because a significant
portion of the costs are fixed and contracted in advance of each operating year,
volume declines due to production interruptions or other factors could result in
increases in unit production costs which could result in substantial losses and
weaken the Company's financial condition. If the supply of any of the Company's
products is adversely affected by the adverse conditions, there can be no
assurance that the Company will be able to obtain sufficient supplies from
alternative sources.
LIMITED SALES AND MARKETING EXPERIENCE. The Company has only limited
experience marketing and selling its Intelimer polymer products. While Dock
Resins will provide consultation and in some cases direct marketing support for
Landec's Intelimer polymer products, establishing sufficient marketing and sales
capability will require significant resources. The Company intends to distribute
certain of its products through its corporate partners and other distributors
and to sell certain other products through a direct sales force. There can be no
assurance that the Company will be able to recruit and retain skilled sales
management, direct salespersons or distributors, or that the Company's sales and
marketing efforts will be successful. To the extent that the Company has entered
into or will enter into distribution or other collaborative arrangements for the
sale of its products, the Company will be dependent on the efforts of third
parties. There can be no assurance that such sales and marketing efforts will be
successful and any failure in such efforts could have a material adverse effect
on the Company's business, operating results and financial condition.
DEPENDENCE ON COLLABORATIVE PARTNERS AND LICENSEES. For certain of its
current and future products, the Company's strategy for development, clinical
and field testing, manufacture, commercialization and marketing includes
entering into various collaborations with corporate partners, licensees and
others. The Company is dependent on its corporate partners to develop, test,
manufacture and/or market certain of its products. Although the Company believes
that its partners in these collaborations have an economic motivation to succeed
in performing their contractual responsibilities, the amount and timing of
resources to be devoted to these activities are not within the control of the
Company. There can be no assurance that such partners will perform their
obligations as expected or that the Company will derive any additional revenue
from such arrangements. There can be no assurance that the Company's partners
will pay any additional option or license fees to the Company or that they will
develop, market or pay any royalty fees related to products under the
agreements. Moreover, certain of the collaborative agreements provide that they
may be terminated at the discretion of the corporate partner, and certain
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of the collaborative agreements provide for termination under certain other
circumstances. In addition, there can be no assurance as to the amount of
royalties, if any, on future sales of QuickCast and PORT products as the Company
no longer has control over the sales of such products since the sale of
QuickCast and the license of the PORT product lines. There can be no assurance
that the Company's partners will not pursue existing or alternative technologies
in preference to the Company's technology. Furthermore, there can be no
assurance that the Company will be able to negotiate additional collaborative
arrangements in the future on acceptable terms, if at all, or that such
collaborative arrangements will be successful.
GOVERNMENT REGULATION. The Company's products and operations are subject to
governmental regulation in the United States and foreign countries. The
manufacture of the Company's products is subject to periodic inspection by
regulatory authorities. There can be no assurance that the Company will be able
to obtain necessary regulatory approvals on a timely basis or at all. Delays in
receipt of or failure to receive such approvals or loss of previously received
approvals would have a material adverse effect on the Company's business,
financial condition and results of operations. Although Landec has no reason to
believe that it will not be able to comply with all applicable regulations
regarding the manufacture and sale of its products and polymer materials, such
regulations are always subject to change and depend heavily on administrative
interpretations and the country in which the products are sold. There can be no
assurance that future changes in regulations or interpretations relating to such
matters as safe working conditions, laboratory and manufacturing practices,
environmental controls, and disposal of hazardous or potentially hazardous
substances will not adversely affect the Company's business. There can be no
assurance that the Company will not be required to incur significant costs to
comply with such laws and regulations in the future, or that such laws or
regulations will not have a material adverse effect on the Company's business,
operating results and financial condition. As a result of the Apio acquisition,
the Company is subject to USDA rules and regulations concerning the safety of
the food products handled and sold by Apio, and the facilities in which they are
packed and processed. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, injunctions, civil
penalties, suspensions or withdrawal of regulatory approvals, product recalls,
product seizures, including cessation of manufacturing and sales, operating
restrictions and criminal prosecution. See "Business - Governmental Regulations"
in Item 1.
INTERNATIONAL OPERATIONS AND SALES. In fiscal years 1999 and 1998,
approximately 2.3% of the Company's total revenues were derived from product
sales to and collaborative agreements with international customers. The Company
expects that with the acquisition of Apio and its export business, international
revenues will become an important component of its total revenues. A number of
risks are inherent in international transactions. International sales and
operations may be limited or disrupted by the regulatory approval process,
government controls, export license requirements, political instability, price
controls, trade restrictions, changes in tariffs or difficulties in staffing and
managing international operations. Foreign regulatory agencies have or may
establish product standards different from those in the United States, and any
inability to obtain foreign regulatory approvals on a timely basis could have a
material adverse effect on the Company's international business and its
financial condition and results of operations. While the Company's foreign sales
are currently priced in dollars, fluctuations in currency exchange rates, such
as those recently experienced in many Asian countries which comprise a part of
the territories of certain of the Company's collaborative partners and Apio's
export business, may reduce the demand for the Company's products by increasing
the price of the Company's products in the currency of the countries to which
the products are sold. There can be no assurance that regulatory, geopolitical
and other factors will not adversely impact the Company's operations in the
future or require the Company to modify its current business practices.
CUSTOMER CONCENTRATION. For the fiscal year 1999, sales to the Company's
top five customers accounted for approximately 28% of the Company's product
sales with the top customer accounting for 10% of the Company's product sales.
The Company expects that for the foreseeable future a limited number of
customers may continue to account for a substantial portion of its net revenues.
The Company may experience changes in the composition of its customer base, as
Apio, Dock Resins and Fielder's Choice have experienced in the past. The Company
does not have long-term purchase agreements with any of its customers. The
reduction, delay or cancellation of orders from one or more major customers for
any reason or the loss of one or more of such major customers could materially
and adversely affect the Company's business, operating results and financial
condition. In addition, since certain products manufactured in the Linden, New
Jersey facility or processed by Apio at its Guadalupe, California facility
-29-
<PAGE>
are often sole sourced to its customers, the Company's operating results could
be adversely affected if one or more of its major customers were to develop
other sources of supply. There can be no assurance that the Company's current
customers will continue to place orders, that orders by existing customers will
not be canceled or will continue at the levels of previous periods or that the
Company will be able to obtain orders from new customers.
-30-
<PAGE>
PRODUCT LIABILITY EXPOSURE AND AVAILABILITY OF INSURANCE. The testing,
manufacturing, marketing, and sale of the products being developed by the
Company involve an inherent risk of allegations of product liability. While no
product liability claims have been made against the Company to date, if any such
claims were made and adverse judgments obtained, they could have a material
adverse effect on the Company's business, operating results and financial
condition. Although the Company has taken and intends to continue to take what
it believes are appropriate precautions to minimize exposure to product
liability claims, there can be no assurance that it will avoid significant
liability. The Company currently maintains medical and non-medical product
liability insurance with limits in the amount of $4.0 million per occurrence and
$5.0 million in the annual aggregate. In addition, Apio has product liability
insurance with limits in the amount of $41.0 million per occurrence and $42.0
million in the annual aggregate. There can be no assurance that such coverage is
adequate or will continue to be available at an acceptable cost, if at all. A
product liability claim, product recall or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the Company's business, operating results and financial condition.
POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as announcements of
technological innovations, the attainment of (or failure to attain) milestones
in the commercialization of the Company's technology, new products, new patents
or changes in existing patents, the acquisition of new businesses or the sale or
disposal of a part of the Company's businesses, or development of new
collaborative arrangements by the Company, its competitors or other parties, as
well as government regulations, investor perception of the Company, fluctuations
in the Company's operating results and general market conditions in the industry
may cause the market price of the Company's Common Stock to fluctuate
significantly. In addition, the stock market in general has recently experienced
extreme price and volume fluctuations, which have particularly affected the
market prices of technology companies and which have been unrelated to the
operating performance of such companies. These broad fluctuations may adversely
affect the market price of the Company's Common Stock.
FINANCIAL AND ACCOUNTING CHANGES. In order to address certain deficiencies
in Apio's management information systems and accounting systems, Apio has
restructured its financial and accounting department, including hiring a chief
financial officer and a new controller, and retained consultants who have worked
with Apio to improve accounting processes and procedures. Apio management
believes that such changes will improve its managing of operations, including
delivering complete and accurate financial statements to Landec's corporate
offices in a more timely manner. However, the Company can give no assurances
that it will be able to effect such changes in the management information
systems and accounting systems in a timely manner or that any delay will not
have a material adverse effect on our business, financial condition and results
of operations.
INTRODUCTION OF THE EURO. On January 1, 1999, certain member states of the
European Economic Community fixed their respective currencies to a new currency,
commonly known as the "Euro". During the three years beginning on January 1,
1999, business in these countries will be conducted both in the existing
national currency, as well as the Euro. Companies operating in or conducting
business in these countries will need to ensure that their financial and other
software systems are capable of processing transactions and properly handling
the existing currencies and the Euro. Based on the current level of direct
European business conducted by the Company, and also because the Company expects
that any transactions in Europe in the near future will be priced in U.S.
dollars, the Company does not expect that introduction and use of the Euro will
materially affect the Company's business. The Company will continue to evaluate
the impact over time of the introduction of the Euro. However, if the Company
encounters unexpected opportunities or difficulties in Europe, the Company's
business could be adversely affected, including the inability to bill customers
and to pay suppliers for transactions denominated in the Euro and the inability
to properly record transactions denominated in the Euro in the Company's
financial statements.
IMPACT OF YEAR 2000. The Year 2000 issue concerns the potential inability
of computer applications, other information technology systems, and certain
software-based "embedded" control systems to recognize and process properly,
date-sensitive information in the Year 2000 and beyond. The Company could suffer
material adverse impacts on its operations and financial results if the
applications and systems used by the Company, or by third parties with whom the
Company does business, do not accurately or adequately process or manage dates
or other information as a result of the Year 2000 issue.
-31-
<PAGE>
The Company has certain key relationships with customers, vendors and
outside service providers. The Company is primarily relying upon the voluntary
disclosures from third parties for this review of their Year 2000 readiness.
Failure by the Company's key customers, vendors and outside service providers to
adequately address the Year 2000 issue could have a material adverse impact on
the Company's operations and financial results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-32-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information required by this item is contained in the Registrant's
definitive proxy statement which the Registrant will file with the
Commission no later than February 28, 2000 (120 days after the
Registrant's fiscal year end covered by this Report) and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information required by this item is contained in the Registrant's
definitive proxy statement which the Registrant will file with the
Commission no later than February 28, 2000 (120 days after the
Registrant's fiscal year end covered by this Report) and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information required by this item is contained in the Registrant's
definitive proxy statement which the Registrant will file with the
Commission no later than February 28, 2000 (120 days after the
Registrant's fiscal year end covered by this Report) and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information required by this item is contained in the Registrant's
definitive proxy statement which the Registrant will file with the
Commission no later than February 28, 2000 (120 days after the
Registrant's fiscal year end covered by this Report) and is
incorporated herein by reference.
-33-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. Consolidated Financial Statements of Landec Corporation and
Subsidiaries
Page
----
<S> <C>
Report of Ernst & Young LLP Independent Auditors 35
Consolidated Balance Sheets at October 31, 1999 and 1998 36
Consolidated Statement of Operations for the Years Ended
October 31, 1999, 1998 and 1997 37
Consolidated Statement of Changes in Shareholders' Equity for the Years
Ended October 31, 1999, 1998 and 1997 38
Consolidated Statement of Cash Flows for the Years Ended October 31,
1999, 1998 and 1997 39
Notes to Consolidated Financial Statements 40
2. Schedule II:
Valuation and Qualifying Accounts for the Years Ended October 31, 1999,
1998 and 1997 55
All other schedules provided for in the applicable accounting
regulation of the Securities and Exchange Commission pertain to
items which do not appear in the financial statements of Landec
Corporation and its subsidiaries or to items which are not
significant or to items as to which the required disclosures
have been made elsewhere in the financial statements and
supplementary notes and such schedules have therefore been
omitted.
(b) Reports on Form 8-K 56
(c) Exhibits 56
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference as part of this report.
</TABLE>
-34-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Landec Corporation
We have audited the accompanying consolidated balance sheets of Landec
Corporation as of October 31, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended October 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Landec
Corporation at October 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
October 31, 1999 in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Francisco, California
December 6, 1999
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<PAGE>
LANDEC CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31,
-----------
1999 1998
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 3,203 $ 9,185
Short-term investments............................................ -- 992
Accounts receivable, less allowance for doubtful accounts of $45
and $50 at October 31, 1999 and 1998........................... 2,952 2,808
Inventory......................................................... 7,641 4,676
Deferred advertising.............................................. 522 394
Related party note receivable..................................... 138 500
Prepaid expenses and other current assets......................... 1,711 1,228
--------------- ---------------
Total current assets.......................................... 16,167 19,783
Property and equipment, net.......................................... 11,002 8,280
Intangible assets, net............................................... 13,506 14,255
Other assets......................................................... 33 38
--------------- ---------------
$ 40,708 $ 42,356
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 1,687 $ 1,399
Accrued compensation.............................................. 1,036 1,017
Other accrued liabilities......................................... 1,327 942
Deferred revenue.................................................. 2,135 2,499
Current portion of long term debt................................. 125 156
--------------- ---------------
Total current liabilities....................................... 6,310 6,013
Noncurrent portion of long term debt................................. 2,637 2,655
Shareholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized,
issueable in series............................................ -- --
Common stock, $0.001 par value; 50,000,000 shares authorized;
13,353,352 and 13,159,888 shares issued and outstanding at
October 31, 1999 and 1998, respectively........................ 77,289 76,821
Notes receivable from shareholders................................ -- (291)
Deferred compensation............................................. -- (86)
Accumulated deficit............................................... (45,528) (42,756)
--------------- ---------------
Total shareholders' equity...................................... 31,761 33,688
--------------- ---------------
$ 40,708 $ 42,356
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES.
-36-
<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------
1999 1998 1997
----------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Product sales....................................................$ 33,927 $ 31,664 $ 8,653
Research and development revenues................................ 770 1,352 863
License fees..................................................... 750 500 --
----------- ------------ -------------
Total revenues................................................ 35,447 33,516 9,516
Operating costs and expenses:
Cost of product sales............................................ 21,476 20,308 6,215
Research and development......................................... 5,758 5,713 4,608
Selling, general and administrative.............................. 11,192 10,835 4,664
Purchased in-process research and development.................... -- -- 3,022
----------- ------------- ------------
Total operating costs and expenses............................ 38,426 36,856 18,509
----------- ------------ -------------
Operating loss...................................................... (2,979) (3,340) (8,993)
Interest income..................................................... 363 737 1,726
Interest expense.................................................... (99) (137) (319)
----------- ------------ -------------
Loss from continuing operations before income taxes................. (2,715) (2,740) (7,586)
Provision for income taxes.......................................... (54) (150) --
----------- ------------ -------------
Loss from continuing operations..................................... (2,769) (2,890) (7,586)
Discontinued Operations:
Loss from discontinued QuickCast operations...................... -- -- (1,059)
Gain on disposal of QuickCast operations......................... -- -- 70
----------- ------------ -------------
Loss from discontinued operations................................... -- -- (989)
----------- ------------ -------------
Net loss............................................................ $(2,769) $(2,890) $(8,575)
=========== ============ =============
Basic and diluted net loss per share:
Continuing operations............................................$ (.21) $ (.23) $ (.68)
Discontinued operations.......................................... -- -- (.09)
----------- ------------ -------------
Basic and diluted net loss per share................................$ (.21) $ (.23) $ (.77)
=========== ============ =============
Shares used in computing basic and diluted net loss per share....... 13,273 12,773 11,144
=========== ============ =============
</TABLE>
SEE ACCOMPANYING NOTES.
-37-
<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
------------------------------------------------------------
NOTES
COMMON STOCK RECEIVABLE
----------------------- FROM DEFERRED
SHARES AMOUNT SHAREHOLDERS COMPENSATION
---------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Balance at October 31, 1996 ........................ 10,753,711 $68,242 $ (13) $(311)
Issuance of common stock for acquired businesses ... 1,821,687 7,273 -- --
Issuance of common stock at $0.58 to $6.48 per share 112,018 164 -- --
Repayment of notes receivable ...................... -- -- 5 --
Amortization of deferred compensation .............. -- -- -- 113
Change in unrealized gain on available-for-sale
securities ...................................... -- -- -- --
Net loss ........................................... -- -- -- --
---------- --------- -------------- ------------
Balance at October 31, 1997 ........................ 12,687,416 $75,679 $ (8) $(198)
Issuance of common stock at $0.58 to $7.00 per share 425,885 1,142 -- --
Exercise of warrants ............................... 46,587 -- -- --
Net increase in notes receivable from shareholders . -- -- (283) --
Amortization of deferred compensation .............. -- -- -- 112
Change in unrealized gain on available-for-sale
securities ...................................... -- -- -- --
Net loss ........................................... -- -- -- --
---------- --------- -------------- ------------
Balance at October 31, 1998 ........................ 13,159,888 $76,821 $(291) $ (86)
========== ========= ============== ============
Issuance of common stock at $0.58 to $5.56 per share 193,464 468 -- --
Net decrease in notes receivable from shareholders . -- -- 291 --
Amortization of deferred compensation .............. -- -- -- 86
Change in unrealized gain on available-for-sale
securities ...................................... -- -- -- --
Net loss ........................................... -- -- -- --
---------- --------- -------------- ------------
Balance at October 31, 1999 ........................ 13,353,352 $77,289 $ -- $ --
========== ========= ============== ============
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
-------------- ----------------
<S> <C> <C>
Balance at October 31, 1996 ........................ $(31,278) $ 36,640
Issuance of common stock for acquired businesses ... -- 7,273
Issuance of common stock at $0.58 to $6.48 per share -- 164
Repayment of notes receivable ...................... -- 5
Amortization of deferred compensation .............. -- 113
Change in unrealized gain on available-for-sale
securities ...................................... (5) (5)
Net loss ........................................... (8,575) (8,575)
-------------- ----------------
Balance at October 31, 1997 ........................ $(39,858) $ 35,615
Issuance of common stock at $0.58 to $7.00 per share -- 1,142
Exercise of warrants ............................... -- --
Net increase in notes receivable from shareholders . -- (283)
Amortization of deferred compensation .............. -- 112
Change in unrealized gain on available-for-sale
securities ...................................... (8) (8)
Net loss ........................................... (2,890) (2,890)
-------------- ----------------
Balance at October 31, 1998 ........................ $(42,756) $ 33,688
============== ================
Issuance of common stock at $0.58 to $5.56 per share -- 468
Net decrease in notes receivable from shareholders . -- 291
Amortization of deferred compensation .............. -- 86
Change in unrealized gain on available-for-sale
securities ...................................... (3) (3)
Net loss ........................................... (2,769) (2,769)
-------------- ----------------
Balance at October 31, 1999 ........................ $(45,528) $ 31,761
============== ================
</TABLE>
SEE ACCOMPANYING NOTES.
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<PAGE>
LANDEC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net loss from continuing operations..........................................$ (2,769) $ (2,890) $ (7,586)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 2,214 2,075 1,051
Write-off of purchased in-process research and development................. -- -- 3,022
Loss from discontinued operations.......................................... -- -- (989)
Changes in assets and liabilities, net of effects from acquisitions and
discontinued operations:
Accounts receivable...................................................... (144) (646) (328)
Inventory................................................................ (2,965) (2,024) 24
Deferred advertising..................................................... (128) 16 (97)
Receivables from related parties......................................... 362 (500) --
Prepaid expenses and other current assets................................ (483) 82 (902)
Accounts payable......................................................... 288 757 (1,275)
Accrued compensation..................................................... 19 181 218
Other accrued liabilities................................................ 385 (578) 975
Deferred revenue......................................................... (364) 173 389
----------- ----------- -----------
Total adjustments (816) (464) 2,088
----------- ----------- -----------
Net cash used in operating activities........................................... (3,585) (3,354) (5,498)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........................................... (3,708) (4,100) (1,344)
Decrease in other assets...................................................... 5 74 31
Purchases of available-for-sale securities.................................... -- (5,033) (14,828)
Sale of available-for-sale securities......................................... -- 4,805 4,041
Maturities of available-for-sale securities................................... 989 8,734 23,602
Acquisition of businesses, net of cash acquired............................... (393) (390) (6,224)
Net proceeds from disposition of QuickCast operation.......................... -- -- 425
----------- ----------- -----------
Net cash provided by (used in) investing activities............................. (3,107) 4,090 5,703
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of restricted investment................................... -- 8,837 --
Purchase of restricted investment............................................. -- -- (8,837)
Proceeds from sale of common stock, net of repurchases........................ 468 1,142 164
Decrease (increase) in repayment of notes receivable from shareholders....... 291 (283) 5
Payments on long term debt.................................................... (90) (10) (559)
Proceeds from issuance of long term debt...................................... 41 2,789 --
Payment of payable related to the acquisition of Dock Resins Corporation...... -- (9,189) --
----------- ----------- -----------
Net cash provided by (used in) financing activities............................. 710 3,286 (9,227)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............................ (5,982) 4,022 (9,022)
Cash and cash equivalents at beginning of year.................................. 9,185 5,163 14,185
----------- ----------- -----------
Cash and cash equivalents at end of year.......................................$ 3,203 $ 9,185 $ 5,163
=========== =========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the period for interest, net of capitalized interest........$ 76 $ 383 $ 75
=========== =========== ===========
Cash paid during the period for income taxes.................................$ 33 $ 38 $ 32
=========== =========== ===========
Supplemental schedule of noncash investing and financing activities:
Common stock issued in the acquisition of businesses.........................$ -- $ -- $ 7,273
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
-39-
<PAGE>
LANDEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Landec Corporation and its subsidiaries (the "Company") design,
develop, manufacture, and sell temperature-activated and other specialty polymer
products for a variety of food product, agricultural products, specialty
industrial and medical applications. In addition, the Company markets and
distributes hybrid corn seed to producer customers.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the accounts of Landec
Corporation and its wholly owned subsidiaries, Intellicoat Corporation
("Intellicoat") and Dock Resins Corporation ("Dock Resins"). All intercompany
transactions and balances have been eliminated.
CONCENTRATIONS OF CREDIT RISK
Cash, cash equivalents and short-term investments are financial
instruments which potentially subject the Company to concentrations of risk.
Corporate policy limits, among other things, the amount of credit exposure to
any one issuer and to any one type of investment, other than securities issued
or guaranteed by the U.S. government.
CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company records all highly liquid securities with three months or
less from date of purchase to maturity as cash equivalents. Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. As of
October 31, 1999 and 1998, the Company's debt securities are carried at fair
value and classified as available-for-sale, as the Company may not hold these
securities until maturity in order to take advantage of market conditions.
Unrealized gains and losses are reported as a component of shareholders' equity
and were immaterial for all years presented. The cost of debt securities is
adjusted for amortization of premiums and discounts to maturity. This
amortization is included in interest income. Realized gains and losses on the
sale of available-for-sale securities are also included in interest income and
were immaterial for fiscal year 1999. The cost of securities sold is based on
the specific identification method.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in,
first-out method) or market. As of October 31, 1999 and 1998 inventories
consisted of (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1999 1998
------------- -------------
<S> <C> <C>
Finished goods.......................................................... $6,169 $3,785
Raw materials........................................................... 1,015 663
Work in process......................................................... 457 228
------------- -------------
$7,641 $4,676
============= =============
</TABLE>
-40-
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED ADVERTISING
The Company defers certain costs related to direct-response advertising
of its hybrid corn seeds. Such costs are amortized over periods (less than one
year) that correspond to the estimated revenue stream of the advertising
activity. Advertising expenditures that are not direct-response advertisements
are expensed as incurred. The advertising expense for fiscal years 1999 and 1998
was $1,272,000 and $1,165,000, respectively. The advertising expense for fiscal
year 1997 was zero as the Company acquired Fielder's Choice in September, 1997.
RECEIVABLE FROM RELATED PARTIES
In October 1998, the Company loaned an officer of Intellicoat $500,000
in cash in exchange for a promissory note. Interest accrued at 7.50% per annum,
compounded annually. On July 31, 1999 the balance of principal and accrued
interest were offset by an earn-out provision related to the acquisition of
Fielder's Choice by the Company. The resulting principal balance of $138,000
plus interest, if any, is due and payable on July 31, 2000. The $138,000 note
has been included in other current assets at October 31, 1999.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major
improvements are capitalized while repairs and maintenance are charged to
expense. Depreciation is expensed on a straight-line basis over the estimated
useful lives of the respective assets, generally twenty to thirty-one years for
buildings and improvements and three to ten years for furniture, computers,
machinery and equipment. Leasehold improvements are amortized over the lesser of
the economic life of the improvement or the life of the lease on a straight-line
basis.
INTANGIBLE ASSETS
Intangible assets represent the excess of acquisition costs over the
estimated fair value of net assets acquired and consist of covenants not to
compete, customer bases, work forces in place, trademarks, developed technology
and goodwill. These assets are amortized on a straight-line basis over periods
ranging from five to twenty years based on their estimated useful lives.
DEFERRED REVENUE
Cash received in advance of services performed or shipment of products,
primarily hybrid corn seed, are recognized as a liability and recorded as
deferred revenue. At October 31, 1999 approximately $2.1 million has been
recognized as a liability for advances on future hybrid corn seed shipments.
PER SHARE INFORMATION
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Due to the Company's net loss in all periods presented, net
loss per share includes only weighted average shares outstanding. All earnings
per share amounts for all periods have been presented in accordance with SFAS
No. 128 requirements.
-41-
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues related to research contracts are recognized ratably over the
related funding periods for each contract, which is generally as research is
performed. Revenues related to license agreements with noncancelable,
nonrefundable terms and no significant future obligations are recognized upon
inception of the agreements. Product sales are recognized upon shipment.
RESEARCH AND DEVELOPMENT EXPENSES
Costs related to both research contracts and Company-funded research is
included in research and development expenses. Costs to fulfill research
contracts generally approximate cost.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock option plans and its employee stock
purchase plans in accordance with the provisions of the Accounting Principles
Board Opinion No. 25 (APB 25) "Accounting for Stock Issued to Employees."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG LIVED ASSETS
The Company has adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company
records impairment losses on long-lived assets used in operations or expected to
be disposed when events and circumstances indicate that the assets are less than
the carrying amounts of those assets. No such event and circumstances have
occurred.
2. BUSINESS ACQUISITIONS
On April 18, 1997, the Company acquired Dock Resins Corporation ("Dock
Resins") a privately-held manufacturer and marketer of specialty acrylics and
other polymers located in Linden, New Jersey for $15.8 million, comprised of
$13.7 million in cash, a secured promissory note paid in January 1998 and direct
acquisition costs along with 396,039 shares of common stock valued at $2.1
million. A payable of $9.5 million was recorded as of the acquisition date to
recognize the promissory note and other liabilities related to the acquisition.
A marketable investment of $8.8 million was set aside as security for payment of
the promissory note, and subsequently used to pay off the promissory note in
January 1998. In addition, $1.5 million of the cash consideration and all of the
equity consideration was set aside in escrow to cover future costs associated
with obligations under the representations and warranties made by the
shareholder of Dock Resins in connection with the acquisition. During fiscal
year 1998 $460,000 was drawn down from the escrow account to pay for obligations
under the agreement. No amounts were drawn from the account during fiscal years
1999 and 1997. The escrow account expires on April 18, 2002. Management
determined the portion of the purchase price allocable to in-process research
and development based on the assessment of the technology and the effort
required to complete the technology and sought advice from an independent
appraiser with respect to the value of the in-process research and development.
This assessment resulted in a $3.0 million charge during fiscal year 1997 as
required under generally accepted accounting principles. Such in-process
technology was determined to have no alternative future uses. The acquisition
was accounted for using the purchase method.
-42-
<PAGE>
2. BUSINESS ACQUISITIONS (CONTINUED)
On September 30, 1997, Intellicoat acquired Williams & Sun, Inc. d/b/a
Fielder's Choice Hybrids ("Fielder's Choice") a privately-held direct marketer
of hybrid seed corn, located in Monticello, Indiana for $8.8 million, comprised
of $3.6 million in cash and direct acquisition costs along with 1,425,648 shares
of common stock valued at approximately $5.2 million. Terms of the agreement
include additional consideration up to $2.4 million in the form of a cash
earn-out based on the future performance of the Fielder's Choice business.
During fiscal years 1999 and 1998, earn-out payments were made in the amount of
$393,000 and $390,000, respectively. The acquisition was accounted for using the
purchase method.
3. DISCONTINUED OPERATIONS
In fiscal year 1997, the Company entered into an agreement with Bissell
Healthcare Corporation ("Bissell") to sell substantially all of the net assets
of QuickCast for $950,000 in cash plus royalties on future sales through August
28, 2007. As a result, the operations of the QuickCast product line for fiscal
year 1997 has been classified as discontinued in the consolidated statements of
operations. During fiscal years 1999 and 1998, the Company recognized $12,000
and $20,000 respectively, of royalties income related to this agreement.
4. COLLABORATIVE AGREEMENTS
To facilitate the commercialization of its products, the Company has
established a number of strategic alliances in which the Company receives
license payments, research and development funding and/or future royalties in
exchange for certain technology or marketing rights.
HITACHI CHEMICAL. The Company entered into two separate collaborations
with Hitachi Chemical ("Hitachi") in the areas of industrial adhesives and
Intelimer Polymer Systems. On October 1, 1994, the Company entered into a
non-exclusive license agreement for seven years with Hitachi in the industrial
adhesives area. The agreement provides Hitachi with a non-exclusive license to
manufacture and sell products using Landec's Intelimer materials in certain
Asian countries. Landec received up-front license fees upon signing the
agreement and is entitled to future royalties based on net sales by Hitachi of
the licensed products. Any fees paid to the Company are non-refundable.
On August 10, 1995, the Company entered into the second collaboration
with Hitachi in the Intelimer Polymer Systems area. The agreement provided
Hitachi with an exclusive license to use and sell Landec's Intelimer Polymer
Systems in industrial latent curing products in certain Asian countries. Landec
is entitled to be the exclusive supplier of Intelimer Polymer Systems to Hitachi
for at least seven years after commercialization. Landec received an up-front
license payment upon signing this agreement and research and development funding
over three years and is entitled to receive future royalties based on net sales
by Hitachi of the licensed products. Any fees paid to the Company are
non-refundable. This agreement has been converted to a non-exclusive agreement
except for one application field. In conjunction with this agreement, Hitachi
purchased Series E Preferred Stock for $1.5 million which converted to common
stock upon the Company's initial public offering.
NITTA CORPORATION. On March 14, 1995, the Company entered into a
license agreement with Nitta Corporation ("Nitta") in the industrial adhesives
area. The agreement provides Nitta with a co-exclusive license to manufacture
and sell products using Landec's Intelimer materials in certain Asian countries.
Landec received up-front license fees upon signing the agreement and is entitled
to future royalties based on net sales by Nitta of the licensed products. Any
fees paid to the Company are non-refundable. This agreement is terminable at
Nitta's option. Nitta and the Company entered into an additional exclusive
license arrangement in February 1996 covering Landec's medical adhesives
technology for use in Asia. The Company received up-front license fees upon
execution of the agreement and research and development payments and is entitled
to receive future royalties under this agreement. Any fees paid to the Company
are non-refundable. Nitta and the Company also entered into another worldwide
exclusive agreement on January 1, 1998 in the area of industrial adhesives
specific to one field of electronic polishing adhesives. The Company received
research and development payments as a part of this agreement.
-43-
<PAGE>
4. COLLABORATIVE AGREEMENTS (CONTINUED)
ALCON. In December 1997, Landec licensed the rights to worldwide
manufacturing, marketing and distribution of its PORT ophthalmic device to
Alcon. Under the terms of the transaction, Landec received an up-front cash
payment, a $1 million milestone payment in November 1998, research and
development funding and will receive ongoing royalties of 12.5% on product sales
of each PORT device over an approximately 15-year period. In September 1999,
Alcon submitted a 510K application to the FDA seeking approval to commercially
sell the PORT device. Landec will continue to provide development support on a
contract basis through the FDA approval process and product launch.
CONVATEC. On October 11, 1999, the Company entered into a joint
development agreement ConvaTec, a division of Bristol Myers Squibb, under which
Landec will develop adhesive film products for selected ConvaTec medical
products. Landec is receiving support funding for this program. Upon completion
of this agreement, the companies have the option to consider a supply agreement
where Landec would supply materials to ConvaTec of use in specific medical
devices.
5. AVAILABLE-FOR-SALE SECURITIES
There were no available-for-sale securities as of October 31, 1999. The
following is a summary of available-for-sale securities as of October 31, 1998
(in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
OCTOBER 31, 1998 UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
U.S. government and agency obligations..........$ 996 $ -- $ -- $ 996
U.S. states or political subdivisions
obligations.................................. 359 -- -- 359
Corporate debt securities....................... 1,987 3 -- 1,990
-------------- ----------- ----------- --------------
Total securities................................$ 3,342 $ 3 $ -- $ 3,345
============== =========== =========== ==============
Amounts included in:
Cash equivalents................................$ 2,353 $ -- $ -- $ 2,353
Short-term investments.......................... 989 3 -- 992
-------------- ----------- ----------- --------------
Total securities................................$ 3,342 $ 3 $ -- $ 3,345
============== =========== =========== ==============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------------
1999 1998
------------- -------------
<S> <C> <C>
Land and buildings.........................................$ 3,945 $ 3,132
Leasehold improvements..................................... 1,372 1,291
Computer, machinery, equipment and autos................... 8,155 5,293
Furniture and fixtures..................................... 592 291
Construction in process.................................... 1,173 1,651
------------- -------------
15,237 11,658
Less accumulated depreciation and amortization............. (4,235) (3,378)
------------- -------------
$ 11,002 $ 8,280
============ ============
</TABLE>
Depreciation expense for fiscal years 1999, 1998 and 1997 was $986,000,
$844,000, and $603,000, respectively.
-44-
<PAGE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------
1999 1998
--------- ------------
<S> <C> <C>
Developed technology....................... $ 5,036 $ 5,036
Trademark.................................. 4,975 4,975
Customer base.............................. 2,396 2,396
Workforce in place......................... 910 910
Covenants not to compete................... 277 277
Goodwill................................... 2,509 2,116
-------------- -------------
16,103 15,710
Less accumulated amortization............... (2,597) (1,455)
-------------- -------------
$13,506 $ 14,255
============== =============
</TABLE>
Amortization expense for fiscal years 1999, 1998, and 1997 was
$1,142,000, $1,120,000, and $335,000, respectively.
8. WARRANTS
In connection with the sale of Series D preferred stock in July 1993,
the Company issued warrants to purchase 186,349 shares of common stock at an
exercise price of $4.31 per share for $5,357 in cash. In a cashless exercise
during fiscal year 1998, 46,587 shares were issued in exchange for the warrants.
9. SHAREHOLDERS' EQUITY
COMMON STOCK, STOCK PURCHASE PLANS AND STOCK OPTION PLANS
In October 1998, certain directors and officers of the Company
purchased 200,425 shares of common stock for between $3.75 and $3.94 per share
for $776,000. At October 31, 1998, certain directors and officers of the Company
were obligated to the Company for $291,000 relating to this issuance. This
amount was recorded to shareholders' equity at October 31, 1998. The outstanding
balances were paid in full by December 1998.
The Company has 4,507,144 common shares reserved for future issuance
under Landec Corporation stock option plans and employee stock purchase plans.
The Company terminated its 1988 Stock Option Plan during fiscal year
1998 and canceled all stock options available for grant.
The 1995 Directors' Stock Option Plan (the "Directors' Plan") provides
that each person who becomes a nonemployee director of the Company, who has not
received a previous grant, shall be granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the date on which the optionee first
becomes a nonemployee director of the Company. Thereafter, on the date of each
annual meeting of the shareholders each non-employee director shall be granted
an additional option to purchase 10,000 shares of common stock if, on such date,
he or she shall have served on the Company's Board of Directors for at least six
months prior to the date of such annual meeting. The exercise price of the
options is the fair market value of the Company's common stock on the date the
options are granted. The Directors' Plan, as amended in 1998, authorizes the
issuance of 400,000 shares under the plan. Options granted under this plan are
exerciseable and vest upon grant. All directors' stock option grants outstanding
on December 4, 1997 with an exercise price greater than $6.75, were repriced to
$6.75 per share, the fair market value of the Company's common stock on April
15, 1998, the date of the annual shareholders' meeting.
-45-
<PAGE>
9. SHAREHOLDERS' EQUITY (CONTINUED)
The 1996 Non-Executive Stock Option Plan authorizes the Board of
Directors to grant non-qualified stock options to employees and outside
consultants who are not officers or directors of the Company. The exercise price
of the options will be equal to the fair market value of the Company's common
stock on the date the options are granted. As amended in 1999, 1,500,000 shares
are authorized to be issued under this plan. Options are exercisable upon
vesting and generally vest ratably over four years and are subject to repurchase
if exercised before being vested.
In November 1996, the Company's Board of Directors approved the 1996
Stock Option Plan. Under this plan, the Board of Directors of Landec may grant
stock purchase rights, incentive stock options or non-statutory stock options to
Landec executives. The exercise price of the stock purchase rights, incentive
stock options and non-statutory stock options may be no less than 100% of the
fair market value of Landec's common stock on the date the options are granted.
The plan, as amended, authorizes the issuance of 1,500,000 shares of Landec
common stock under the plan. Options are exercisable upon vesting and generally
vest ratably over four years and are subject to repurchase if exercised before
being vested.
In January 1997, the company effected an option repricing program to
allow non-officer employees and outside consultants who were issued options
under the 1988 Stock Option Plan at an exercise price above $14.50 per share to
exchange their out-of-money stock options for the same number of options at a
more favorable exercise price. Under this repricing program, one new option
could be obtained for every option cancelled. The exercise price of the new
option was based on the fair market value of the Company's common stock on the
date the old options were exchanged. The new options vest ratably over four
years (commencing one year from January 7, 1997, the repricing date) and are
subject to repurchase if exercised before being vested. As a result of this
repricing program, options to purchase 58,250 shares were repriced.
In January 1998, the Company effected another option repricing program
to allow employees, directors and officers who were issued options under the
1988 Stock Option Plan, 1996 Non-Executive Stock Option Plan and 1996 Stock
Option Plan at an exercise price above $5.00 per share to exchange their
out-of-money stock options for the same number of options at a more favorable
exercise price. The officers and directors repricing was approved at the April
15, 1998 shareholders' meeting. Under this repricing program, one new option
could be obtained for every option cancelled. The exercise price of the new
option was based on the higher of fair market value of the Company's common
stock on the date the old options were exchanged, or $5.00 per share. The new
options vest ratably over four years (commencing December 4, 1997, the repricing
date) and are subject to repurchase if exercised before being vested. As a
result of this repricing program and the repricing of the options issued under
the 1995 Directors' Plan, options to purchase 753,100 shares were repriced.
-46-
<PAGE>
9. SHAREHOLDERS' EQUITY (CONTINUED)
Activity under all Landec Stock Option Plans is as follows:
<TABLE>
<CAPTION>
Outstanding Options
-------------------------------------
Options Weighted
Available Number Average
for Grant of Shares Exercise Price
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at October 31, 1996 1,177,517 1,178,348 $2.46
Additional shares reserved 750,000 -- --
Options granted (1,070,300) 1,070,300 $8.63
Options exercised -- (95,592) $0.78
Options forfeited 158,384 (158,384) $6.88
Options canceled 58,250 (58,250) $19.11
----------------------------------------------------------------------------
Balance at October 31, 1997 1,073,851 1,936,422 $5.11
Additional shares reserved 950,000 -- --
Options granted (1,584,828) 1,584,828 $5.12
Options exercised -- (163,394) $0.69
Options forfeited 123,851 (123,851) $6.46
Options canceled 753,100 (753,100) $9.84
Expired in 1988 Plan (60,633) -- --
----------------------------------------------------------------------------
Balance at October 31, 1998 1,255,341 2,480,905 $3.90
Additional shares reserved 750,000 -- --
Options granted (663,300) 663,300 $4.79
Options exercised -- (100,265) $1.52
Options forfeited 108,220 (108,220) $5.20
Expired in 1988 Plan (2,977) -- --
----------------------------------------------------------------------------
Balance at October 31, 1999 1,447,284 2,935,720 $4.14
</TABLE>
At October 31, 1999, 1998 and 1997, options to purchase 1,494,662,
1,101,387 and 902,135 of Landec's common stock were vested, respectively. No
options have been exercised prior to being vested.
For options granted through October 31, 1999, the Company recognized an
aggregate of $451,000 as deferred compensation for the excess of the deemed
value for accounting purposes of the common stock not issueable on exercise of
such options over the aggregate exercise price of such options. The deferred
compensation expense is being amortized ratably over the vesting period of the
options. Total deferred compensation expense recognized in the Company's
financial statements for stock-option awards under APB 25 for fiscal years 1999,
1998 and 1997 was $86,000, $112,000 and $113,000, respectively.
-47-
<PAGE>
9. SHAREHOLDERS' EQUITY (CONTINUED)
The following tables summarize information about Landec options
outstanding and exerciseable at October 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------------------------
Weighted
Average Weighted
Contractual Average
Range of Number Life Exercise
Exercise Prices of Shares (in years) Price
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0.5800 - $0.5800 365,505 2.78 $0.58
$0.8600 - $1.4400 301,630 5.44 $1.13
$3.3750 - $4.9380 631,907 9.26 $4.75
$5.0000 - $5.0000 1,273,850 8.15 $5.00
$5.0630 - $6.7500 315,328 8.11 $5.89
$7.0000 - $9.3400 47,500 7.38 $7.59
-------------
$0.5800 - $9.3400 2,935,720 7.42 $4.14
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISEABLE
-------------------------------------------------------------------
Weighted
Range of Number Average
Exercise Prices of Shares Exercise Price
-------------------------------------------------------------------
<S> <C> <C> <C>
$0.5800 - $0.5800 365,505 $0.58
$0.8600 - $1.4400 300,399 $1.13
$3.3750 - $4.9380 143,235 $4.45
$5.0000 - $5.0000 437,786 $5.00
$5.0630 - $6.7500 217,063 $6.13
$7.0000 - $9.3400 30,674 $7.75
--------------------
$0.5800 - $9.3400 1,494,662 $3.31
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. The Company has an employee stock purchase plan
which permits eligible employees to purchase common stock, which may not exceed
10% of an employee's compensation, at a price equal to the lower of 85% of the
fair market value of the Company's common stock at the beginning of the offering
period or on the purchase date. As of October 31, 1999, 175,860 shares have been
issued under the Purchase Plan.
INTELLICOAT STOCK PLAN. Under the 1996 Intellicoat Stock Plan, the Board of
Directors of Intellicoat may grant stock purchase rights, incentive stock
options or non-statutory stock options to employees and outside consultants. The
exercise price of the stock purchase rights, incentive stock options and
non-statutory stock options may be no less than 85%, 100% and 85%, respectively,
of the fair market value of Intellicoat's common stock as determined by
Intellicoat's Board of Directors. Two million shares are authorized to be issued
under this plan. Options are exercisable upon vesting and generally vest ratably
over four years and are subject to repurchase if exercised before being vested.
-48-
<PAGE>
9. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes activity under the Intellicoat Stock
Option Plan.
<TABLE>
<CAPTION>
Outstanding Options
------------------------------------------
Options
Available Number of Shares Weighted Average
------------- ------------------ -------------------
<S> <C> <C> <C>
Balance at October 31, 1996 2,000,000 0 --
Options granted (1,239,300) 1,239,300 $0.12
Options forfeited 3,300 (3,300) $0.12
------------- ------------------
Balance at October 31, 1997 764,000 1,236,000 $0.12
Options granted (59,900) 59,900 $0.20
Options forfeited 11,800 (11,800) $0.20
------------- ------------------
Balance at October 31, 1998 715,900 1,284,100 $0.12
Options granted (248,800) 248,800 $0.83
Options exercised -- (534) $0.20
Options forfeited 9,591 (9,591) $0.20
------------- ------------------
Balance at October 31, 1999 476,691 1,522,775 $0.24
</TABLE>
At October 31, 1999 options to purchase 986,897 shares with an average
exercise price of $0.14 per share of Intellicoat's common stock were vested. For
the options outstanding at October 31, 1999, 1,033,000 shares were granted with
an exercise price of $0.10, 292,775 shares were granted with an exercise price
of $0.20 and 197,000 were granted with an exercise price of $1.00. As of October
31, 1999, the Company has 1,999,466 common shares reserved for future issuance
under the Intellicoat Corporation stock option plan.
PRO FORMA INFORMATION. The Company has elected to follow APB 25 in accounting
for its employee stock option because, as discussed below, the alternative fair
value accounting provided for under SFAS 123 required the use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, no compensation expense is recognized in the Company's
financial statements unless the exercise price of the Company's employee stock
options is less than the market price of the underlying stock on the date of
grant.
Pro forma information regarding net loss and net loss per share has
been determined as if the Company had accounted for the Landec stock option
plans and employee stock purchase plan under the fair value method and the
Intellicoat Stock Plan under the minimum value method prescribed by SFAS No.
123. The fair value of options granted in fiscal years 1999, 1998 and 1997
reported below has been estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
LANDEC LANDEC
EMPLOYEE STOCK OPTIONS STOCK PURCHASE PLAN SHARES
- -----------------------------------------------------------------------------------------------------------------
YEARS ENDED OCTOBER 31, 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years) 3.30 3.91 4.33 .49 .50 .47
Risk-free interest rate 5.08% 5.62% 6.16% 4.74% 5.37% 5.30%
Volatility .43 .44 .40 .43 .44 .40
Dividend yield 0% 0% 0% 0% 0% 0%
</TABLE>
The assumptions used for the Landec stock options for the expected
life, the risk-free interest rate and the dividend yield are the same
assumptions used to determine the fair value of the Intellicoat options granted
in fiscal year 1999, 1998 and 1997. The volatility for the Intellicoat options
is assumed to be zero since Intellicoat stock is not publicly traded.
-49-
<PAGE>
9. SHAREHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.
The weighted average estimated fair value of Landec employee stock
options granted at grant date market prices during fiscal years 1999, 1998 and
1997 was $1.71, $1.67 and $2.50 per share, respectively. The weighted average
exercise price of employee stock options granted at grant date market prices
during fiscal year 1999, 1998 and 1997 was $4.78, $5.86 and $7.00 per share,
respectively. No stock options were granted above grant date market prices
during fiscal year 1999. The weighted average estimated fair value of Landec
employee stock options granted above grant date market prices during fiscal
years 1998 and 1997 was $7.84 and $3.05 per share, respectively. The weighted
average exercise price of employee stock options granted above grant date market
prices during fiscal year 1998 and 1997 was $5.00 and $12.00 per share,
respectively. The weighted average estimated fair value of shares granted under
the Landec Stock Purchase Plan during fiscal years 1999, 1998 and 1997 was
$1.42, $1.57 and $2.26 per share, respectively. The weighted average estimated
fair value of shares granted under the Intellicoat Stock Purchase Plan during
fiscal years 1999, 1998 and 1997 was $0.30, $0.03 and $0.02 per share,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31, 1999 1998 1997
------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Pro forma net loss $(4,126) $(4,355) $(9,554)
Pro forma net loss per share $(0.31) $(0.34) $(0.86)
</TABLE>
The effects on pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of the effects on pro forma disclosures of future
years.
10. DEBT
In December 1997, Dock Resins entered into a loan and security
agreement which provides for a long-term loan and a short-term revolving line of
credit with a bank. Both the long-term loan and the short-term revolving line of
credit are collateralized by a security interest in substantially all of the
assets of Dock Resins. The Company pays interest on its long-term debt at an
8.19% fixed rate.
From time to time the Company enters into equipment financing
agreements when interest rates and payment terms are favorable. At October 31,
1999 and 1998, the Company had approximately $84,000 and $61,000, respectively,
of equipment loans outstanding.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31,
1999 1998
------------- --------------
<S> <C> <C>
Bank term loan; principal payable in monthly installments of
$15,278 beginning February 1, 1999 through January, 2006 with
the balance due January 31, 2006; interest is paid monthly $ 2,678 $ 2,750
Equipment financing agreements 84 61
Less current portion (125) (156)
------------- --------------
$ 2,637 $ 2,655
============= ==============
</TABLE>
-50-
<PAGE>
10. DEBT (CONTINUED)
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
FY 2000 $ 125
FY 2001 131
FY 2002 134
FY 2003 137
FY 2004 148
Thereafter 2,087
-----
$ 2,762
</TABLE>
The long-term loan limits Dock Resins' dividend payments and contains
various financial covenants including minimum working capital levels, net worth
and debt service ratio.
For the year ended October 31, 1999 and 1998, the Company paid interest
on the long-term debt of $217,000 and $35,000, respectively. In fiscal year
1999, $141,000 was capitalized as the amount related to financing for capital
expenditures. No interest was capitalized during fiscal year 1998.
Management believes the fair value of its debt approximates carrying
value.
SHORT-TERM DEBT
The short-term revolving line of credit allows for borrowings of up to
$1,250,000. The interest rate on the revolving line of credit is principally
charged at the LIBOR rate plus 1.75%. The revolving line of credit expires on
January 31, 2000, and contains certain restrictive covenants which, among other
things, require Dock Resins to maintain minimum levels of net working capital
and tangible net worth. No amounts were outstanding on the revolving line of
credit at October 31, 1999.
11. INCOME TAXES
The Company's provision for income taxes of $54,000 for the year ended
October 31, 1999 is attributable to state taxes. As of October 31, 1999, the
Company had net operating loss carryforwards of approximately $27.8 million for
federal income tax purposes. The Company also had federal research and
development tax credit carryforwards of approximately $1.0 million. The net
operating loss carryforwards will expire at various dates beginning in 2002
through 2014, if not utilized.
Utilization of the net operating losses and credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986. The annual limitation
may result in the expiration of net operating losses and credits before
utilization.
Significant components of the Company's deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 9,800 $ 9,000
Research credit carryforwards....................... 1,600 1,400
Capitalized research costs.......................... 1,400 1,400
In-process research costs........................... 1,000 1,000
Other - net......................................... 1,100 1,000
--------------- ---------------
Total deferred tax assets.............................. 14,900 13,800
Valuation allowance.................................... (14,900) (13,800)
--------------- ---------------
Net deferred tax assets................................ $ -- $ --
=============== ===============
</TABLE>
Due to the Company's absence of earning history, the net deferred tax
asset has been fully offset by a valuation allowance.
-51-
<PAGE>
The valuation allowance decreased by $100,000 during the fiscal year
ended October 31, 1998.
12. COMMITMENTS
LEASES
The Company leases office and laboratory space and certain equipment.
Rent expense for the fiscal years ended October 31, 1999, 1998, and 1997 was
approximately $522,000, $481,000, and $392,000 respectively.
Future minimum lease obligations as of October 31, 1999 under all
leases are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
------
<S> <C>
2000....................................... $ 511
2001....................................... 527
2002....................................... 145
2003....................................... --
--------------
Total minimum lease payments............... $ 1,183
==============
</TABLE>
OTHER
Under the terms of the acquisition of Dock Resins (see Note 2), the
former shareholder of Dock Resins has indemnified the Company with regard to
expenditures subsequent to the acquisition for certain environmental matters
relating to circumstances existing at the time of the acquisition. To cover any
such cost, an escrow for $1.5 million in cash and all of the equity
consideration was set aside. During fiscal year 1998, $460,000 was drawn down
from the escrow account to pay for environmental expenses incurred by Dock
Resins, that had been indemnified by the former shareholder of Dock Resins in
the purchase agreement. During fiscal years 1999 and 1997 no costs associated
with the pre-acquisition environmental matters were incurred.
13. BUSINESS SEGMENT REPORTING
During the years presented, the Company reported its operations in
three business segments: the Food Products Technology segment, the Agricultural
Seed Technology segment and the Industrial High Performance Materials segment.
The Food Products Technology segment manufactures and sells film packages
applied with the Intellipac breathable membrane to the fresh-cut produce
industry. The Agricultural Seed Technology segment markets and distributes
hybrid seed corn to the farming industry and is developing seed coatings using
the Company's proprietary Intelimer polymers. The Industrial High Performance
Materials segment manufactures and sells specialty acrylics and polymers to the
coating, laminating, adhesive and printing industries. Corporate and Other
amounts include corporate operating costs and net interest income. Assets
classified as corporate and other amounts consist primarily of cash and
marketable securities.
-52-
<PAGE>
13. BUSINESS SEGMENT REPORTING (CONTINUED)
Operations by Business Segment (in thousands):
<TABLE>
<CAPTION>
INDUSTRIAL
AGRICULTURAL HIGH
FOOD PRODUCTS SEED PERFORMANCE CORPORATE
1999 TECHNOLOGY TECHNOLOGY MATERIALS AND OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 4,459 $ 15,197 $ 14,313 $ 1,478 $ 35,447
Income (loss) from continuing operations... $ 105 $ (1,219) $ (319) $ (1,336) $ (2,769)
Identifiable assets........................ $ 2,352 $ 17,318 $ 18,588 $ 2,450 $ 40,708
Depreciation and amortization.............. $ 139 $ 983 $ 846 $ 160 $ 2,128
Capital expenditures....................... $ 347 $ 295 $ 2,760 $ 306 $ 3,708
Interest income............................ $ -- $ 113 $ 98 $ 152 $ 363
Interest expense........................... $ -- $ -- $ (99) $ -- $ (99)
Income tax expense......................... $ -- $ -- $ (54) $ -- $ (54)
1998
- ---------------------------------------------
Net sales.................................. $ 2,859 $ 13,275 $ 16,153 $ 1,229 $ 33,516
Income (loss) from continuing operations... $ (353) $ (1,427) $ 179 $ (1,289) $ (2,890)
Identifiable assets........................ $ 1,513 $ 14,356 $ 19,397 $ 7,090 $ 42,356
Depreciation and amortization.............. $ 125 $ 917 $ 780 $ 142 $ 1,964
Capital expenditures....................... $ 142 $ 1,389 $ 2,298 $ 271 $ 4,100
Interest income............................ $ -- $ 95 $ 70 $ 572 $ 737
Interest expense........................... $ -- $ (9) $ (58) $ (70) $ (137)
Income tax expense......................... $ -- $ -- $ (150) $ -- $ (150)
1997
- ---------------------------------------------
Net sales.................................. $ 1,201 $ 70 $ 8,137 $ 108 $ 9,516
Loss from continuing operations............ $ (837) $ (1,756) $ (3,930) $ (1,063) $ (7,586)
Identifiable assets........................ $ 970 $ 11,945 $ 15,209 $ 22,036 $ 50,160
Depreciation and amortization.............. $ 76 $ 157 $ 444 $ 261 $ 938
Capital expenditures....................... $ 197 $ 440 $ 554 $ 153 $ 1,344
Interest income............................ $ -- $ 3 $ 15 $ 1,708 $ 1,726
Interest expense........................... $ -- $ -- $ (8) $ (311) $ (319)
Income tax expense......................... $ -- $ -- $ -- $ -- $ --
</TABLE>
During fiscal years 1999, 1998 and 1997, an industrial high performance
materials customer accounted for 10%, 13% and 25% of the Company's total
revenue, respectively. This was the only customer with revenues individually
representing 10% or more of total revenue.
Export product sales were approximately $828,000, $863,000, and
$421,000 in the years ended October 31, 1999, 1998 and 1997, respectively.
14. SUBSEQUENT EVENTS
On December 2, 1999, the Company 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, before expenses, 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 was accounted for as a purchase.
-53-
<PAGE>
14. SUBSEQUENT EVENTS (CONTINUED)
To fund the transaction, Landec issued 2.5 million shares of common stock to the
prior owners of Apio. Apio replaced a portion of its 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. Existing debt of $3.7 million was assumed in
the transaction. In a separate transaction, Landec has sold $10 million of
convertible preferred stock (convertible into 1,666,670 shares of Common 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.
-54-
<PAGE>
LANDEC CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SCHEDULE II
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF PERIOD EXPENSES DEDUCTIONS END OF PERIOD
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Year ended October 31, 1997
Allowance for doubtful accounts............. $ 32 $ -- $(5) $ 27
Year ended October 31, 1998
Allowance for doubtful accounts............. $ 27 $ 31 $ (8) $ 50
Year ended October 31, 1999
Allowance for doubtful accounts............. $ 50 $ -- $ (5) $ 45
</TABLE>
-55-
<PAGE>
(b) No reports on Form 8-K were filed by the Company during the period
August 1, 1999 to October 31, 1999.
(c) Index of Exhibits
2.1(6) Stock Purchase Agreement by and among the Registrant, Dock
Resins Corporation and A. Wayne Tamarelli dated as of April
18, 1997.
2.2(7) Agreement and Plan of Reorganization by and among the
Registrant, Intellicoat Corporation, Williams & Sun, Inc.
(d/b/a Fielder's Choice Hybrids) and Michael L. Williams
dated as of August 20, 1997.
2.3(11) Form of Agreement and Plan Merger and Purchase Agreement by
and among the Registrant, Apio, Inc. and related companies
and each of the respective shareholders dated as of November
29, 1999.
3.1(1) Amended and Restated Bylaws of Registrant.
3.2(2) Ninth Amended and Restated Articles of Incorporation of
Registrant.
3.3+ Certificate of Determination of Series A Preferred Stock
4.1(12) Series A Preferred Stock Purchase Agreement between the
Registrant and Frederick Frank, dated as of November 19,
1999.
10.1(3) Form of Indemnification Agreement.
10.3(4)* 1995 Employee Stock Purchase Plan, as amended, and form of
Subscription Agreement.
10.4(4)* 1995 Directors' Stock Option Plan, as amended, and
form of Option Agreement.
10.6(3) Industrial Real Estate Lease dated March 1, 1993
between the Registrant and Wayne R. Brown & Bibbits
Brown, Trustees of the Wayne R. Brown & Bibbits Brown Living
Trust dated December 30, 1987.
10.14(4)* Consulting Agreement dated May 1, 1996 between the
Registrant and Richard Dulude.
10.15(4)* 1996 Intellicoat Stock Option Plan and form of Option
Agreement.
10.16(4)* 1996 Non-Executive Stock Option Plan and form of Option
Agreement.
10.17(5)* 1996 Stock Option Plan and form of Option Agreement.
10.18(8) Asset Purchase Agreement between Bissell Healthcare
Corporation and the Registrant, dated as of August 28, 1997.
10.19(8) Technology License Agreement between Bissell Healthcare
Corporation and the Registrant, dated as of August 28, 1997.
10.20(8) Supply Agreement between Bissell Healthcare Corporation and
the Registrant, dated as of August 28, 1997.
10.21(9)* Employment Agreement between the Registrant and A. Wayne
Tamarelli dated as of April 18, 1997.
10.22(10) Form of Common Stock Purchase Agreement for certain
officers and directors for restricted stock purchase.
10.23(10) Loan agreement between Registrant and Michael Williams
dated October 1, 1998.
10.24+ Employment agreement between the Registrant and Nicholas
Tompkins dated as of November 29, 1999.
10.25+ Stock Option Agreement between the Registrant and Nicholas
Tompkins dated as of November 29, 1999.
10.26+ 1999 Apio, Inc. Stock Option Plan and form of Option
Agreement.
10.27+ Loan agreement between Apio, Inc. and the Bank of America
dated as of November 29, 1999.
21.1 Subsidiaries of the Registrant.
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
<S> <C>
Intellicoat Corporation Delaware
Dock Resins Corporation New Jersey
Apio, Inc. Delaware
</TABLE>
23.1+ Consent of Independent Auditors.
24.1+ Power of Attorney. See page 58.
27.1+ Financial Data Schedule
- -------------------
-56-
<PAGE>
(1) Incorporated by reference to Exhibit 3.4 filed with
Registrant's Registration Statement on Form S-1 (File No.
33-80723) declared effective on February 12, 1996.
(2) Incorporated by reference to Exhibit 3.5 filed with
Registrant's Registration Statement on Form S-1 (File No.
33-80723) declared effective on February 12, 1996.
(3) Incorporated by reference to the identically numbered exhibits
filed with the Registrant's Registration Statement on Form S-1
(File No. 33-80723) declared effective on February 12, 1996.
(4) Incorporated by reference to the identically numbered exhibits
filed with the Registrant's Form 10-K filed for the year
ended October 31, 1996.
(5) Incorporated by reference to the identically numbered exhibits
filed with the Registrant's Form 10-Q filed for the quarter
ended April 30, 1997.
(6) Incorporated by reference to Exhibit 2.1 filed with the
Registrant's Form 8-K dated April 18, 1997.
(7) Incorporated by reference to Exhibit 2.1 filed with the
Registrant's Form 10-Q for the quarter ended July 31, 1997.
(8) Incorporated by reference to the identically numbered exhibits
filed with the Registrant's Form 8-K dated August 28, 1997.
(9) Incorporated by reference to Exhibit C to Exhibit 2.1 filed
with the Registrant's Form 8-K dated April 18, 1997.
(10) Incorporated by reference to identically numbered exhibits
filed with the Registrant's Form 10-K filed for the year ended
October 31, 1998.
(11) Incorporated by reference to the Exhibit 2.1 filed with the
Registrant's Form 8-K dated December 2, 1999.
(12) Incorporated by reference to identically numbered exhibits
filed with the Registrant's Form 8-K dated December 2, 1999.
* Management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report pursuant to item 14(c) of Form
10-K.
+ Filed herewith.
-57-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Menlo Park, State of California, on January 26, 2000.
LANDEC CORPORATION
By: /s/ Gregory S. Skinner
------------------------------------
Gregory S. Skinner
Vice President of Finance and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS GARY T. STEELE AND GREGORY S.
SKINNER, AND EACH OF THEM, AS HIS ATTORNEY-IN-FACT, WITH FULL POWER OF
SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS
TO THIS REPORT ON FORM 10-K, AND TO FILE THE SAME, WITH EXHIBITS THERETO AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, HEREBY RATIFYING AND CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED
BY OUR SAID ATTORNEY TO ANY AND ALL AMENDMENTS TO SAID REPORT ON FORM 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------ -----
<S> <C> <C>
/s/ Gary T. Steele
- ------------------------------------------------------
Gary T. Steele President and Chief Executive Officer (Principal
Executive Officer) January 26, 2000
/s/ Gregory S. Skinner
- ------------------------------------------------------
Gregory S. Skinner Vice President of Finance and Chief Financial
Officer (Principal Financial and Accounting January 26, 2000
Officer)
/s/ Kirby L. Cramer
- ------------------------------------------------------
Kirby L. Cramer Director January 26, 2000
/s/ Richard Dulude
- ------------------------------------------------------
Richard Dulude Director January 26, 2000
/s/ Frederick Frank
- ------------------------------------------------------
Frederick Frank Director January 26, 2000
/s/ Stephen E. Halprin
- ------------------------------------------------------
Stephen E. Halprin Director January 26, 2000
/s/ Richard S. Schneider
- ------------------------------------------------------
Richard S. Schneider Director January 26, 2000
/s/ Damion Wicker
- ------------------------------------------------------
Damion Wicker Director January 26, 2000
</TABLE>
-58-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
3.3 Certificate of Determination of Series A Preferred Stock
10.24 Employment agreement between the Registrant and Nicholas Tompkins
dated as of November 29, 1999.
10.25 Stock Option Agreement between the Registrant and Nicholas
Tompkins dated as of 10.25 November 29, 1999.
10.26 1999 Apio, Inc. Stock Option Plan and form of Option Agreement.
10.27 Loan agreement between Apio, Inc. and the Bank of America dated as
of November 29, 1999.
23.1 Consent of Independent Auditors
24.1 Power of Attorney. See page 58.
27.1 Financial Data Schedule
-59-
<PAGE>
Exhibit 3.3
CERTIFICATE OF DETERMINATION OF RIGHTS, PREFERENCES
AND PRIVILEGES OF
SERIES A-1 PREFERRED STOCK AND SERIES A-2 PREFERRED STOCK
OF
LANDEC CORPORATION
The undersigned, Gregory S. Skinner and Stephen E. Halprin, do hereby
certify:
1. That they are the duly elected Vice President of Finance and Chief
Financial Officer and Secretary, respectively, of Landec Corporation, a
California Corporation (the "CORPORATION").
2. That pursuant to the authority conferred upon the Board of Directors
by the Articles of Incorporation of the said Corporation, the said Board of
Directors on November 17, 1999 adopted the following resolutions creating a
series of shares of Preferred Stock designated as Series A Preferred Stock:
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Articles of Incorporation, the Board of
Directors does hereby provide for the issue of two (2) series of Preferred Stock
of the Corporation. The first series shall be designated "Series A-1 Preferred
Stock," par value $0.001 per share, and shall initially consist of 50,000 shares
and the second series shall be designated "Series A-2 Preferred Stock," par
value $0.001 per share, and shall initially consist of 116,667 shares. To the
extent that the designations, powers, preferences and relative and other special
rights and the qualifications, limitations and restrictions of the Series A-1
Preferred Stock and the Series A-2 Preferred Stock are not stated and expressed
in the Articles of Incorporation, the Board of Directors does hereby fix and
herein state and express such designations, powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions
thereof, as follows (all terms used herein which are defined in the Articles of
Incorporation shall be deemed to have the meanings provided therein):
Section 1. DESIGNATION AND AMOUNT. The shares of the first series shall
be designated as "Series A-1 Preferred Stock," par value $0.001 per share, and
the number of shares constituting such series shall be 50,000. The shares of the
second series shall be designated as "Series A-2 Preferred Stock," par value
$0.001 per share, and the number of shares constituting such series shall be
116,667. 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.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefor,
prior and in preference to any
<PAGE>
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of the
Corporation) on the Common Stock of the Corporation at a rate of $4.80 per share
(as adjusted for stock splits, stock dividends, reclassifications and the like)
per annum on each outstanding share of Series A Preferred Stock, payable
quarterly when, as and if declared by the Board of Directors and at a rate
determined by Board of Directors on an as-converted basis. Such dividends shall
not be cumulative.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) above immediately
prior to it declaring a dividend or distribution on the Common Stock (other than
a dividend payable in shares of Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the Corporation).
Section 3. VOTING RIGHTS. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) The holder of each share of Series A Preferred Stock shall
have the right to one vote for each share of Common Stock into which such
Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any shareholders' meeting in accordance with
the bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Series A Preferred Stock held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
shareholders of the Corporation.
(C) Except as provided herein or by law, holders of Series A
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. REACQUIRED SHARES. Any shares of Series A Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP.
2
<PAGE>
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, plus an amount equal to
$60.00 for each share (the "SERIES A LIQUIDATION PREFERENCE"). After payment has
been made to the holders of the Series A Preferred Stock of the full amounts to
which they shall be entitled pursuant to this Section 5(A) above and subject to
the rights of series of Preferred Stock which may from time to time come into
existence, all remaining assets of the Corporation available for distribution to
its shareholders, if any, shall be distributed ratably to the holders of Common
Stock.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series A Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
Section 6. CONVERSION. The Corporation and the holders of the Series A
Preferred Stock shall have conversion rights as follows (the "CONVERSION
RIGHTS"):
(A) RIGHT TO CONVERT. Subject to Section 6(C), each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (i)
$60.00 by (ii) the Series A Conversion Price (determined as hereafter provided)
(the "CONVERSION RATE") in effect on the effective date of the conversion. The
Series A Conversion Price shall initially be $6.00.
(B) AUTOMATIC CONVERSION.
(i) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Rate on
the third year anniversary of the closing of the Corporation's initial sale of
shares of Series A Preferred Stock.
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Rate
upon the date specified by written consent or agreement of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock.
(C) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, the holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued.
3
<PAGE>
The Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.
(D) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR
CERTAIN SPLITS AND COMBINATIONS. The Series A Conversion Price shall be subject
to adjustment from time to time as follows:
(i) In the event the Corporation should at any time
or from time to time after the closing of the Corporation's initial sale of
shares of Series A Preferred Stock (the "PURCHASE DATE") fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "COMMON STOCK EQUIVALENTS") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Series A Conversion Price shall be appropriately decreased so that the
number of shares of Common Stock issuable on conversion of each share of Series
A Preferred Stock shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents with the number of shares issuable with respect
to Common Stock Equivalents determined from time to time.
(ii) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Series A Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be decreased in proportion to such decrease in outstanding
shares.
(iii) If on the Purchase Date, the 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") is less than $5.50, then, in the event the average Closing
Price for the last twenty (20) trading days of the two hundred seventy (270)
calendar day period commencing on the day following the Purchase Date (the
"PERIOD AVERAGE") is less than $5.50, the Series A Conversion Price shall be
decreased by multiplying the Series A Conversion Price on such date by a
fraction, the numerator of which is the greater of (x) $4.50 or (y) the Period
Average, and the denominator of which is $6.00;
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PROVIDED THAT, if, during any period of twenty (20) consecutive trading days
commencing after the one hundred twenty (120) calendar day period beginning on
the day following the Purchase Date, the Closing Price is at least $9.00, then,
the conversion adjustment feature set forth in this Section 6(D)(iii) shall
terminate and be of no further effect with respect to all of the shares of
Series A-2 Preferred Stock.
(iv) The following provisions shall apply for
purposes of this Section 6(D):
(a) The aggregate maximum number of shares
of Common Stock deliverable upon conversion or exercise of Common Stock
Equivalents (assuming the satisfaction of any conditions to convertibility or
exercisability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) shall be deemed to have
been issued at the time such Common Stock Equivalents were issued.
(b) In the event of any change in the number
of shares of Common Stock deliverable or in the consideration payable to the
Corporation upon conversion or exercise of such Common Stock Equivalents
including, but not limited to, a change resulting from the antidilution
provisions thereof, the Series A Conversion Price, to the extent in any way
affected by or computed using such Common Stock Equivalents, shall be recomputed
to reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(c) Upon the termination or expiration of
the convertibility or exercisability of any such Common Stock Equivalents, the
Series A Conversion Price, to the extent in any way affected by or computed
using such Common Stock Equivalents, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and Common Stock Equivalents which
remain convertible or exercisable) actually issued upon the conversion or
exercise of such Common Stock Equivalents.
Section 7. AMENDMENT. The Articles of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preference or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least a majority of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
Section 8. FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
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RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this Corporation be, and they hereby
are, authorized and directed to prepare and file a Certificate of Determination
of Rights, Preferences and Privileges in accordance with the foregoing
resolution and the provisions of California law and to take such actions as they
may deem necessary or appropriate to carry out the intent of the foregoing
resolution."
3. That the authorized number of shares of Preferred Stock of the
Corporation is 2,000,000, the authorized number of shares of Series A-1
Preferred Stock is 50,000 and the authorized number of shares of Series A-2
Preferred Stock is 116,667. None of the shares of Series A-1 Preferred Stock or
Series A-2 Preferred Stock has been issued.
We further declare under penalty of perjury that the matters set forth
in the foregoing Certificate of Determination are true and correct of our own
knowledge.
Executed at Menlo Park, California on November 18, 1999.
--------------------------------------
Gregory S. Skinner,
Vice President of Finance and Chief
Financial Officer
--------------------------------------
Stephen E. Halprin, Secretary
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Exhibit 10.24
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment and Non-Competition Agreement (the "AGREEMENT") is dated as
of November 29, 1999, by and among Nicholas Tompkins ("TOMPKINS"), Landec
Corporation, a California corporation ("LANDEC"), and Bush Acquisition
Corporation, a Delaware corporation and subsidiary of Landec ("NEW APIO"), but
shall only be effective upon the Closing of the transactions set forth in the
Purchase Agreement (as defined below).
RECITALS
A. This Agreement is entered into in connection with that certain Agreement
and Plan of Merger and Purchase Agreement, dated as of November 29, 1999 (the
"PURCHASE AGREEMENT"), by and among Landec, New Apio, and certain other parties.
Pursuant to the terms of the Purchase Agreement, New Apio will acquire all of
the stock and/or partnership interests (the "ACQUISITION") of an integrated
produce harvesting, packing, cooling and distribution business (the "BUSINESS").
B. In order to induce Landec and New Apio to consummate the Acquisition,
Tompkins is willing to enter into this Agreement.
AGREEMENT
The parties hereby agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence on the Closing of the
transactions contemplated by the Purchase Agreement (the "EFFECTIVE DATE") and
shall have a term of five (5) years therefrom (the "EMPLOYMENT TERM").
2. DUTIES OF TOMPKINS DURING EMPLOYMENT TERM.
(a) POSITION. During the Employment Term, Tompkins shall be employed
as Senior Vice President of Landec and Chief Executive Officer of New Apio, and
as such, will have overall responsibility for certain financial results and the
marketing, sales, strategic planning, and operations (including day-to-day
operations) of New Apio. Tompkins will report to the Chief Executive Officer and
President of Landec.
(b) OBLIGATIONS. Tompkins agrees to the best of his ability and
experience that he will at all times loyally and conscientiously perform all of
the duties and obligations required of and from him pursuant to the terms
hereof, and to the reasonable satisfaction of the President of Landec. During
the Employment Term, Tompkins further agrees that he will devote a substantial
majority of his business time and attention to the business of New Apio and New
Apio will be entitled to all of the benefits and profits arising from or
incident to all such work services and advice. During the Employment Term,
except to the extent necessary in connection with the liquidation of any
Unacquired Party (as defined in the Purchase Agreement), Tompkins will not
directly or indirectly engage or participate in any business that is competitive
in any manner with the business of New Apio, Landec or any subsidiary or parent
corporation of New
<PAGE>
Apio or Landec. Tompkins will comply with and be bound by New Apio's operating
policies, procedures and practices from time to time in effect during the term
of Tompkins' employment.
3. COMPENSATION DURING EMPLOYMENT TERM. For the duties and services to be
performed by Tompkins as an employee hereunder, Landec and New Apio shall
provide compensation and other benefits as follows:
(a) SALARY. Tompkins shall receive a monthly salary of at least
$16,666.67, which is equivalent to $200,000.00 on an annualized basis. Tompkins'
monthly salary will be payable in regular installments pursuant to New Apio's
normal payroll practices.
(b) LANDEC OPTION GRANT. At the Closing, Landec will issue to Tompkins
options to purchase 850,000 shares of the Common Stock of Landec (the "LANDEC
OPTION") with an exercise price equal to the fair market value of the underlying
shares as of such date, as measured in accordance with the appropriate
accounting policies of Landec. The right to exercise the Landec Option will vest
at the rate of 1/2 of the shares subject thereto on the first anniversary of the
date of the grant and an additional 1/24th of the shares subject thereto at the
end of each one month period thereafter (total vesting in 24 months), provided
that as of each such date, Tompkins' employment with New Apio has not been
terminated. In the event Tompkins' employment is terminated by Involuntary
Termination, Tompkins' right to exercise the Landec Option will vest immediately
in full. The Landec Option will be an Incentive Stock Option to the maximum
extent allowed by the Internal Revenue Code of 1986, as amended, and will be
subject to the terms of each of the Stock Option Agreements attached hereto as
EXHIBIT A-1 AND A-2. The right to exercise the Landec Option as to 60,000 shares
shall terminate upon the earlier of the sixth anniversary of the date of
issuance or thirty (30) days after the termination of Tompkins' employment and
the Landec Option as to 790,000 shares shall terminate upon the sixth
anniversary of the date of issuance or, if Tompkins employment with New Apio is
terminated other than by Involuntary Termination, thirty (30) days after the
termination of employment. In addition to the Landec Option, to the extent any
shares of Common Stock of Landec subject to any option granted to the Chief
Operating Officer of New Apio do not vest due to such Chief Operating Officer's
termination of employment, within five (5) years after the date of his hiring,
Landec agrees to grant an additional option for such number of unvested shares
of Landec Common Stock (not to exceed 150,000 shares) to Tompkins at the fair
market value of such stock at the time of such termination and Tompkins' right
to exercise such options shall vest in accordance with this Section 3(b).
(c) RESTRICTIONS ON DISPOSITION. During the period commencing on the
date of issuance of the Landec Option and ending on the second anniversary
thereof, Tompkins agrees that he will not sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of, or offer or agree
to do any of the foregoing, or in any other way reduce the risk of his ownership
of or investment in the shares of Landec Common Stock underlying the Landec
Option (the "LANDEC STOCK"), or any securities which may be paid as a dividend
or otherwise distributed thereon or with respect thereto or issued or delivered
in exchange or substitution therefor or any option, right or other interest with
respect to any of the Landec Stock or aforementioned securities.
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<PAGE>
(d) NEW APIO STOCK OPTION. On the Effective Date, Tompkins will be
granted an option to purchase two million (2,000,000) shares of the Common Stock
of New Apio (the "OPTION"), with an exercise price equal to the fair market
value as of the Effective Date, as determined in good faith by New Apio's Board
of Directors in light of the Acquisition and the related contribution of certain
assets by Landec to New Apio, which represents ten percent (10%) of the
outstanding capital stock (including shares subject to the Option, but not
including any shares reserved for future issuance under any option plan for the
benefit of employees of and consultants to New Apio) as of the date of issuance.
The right to exercise the Option will vest at the rate of 1/5th of the shares
subject thereto on the first anniversary of the date of the grant and an
additional 1/60th of the shares subject thereto at the end of each one month
period thereafter (total vesting in 60 months), provided that as of each such
date, Tompkins' employment with New Apio has not been terminated. The Option
will be an Incentive Stock Option to the maximum extent allowed by the Internal
Revenue Code of 1986, as amended, and will be subject to the terms of the Stock
Option Agreement attached hereto as EXHIBIT B. The right to exercise the options
shall terminate upon the earlier of the tenth anniversary of the date of
issuance or thirty (30) days after the termination of Tompkins' employment.
(e) BONUSES. Beginning one year after the date of this Agreement, New
Apio agrees, in good faith to evaluate the propriety of a bonus program for
Tompkins. Notwithstanding the foregoing, Tompkins' entitlement to any incentive
bonuses from New Apio is discretionary and shall be determined by the Board of
New Apio, or its Compensation Committee in good faith.
(f) ADDITIONAL BENEFITS. During the Employment Term, Tompkins will be
eligible to participate in New Apio's employee benefit plans of general
application including, without limitation, those plans covering medical,
disability and life insurance in accordance with the rules established for
individual participation in any such plan and under applicable law. Tompkins
will be eligible for vacation and sick leave in accordance with the policies in
effect during the term of this Agreement and will receive such other benefits as
New Apio generally provides to its other employees of comparable position and
experience.
(g) REIMBURSEMENT OF EXPENSES. Tompkins shall be authorized to incur
on behalf and for the benefit of, and shall be reimbursed by, New Apio for
reasonable expenses, provided that such expenses are substantiated in accordance
with New Apio policies.
(h) INSURANCE PREMIUMS. During the Employment Term, Landec and New
Apio shall pay the premiums on the life insurance policies listed, with respect
to Tompkins, on Schedule 4.18 to the Purchase Agreement. Upon termination of
this Agreement, Tompkins shall have the option to purchase any such life
insurance policy for its then cash surrender value.
4. REQUEST FOR REGISTRATION.
If New Apio shall receive at any time after the third anniversary of
the Effective Date, a written request from Tompkins that New Apio file a
registration statement under the Securities Act of 1933 (the "Securities Act")
covering the registration of shares of the Common Stock of New Apio, then New
Apio shall, (a) subject to the terms and conditions set forth in the
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<PAGE>
Rights Agreement, use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Common Stock of New Apio held by
Tompkins which the Tompkins requests to be registered in accordance with the
terms set forth in the Rights Agreement attached hereto as EXHIBIT C (the
"RIGHTS AGREEMENT"), and (b) agree to include New Shares (as defined in the
Rights Agreement) representing not greater than twenty percent (20%) of the then
outstanding capital stock of New Apio in such registration. The terms and
conditions of such rights of registration shall be governed by the Rights
Agreement.
5. TERMINATION AND SEVERANCE BENEFITS.
(a) TERMINATION OF EMPLOYMENT. This Agreement may be terminated:
(i) By New Apio for Cause (as defined below) ("TERMINATION FOR
CAUSE");
(ii) By Tompkins, on the effective date of a written notice sent
to New Apio from Tompkins stating that Tompkins is electing to terminate his
employment with New Apio ("VOLUNTARY TERMINATION"); or
(iii) By Tompkins, on the effective date of a written notice sent
to New Apio from Tompkins stating that Tompkins' employment has been terminated
by a Constructive Termination (as defined below).
(b) SEVERANCE BENEFITS. Tompkins shall be entitled to receive
severance benefits upon the termination of his employment only as set forth in
this Section 5(b):
(i) VOLUNTARY TERMINATION. If Tompkins' relationship with New
Apio terminates by Voluntary Termination, then Tompkins shall not be entitled to
receive payment of severance benefits. Tompkins will receive payment(s) for all
salary and unpaid vacation accrued as of the date of Tompkins' termination of
employment and Tompkins' benefits will be continued under New Apio's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with applicable law.
(ii) INVOLUNTARY TERMINATION. If Tompkins' relationship with New
Apio is terminated by a Constructive Termination (as defined below) or for any
reason other than by reason of Tompkins' Voluntary Termination or a Termination
for Cause, including the death or permanent disability of Tompkins (an
"INVOLUNTARY TERMINATION"), provided that at no time during the Severance Period
is Tompkins in violation of any material term of this Agreement, including
without limitation, the non-competition provisions hereof, Tompkins or his
estate will be entitled to receive payment of severance benefits equal to
Tompkins' regular monthly salary from the date of such Involuntary Termination
until the expiration of the Employment Term (the "SEVERANCE PERIOD"). Such
payments shall be made ratably over the Severance Period according to New Apio's
standard payroll schedule. In such event, Tompkins will also be entitled to
receive payment on the date of termination of any bonus payable under Section
3(e) pro-rated for the period during which Tompkins was employed as compared
with the period for which the bonus
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<PAGE>
was being earned. Under such circumstances, health insurance benefits with the
same coverage provided to Tompkins prior to the termination (e.g. medical,
dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the termination will be
provided at New Apio's cost until the end of the Employment Term. The foregoing
benefits are the only benefits that Tompkins shall be entitled to receive in
connection with an Involuntary Termination and state the maximum collective
liability of Landec and New Apio with respect to the termination of the
employment of Tompkins.
(iii) TERMINATION FOR CAUSE. If Tompkins' employment is
terminated for Cause, then Tompkins shall not be entitled to receive payment of
any severance benefits. Tompkins will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Tompkins' termination of employment
and Tompkins' benefits will be continued under New Apio's then existing benefit
plans and policies in accordance with such plans and policies in effect on the
date of termination and in accordance with applicable law.
(iv) CONSTRUCTIVE TERMINATION. A "CONSTRUCTIVE TERMINATION" shall
be deemed to occur if: (A) (1) there is a material change in Tompkins' position
causing such position to be of materially less stature or of less
responsibility, (2) there is a material breach by New Apio of any of its
obligations hereunder, or (3) Tompkins is required as a condition of his
continued employment with New Apio to relocate to a facility or location more
than fifty (50) miles from the location of employment designated for Tompkins as
of the Effective Date; and (B) within the sixty (60) day period immediately
following such a change, reduction or required relocation, Tompkins elects to
terminate his employment voluntarily.
(v) CAUSE. For purposes of this Agreement, "CAUSE" for Tompkins'
termination will exist at any time after the happening of
one or more of the following events:
(A) Tompkins' willful misconduct or gross negligence in
performance of his duties hereunder;
(B) Tompkins' repeated or unjustified unavailability to
perform his duties in accordance with this Agreement, which is not cured within
thirty (30) days of written notice from New Apio to Tompkins in accordance with
the terms hereof;
(C) Tompkins' dishonest or fraudulent conduct, a deliberate
attempt to do an injury to New Apio or Landec or intentional, reckless or
grossly negligent conduct that materially discredits New Apio or Landec or is
materially detrimental to the reputation of New Apio or Landec, including,
without limitation, conviction of a felony;
(D) Tompkins' breach of any element of the Confidentiality
Agreement (as defined below), including without limitation, Tompkins' theft or
other misappropriation of New Apio's or Landec's proprietary information; or
(E) Tompkins' breach of any material provision of this
Agreement, including without limitation any of the non-competition provisions
hereof, in any
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<PAGE>
other respect than as described above, which Tompkins fails to cure within ten
(10) days of receipt of written notice from Landec identifying such breach.
6. AGREEMENT NOT TO COMPETE.
(a) EXPERIENCE AND SKILL OF TOMPKINS. As a principal agent of the
Business, Tompkins has been actively involved in the management of the Business
for many years and has thereby acquired considerable experience and skill.
Landec and New Apio wish to protect their investment in the Business by
restricting the activities of Tompkins which might compete with or otherwise
harm such Business, and as part of the consideration and inducement to Landec
and New Apio for acquiring the Business, Tompkins is willing to agree to and
abide by such restrictions as hereinafter provided.
(b) COVENANT NOT TO COMPETE.
(i) GENERAL. Tompkins acknowledges that he holds a substantial
fraction of the ownership interest in the Business. Tompkins further
acknowledges that the value of the consideration paid by New Apio in connection
with the Acquisition is substantial and that preservation of the goodwill
associated with the Business is a part of the consideration which New Apio and
Landec are receiving in the Acquisition. Landec and New Apio desire that
Tompkins enter into a non-competition agreement with New Apio as set forth in
this section and Tompkins is willing to agree to such non-competition provisions
as set forth herein. The Sellers (as defined in the Purchase Agreement) and
Tompkins agree that such non-competition provisions are separately bargained-for
consideration and are material inducements to Landec and New Apio to consummate
the Acquisition.
(ii) NON-COMPETE. In connection with the Acquisition, Tompkins
agrees that, for a period of five (5) years following the Closing (the
"RESTRICTION PERIOD"), except (i) as an employee or consultant of Landec, New
Apio or another subsidiary of Landec or New Apio or (ii) to the extent necessary
in connection with the liquidation of any Unacquired Party (as defined in the
Purchase Agreement), Tompkins will not own, operate, manage, or provide
consulting services to, or be an employee of, or own an interest in, or be a
proprietor, owner, partner, stockholder, director, officer, employee,
consultant, agent or representative of, a person, corporation, partnership or
other entity, including, without limitation, a family member, which owns,
operates, manages, or provides consulting services to, or in any other way
provides services to, either directly or indirectly, any business or businesses
engaged in the "RESTRICTED BUSINESS" in a "RESTRICTED TERRITORY" (as such terms
are defined below). Notwithstanding the foregoing, nothing contained in this
Section shall prohibit Tompkins from making investments in any corporation whose
securities are regularly and publicly traded on a national stock exchange or the
Nasdaq National Market, provided that such investments shall not result in his
owning beneficially at any time five percent (5%) or more of the equity
securities of any corporation which is engaged in the Restricted Business.
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<PAGE>
(iii) CERTAIN DEFINITIONS. For purposes of this Section 6:
(A) "PRODUCE" shall mean as of any point in time, any food
product of the type which is then being regularly processed or sold by New Apio.
(B) "RESTRICTED BUSINESS" shall mean the harvesting,
packing, cooling and distribution of Produce or the farming, leasing or
subleasing of farm land on which Produce is grown other than for subsequent sale
to or processing by New Apio.
(C) "RESTRICTED TERRITORY" shall mean the counties, cities
and states of the United States of America, including, without limitation,
California, and each political subdivision and/or nation of Canada, Mexico,
Asia, Europe, and Central and South America.
(iv) SOLICITATION. During the Restriction Period, Tompkins shall
not (i) engage or participate in any effort or act to solicit customers,
suppliers, associates or employees of New Apio to cease doing business, or their
association or employment with New Apio, or (ii) interfere in any manner in the
contractual or employment relationship between Landec, New Apio and any
customer, supplier, associate or employee of Landec or New Apio.
(v) REFORMATION. In the event that the provisions of this Section
should ever be deemed by a court of competent jurisdiction to exceed the scope,
time or geographic limitations of applicable law regarding covenants not to
compete, then such provisions shall be automatically reformed to the maximum
scope, time or geographic limitations, as the case may be, permitted by
applicable laws.
(c) CONSIDERATION FOR COVENANT NOT TO COMPETE. The sole consideration
for Tompkins' faithful performance of his obligations set forth in this
Agreement is the willingness of New Apio and Landec to consummate the
Acquisition.
(d) REPRESENTATIONS OF TOMPKINS. Tompkins represents that: (i) he is
familiar with the covenants not to compete and not to solicit set forth in this
Agreement, (ii) he is fully aware of his obligations under this Agreement,
including, without limitation, the length of time, scope and geographic coverage
of these covenants, (iii) he is receiving specific, bargained-for consideration
for his covenants not to compete and not to solicit, and (iv) execution of this
Agreement, and performance of Tompkins' obligations under this Agreement, will
not conflict with, or result in a violation or breach of, any other agreement to
which Tompkins is a party or any judgment, order or decree to which Tompkins is
subject.
(e) BREACH. Tompkins acknowledges that in the event of breach of any
of the provisions of this Agreement by Tompkins, Landec and New Apio would
sustain irreparable harm, and, therefore, Tompkins agrees that in addition to
any other remedies which Landec or New Apio may have under this Agreement or
otherwise, New Apio shall be entitled to obtain equitable relief, including
specific performance and injunctions restraining Tompkins from committing or
continuing any such violation of this Section.
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<PAGE>
(f) REASONABLENESS OF RESTRICTIONS. Tompkins acknowledges that the
length, scope and geographic coverage to which the restrictions imposed in this
Section shall apply are fair and reasonable and are reasonably required for the
protection of Landec and New Apio and that the definition of Restricted Business
used in this Agreement conforms to the Business as currently conducted or
proposed to be conducted.
7. ELECTION TO NEW APIO'S BOARD OF DIRECTORS. During the Employment Term,
and so long as (a) Tompkins remains the Chief Executive Officer of New Apio, and
(b) Tompkins has not breached any of the material terms of this Agreement,
including without limitation, the non-competition provisions hereof, Landec will
vote such shares of New Apio as are held by it, so as to cause Tompkins to be
elected to New Apio's Board of Directors.
8. CONFIDENTIALITY AGREEMENT. Tompkins shall sign, or has signed, a
Proprietary Information and Assignment of Inventions Agreement (the
"CONFIDENTIALITY AGREEMENT") substantially in the form attached hereto as
EXHIBIT D. Tompkins hereby represents and warrants to New Apio that he has
complied with all obligations under the Confidentiality Agreement and agrees to
continue to abide by the terms of the Confidentiality Agreement and further
agrees that the provisions of the Confidentiality Agreement shall survive any
termination of this Agreement or of Tompkins' employment with New Apio in
accordance with the terms thereof.
9. CONFLICTS. Tompkins represents that his performance of all the terms of
this Agreement will not breach any other agreement to which Tompkins is a party.
Tompkins has not, and will not during the term of this Agreement, enter into any
oral or written agreement in conflict with any of the provisions of this
Agreement. Tompkins further represents that he is entering into or has entered
into an employment relationship with New Apio of his own free will.
10. MISCELLANEOUS PROVISIONS.
(a) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived only with the written consent of the parties.
(b) 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 a nationally-recognized delivery service (such as Federal
Express or UPS), or forty-eight (48) hours after being deposited in the U.S.
mail as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth below
or as subsequently modified by written notice.
(c) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(d) SEVERABILITY. The parties intend that the covenants contained in
Section 6 shall be construed as a series of separate covenants, one for each
county, city, state, nation, and other political subdivision of the Restricted
Territory. It is the intent of the parties that the covenants set forth herein
be enforced to the maximum degree permitted by applicable law.
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<PAGE>
Except for geographic coverage, each such separate covenant shall be deemed
identical in terms to the covenant contained in the preceding paragraphs. If, in
any judicial proceeding, a court shall refuse to enforce any of the separate
covenants (or any part thereof) deemed included in Section 6, then such
unenforceable covenant (or such part) shall be deemed eliminated from this
Agreement for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants (or portions thereof) to be enforced by such
court. If one or more of the other provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
(f) ARBITRATION. Any dispute or claim arising out of or in connection
with this Agreement will be finally settled by binding arbitration in San Jose,
California in accordance with the Commercial Arbitration rules of the American
Arbitration Association by one arbitrator appointed in accordance with said
rules. The arbitrator shall apply California law, without reference to rules of
conflicts of law or rules of statutory arbitration, to the resolution of any
dispute. Judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. Notwithstanding the foregoing, the parties
may apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. This Section 10(f) shall not apply
to the Confidentiality Agreement. The prevailing party in any such arbitration
shall be entitled to an award of attorneys' fees and costs of the arbitration
against the other party.
(g) ADVICE OF COUNSEL. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES THAT,
IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE
ADVICE OF INDEPENDENT LEGAL COUNSEL, AND 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 HEREOF.
(h) WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH
OF THE PARTIES WAIVES ANY RIGHT TO TRIAL BY JURY THAT THE PARTIES MAY HAVE IN
ANY ACTION OR PROCEEDING IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
RELATED HERETO.
(i) ENTIRE AGREEMENT. This Agreement, together with all attachments
hereto, the Purchase Agreement and all attachments thereto, and the
Indemnification Agreement between Tompkins and Landec, represents the entire
agreement of the parties with respect hereto and thereto, and merge all prior
negotiations and drafts of the parties with regard to the
-9-
<PAGE>
transactions contemplated herein and therein. Any and all other written or oral
agreements existing between the parties hereto regarding such transactions are
expressly canceled.
-10-
<PAGE>
The parties have executed this Employment and Non-Competition Agreement the
date first written above.
LANDEC CORPORATION
-------------------------------------------
Gary T. Steele, President & CEO
Address: 3603 Haven Avenue
Menlo Park, California 94025
BUSH ACQUISITION CORPORATION
-------------------------------------------
Gary T. Steele, President & CEO
Address: 3603 Haven Avenue
Menlo Park, California 94025
-------------------------------------------
Nicholas Tompkins
Address: 193 Oak Grove Lane
Arroyo Grande, California 93420
[SIGNATURE PAGE TO TOMPKINS EMPLOYMENT AGREEMENT]
<PAGE>
LANDEC CORPORATION
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
Nicholas Tompkins
193 Oak Grove Lane
Arroyo Grande, CA 93420
Pursuant to your Employment and Non-Competition Agreement dated
November 29, 1999 (the "Employment Agreement"), you have been granted an option
to purchase shares of Common Stock ("Shares") of Landec Corporation (the
"Company") as follows:
<TABLE>
<S> <C>
Board Approval Date: November 22, 1999
Date of Grant November 29, 1999
Exercise Price Per Share: $6.25
Total Number of Shares Granted: 790,000
Total Price of Shares Granted: $4,937,500
Type of Option: Nonstatutory Stock Option
Expiration Date: November 29, 2005
Vesting Commencement Date: November 29, 1999
Vesting Schedule: The right to exercise the Option will vest at the
rate of 1/2 of the shares subject thereto on the
first anniversary of the Vesting Commencement Date
and an additional 1/24th of the shares subject
thereto at the end of each one month period
thereafter (total vesting in 24 months); PROVIDED
THAT, you are employed by Bush Acquisition
Corporation on the relevant vesting date; PROVIDED
FURTHER THAT, if at any time during such 24-month
period, if your employment with Bush Acquisition
Corporation is ended by Involuntary Termination (as
defined in the Employment Agreement), then all
shares shall vest immediately.
<PAGE>
Termination Period: The right to exercise the options shall terminate
upon the sixth anniversary of the Date of Grant or,
if your employment with Bush Acquisition
Corporation is ended other than by Involuntary
Termination, thirty (30) days after the termination
of your employment with Bush Acquisition
Corporation, but in no event later than the
Expiration Date.
</TABLE>
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the Stock Option Agreement and the Employment
Agreement, both of which are attached and made a part of this document.
NICHOLAS TOMPKINS: LANDEC CORPORATION
By:
- ----------------------------- -----------------------------------------
Signature
Title: President and Chief Executive Officer
- ----------------------------- -------------------------------------
Print Name
-2-
<PAGE>
LANDEC CORPORATION
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. LANDEC CORPORATION, a California corporation (the
"COMPANY"), hereby grants to the Optionee named in the Notice of Stock Option
Grant attached to this Agreement ("OPTIONEE"), an option (the "OPTION") to
purchase the total number of shares of Common Stock (the "SHARES") set forth in
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "EXERCISE PRICE") subject to the terms,
definitions and provisions of the Employment Agreement, which is incorporated in
relevant part in this Agreement by reference. In the event of a conflict between
the terms of the Employment Agreement and the terms of this Agreement, the terms
of this Agreement shall govern. Unless otherwise defined in this Agreement, the
terms used in this Agreement shall have the meanings defined in the Employment
Agreement.
This Option is intended to be a Nonstatutory Stock Option.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the following provisions:
(a) RIGHT TO EXERCISE.
(i) This Option may not be exercised for a
fraction of a share.
(ii) In no event may this Option be exercised
after the date of expiration of the term of this Option as set forth in the
Notice of Stock Option Grant.
(b) METHOD OF EXERCISE.
(i) This Option shall be exercisable by
delivering to the Company a written notice of exercise (in the form attached as
EXHIBIT A) which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with respect
to such Shares of Common Stock as may be required by the Company pursuant to the
provisions of the Resolutions. Such written notice shall be signed by Optionee
and shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the Exercise
Price. This Option shall be deemed to be exercised upon receipt by the Company
of such written notice accompanied by the Exercise Price.
(ii) As a condition to the exercise of this
Option, Optionee agrees to make adequate provision for federal, state or other
tax withholding obligations, if any, which arise upon the exercise of the Option
or disposition of Shares, whether by withholding, direct payment to the Company,
or otherwise.
(iii) No Shares will be issued pursuant to the
exercise of an Option unless such issuance and such exercise shall comply with
all relevant provisions of law and the
<PAGE>
requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to Optionee on the date on which the Option is exercised with
respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), at the time this
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value (as defined below) on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised; (d) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised; or (e) if
there is a public market for the Shares and they are registered under the
Securities Act, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the exercise price.
For purposes of this Agreement "FAIR MARKET VALUE" means, as of any
date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system including without
limitation the National Market of the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") System, its Fair Market Value shall
be the closing sales price for such stock as quoted on such system on the date
of determination (if for a given day no sales were reported, the closing bid on
that day shall be used), as such price is reported in The Wall Street Journal or
such other source as the Board of Directors deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the bid and asked prices for the Common
Stock or;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board of Directors.
-2-
<PAGE>
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("REGULATION G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's employment with Bush Acquisition Corporation, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "TERMINATION
DATE"), exercise this Option during the Termination Period set out in the Notice
of Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified in the Notice of Stock Option Grant, the
Option shall terminate.
7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution. The
designation of a beneficiary does not constitute a transfer. An Option may be
exercised during the lifetime of Optionee only by Optionee or a transferee
permitted by this section. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of Optionee.
8. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Stock Option Grant, and may be exercised during such
term only in accordance with the Employment Agreement and the terms of this
Agreement.
9. NO ADDITIONAL EMPLOYMENT RIGHTS. Optionee understands and agrees
that the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an employee at the will of the Company (not through the act of
being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement shall confer upon Optionee any right with respect to continuation as
an Employee or Consultant with the Company, nor shall it interfere in any way
with his or her right or the Company's right to terminate his or her employment
or consulting relationship at any time, with or without cause.
10. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS
OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF NONSTATUTORY STOCK OPTION. Because this Option
does not qualify as an Incentive Stock Option, Optionee may incur regular
federal income tax liability upon the exercise of the Option. Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value
-3-
<PAGE>
of the Shares on the date of exercise over the Exercise Price. In addition, if
Optionee is an employee of the Company, the Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
(b) DISPOSITION OF SHARES. Because this Option is a
Nonstatutory Stock Option, then gain realized on the disposition of Shares will
be treated as long-term or short-term capital gain depending on whether or not
the disposition occurs more than one year after the exercise date.
11. SIGNATURE. This Stock Option Agreement shall be deemed executed by
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-4-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: Landec Corporation
Attn:
Subject: NOTICE OF INTENTION TO EXERCISE STOCK OPTION
This is official notice that the undersigned ("OPTIONEE") intends to
exercise Optionee's option to purchase __________ shares of Landec Corporation
Common Stock, under and pursuant to the Stock Option Agreement dated
___________, as follows:
Grant Number:
--------------------------------
Date of Purchase:
--------------------------------
Number of Shares:
--------------------------------
Purchase Price:
--------------------------------
Method of Payment
of Purchase Price:
--------------------------------
Social Security No.:
--------------------------------
The shares should be issued as follows:
Name:
--------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
Signed:
--------------------------------
Date:
--------------------------------
<PAGE>
Exhibit 10.26
APIO, INC.
1999 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1999 Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be Incentive Stock
Options (as defined under Section 422 of the Code) or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) and (b) of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Apio, Inc. a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than 90 days, unless reemployment upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or from a Consultant
to an Employee will not constitute an interruption of Continuous Status as an
Employee or Consultant.
(i) "EMPLOYEE" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee to a
director shall not be sufficient to constitute "employment" of such director by
the Company.
<PAGE>
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written Option Agreement.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(n) "OPTION" means a stock option granted pursuant to the
Plan.
(o) "OPTION AGREEMENT" means a written agreement between an
Optionee and the Company reflecting the terms of an Option granted under the
Plan and includes any documents attached to such Option Agreement, including,
but not limited to, a notice of stock option grant and a form of exercise
notice.
(p) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(r) "PARENT" means a "PARENT CORPORATION," whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(s) "PLAN" means this 1999 Stock Option Plan.
(t) "REPORTING PERSON" means an officer, director, or greater
than 10% stockholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
-2-
<PAGE>
(u) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as the same may be amended from time to time, or any successor
provision.
(v) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(w) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(x) "SUBSIDIARY" means a "SUBSIDIARY CORPORATION," whether now
or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is Five Million (5,000,000) shares of Common Stock. The
shares may be authorized, but unissued, or reacquired Common Stock. If an Option
should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares that were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. In addition, any shares of Common Stock which are retained by
the Company upon exercise of an Option in order to satisfy the exercise or
purchase price for such Option or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan. Shares repurchased by the Company pursuant to any repurchase right
which the Company may have shall not be available for future grant under the
Plan.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon
which the Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or a Committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE
COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by
Rule 16b-3, grants under the Plan may be made by different bodies with respect
to directors, non-director officers and Employees or Consultants who are not
Reporting Persons.
(ii) ADMINISTRATION WITH RESPECT TO REPORTING
PERSONS. With respect to grants of Options to Employees who are Reporting
Persons, such grants shall be made by (A) the Board if the Board may make grants
to Reporting Persons under the Plan in compliance with Rule 16b-3, or (B) a
Committee designated by the Board to make grants to Reporting Persons under the
Plan, which Committee shall be constituted in such a manner as to permit grants
under the Plan to comply with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly make grants to
Reporting Persons under the Plan, all to the extent permitted by Rule 16b-3.
-3-
<PAGE>
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND
OTHER EMPLOYEES. With respect to grants of Options to Employees or Consultants
who are not Reporting Persons, the Plan shall be administered by (A) the Board
or (B) a Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the legal requirements relating to the
administration of Incentive Stock Option plans, if any, of applicable corporate
and securities laws, of the Code and of any applicable Stock Exchange (the
"APPLICABLE LAWS"). Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any Stock Exchange, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such Option granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under Section 9(f) instead of
Common Stock;
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(ix) to construe and interpret the terms of the Plan
and Options granted under the Plan; and
(x) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options to participants who are
foreign nationals or employed outside of the United States in order to recognize
differences in local law, tax policies or customs.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options.
-4-
<PAGE>
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option may,
if he or she is otherwise eligible, be granted additional Options.
(b) TYPE OF OPTION. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options designated
as Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) EMPLOYMENT RELATIONSHIP. The Plan shall not confer upon
any Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten years unless sooner terminated under
Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board and set forth in the applicable Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option, owns stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
-5-
<PAGE>
(ii) In the case of a Nonstatutory Stock Option that
is:
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note (subject to the provisions of Section 153 of the
Delaware General Corporation Law), (4) other Shares that (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which such Option shall be exercised, (5) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable income or employment taxes, (7) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator and reflected in the Option
Agreement, which may include vesting requirements and/or including performance
criteria with respect to the Company and/or the Optionee; provided, however,
that such Option shall become exercisable at the rate of at least 20% per year
over five years from the date the Option is granted. In the event that any of
the Shares issued upon exercise of an Option should be subject to a right of
repurchase in the Company's favor, such repurchase right shall lapse at the rate
of at least 20% per year over five years from the date the Option is granted.
Notwithstanding the above, in the case of an Option granted to an officer,
director or Consultant of the Company or any Parent or Subsidiary of the
Company, the Option may become fully exercisable, or a repurchase right, if any,
in favor of the Company shall lapse, at any time or during any period
established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option
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and the Company has received full payment for the Shares with respect to which
the Option is exercised. Full payment may, as authorized by the Board, consist
of any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.
Subject to Section 9(c) below, in the event of termination of an Optionee's
Continuous Status as an Employee or Consultant with the Company, such Optionee
may, but only within three months (or such other period of time not less than 30
days as is determined by the Administrator, with such determination in the case
of an Incentive Stock Option being made at the time of grant of the Option and
not exceeding three months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee, or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding Section 9(b) above, in the event
of termination of an Optionee's Continuous Status as an Employee or Consultant
as a result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(ii) In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of a disability which
does not fall within the meaning of total and permanent disability (as set forth
in Section 22(e)(3) of the Code), such Optionee may, but only within six months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three months of the date of such termination, the Option will
not qualify for Incentive Stock Option treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within six months from the date of termination, the Option shall
terminate.
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(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee during the period of Continuous Status as an Employee or Consultant
since the date of grant of the Option, or within 30 days following termination
of the Optionee's Continuous Status as an Employee or Consultant, the Option may
be exercised, at any time within six months following the date of death (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), by such Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date of death or, if
earlier, the date of termination of the Optionee's Continuous Status as an
Employee or Consultant. To the extent that the Optionee was not entitled to
exercise the Option at the date of death or termination, as the case may be, or
if the Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(e) RULE 16b-3. Options granted to Reporting Persons shall
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
for Plan transactions.
10. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option, which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by one or some combination of the
following methods: (a) by cash or check payment, (b) out of the Optionee's
current compensation, (c) if permitted by the Administrator, in its discretion,
by surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a Fair Market Value on the date
of surrender equal to or less than the Optionee's marginal tax rate times the
ordinary income recognized, or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
For this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised but such
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Optionee shall be unconditionally obligated to tender back to the Company the
proper number of Shares on the Tax Date.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock that have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or that have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent it has not been
previously exercised, the Option will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR SALE OF ASSETS. In the event of a proposed sale
of all or substantially all of the Company's assets or a merger of the Company
with or into another corporation where the successor corporation issues its
securities to the Company's stockholders, each outstanding Option shall be
assumed or an equivalent option or right shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
successor corporation does not agree to assume the Option or to substitute an
equivalent option, in which case such Option shall terminate upon the
consummation of the merger or sale of assets. For purposes of this Section
11(c), an Option shall be considered assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon such merger or sale of
assets, each Optionee would be entitled to receive upon exercise of an Option
the same number and kind of shares of stock or the same amount of property, cash
or securities as the Optionee would have been entitled to receive upon the
occurrence of such transaction if the Optionee had been, immediately prior to
such transaction, the holder of the number of Shares of Common Stock covered by
the Option at such time (after giving effect to any adjustments in the number of
Shares covered by the Option as provided for in this Section 11).
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
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12. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised or purchased
during the lifetime of the Optionee only by the Optionee.
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any Stock Exchange), the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or
termination of the Plan shall adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any Stock Exchange.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. OPTION AGREEMENTS. Options shall be evidenced by Option Agreements
in such form(s) as the Administrator shall approve from time to time.
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18. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve months before or after
the date the Plan is adopted. Such stockholder approval shall be obtained in the
degree and manner required under applicable state and federal law and the rules
of any Stock Exchange upon which the Common Stock is listed. All Options issued
under the Plan shall become void in the event such approval is not obtained.
19. INFORMATION AND DOCUMENTS TO OPTIONEES. The Company shall provide
financial statements at least annually to each Optionee during the period such
Optionee has one or more Options outstanding, and in the case of an individual
who acquired Shares pursuant to the Plan, during the period such individual owns
such Shares. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key employees whose duties
in connection with the Company assure their access to equivalent information. In
addition, at the time of issuance of any securities under the Plan, the Company
shall provide to the Optionee a copy of the Plan and any agreement(s) pursuant
to which securities granted under the Plan are issued.
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Exhibit 10.27
EXECUTION
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LOAN AGREEMENT
Dated as of November 29, 1999
among
BUSH ACQUISITION CORPORATION
the Lenders and the Issuing Lender
referred to herein
and
BANK OF AMERICA, N.A.
as Administrative Agent
for itself and for the other Lenders
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<PAGE>
<TABLE>
TABLE OF CONTENTS
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PAGE
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ARTICLE 1
<S> <C>
DEFINITIONS AND ACCOUNTING TERMS .................................... 1
1.1 Defined Terms ............................................... 1
1.2 Use of Defined Terms ........................................ 27
1.3 Accounting Terms ............................................ 27
1.4 Rounding .................................................... 27
1.5 Exhibits and Schedules ...................................... 27
1.6 Miscellaneous Terms ......................................... 27
ARTICLE 2
LOANS AND LETTERS OF CREDIT ......................................... 28
2.1 Loans -- General ............................................ 28
2.2 Base Rate Loans ............................................. 29
2.3 Eurodollar Rate Loans ....................................... 29
2.4 Redesignation of Loans ...................................... 29
2.5 Letters of Credit ........................................... 30
2.6 Extensions of the Revolver Termination Date ................. 32
2.7 Mandatory Prepayments of the Term Loans ..................... 32
2.8 Reductions of the Revolving Commitment ...................... 33
2.9 Rights to Assume Funds Available for Advances ............... 33
2.10 Collateral .................................................. 34
ARTICLE 3
PAYMENTS AND FEES ................................................... 35
3.1 Principal and Interest ...................................... 35
3.2 Commitment Fees ............................................. 36
3.3 Letter of Credit Fees ....................................... 36
3.4 Facility Fees ............................................... 36
3.5 Capital Adequacy ............................................ 36
3.6 Eurodollar Fees and Costs ................................... 36
3.7 Post Default Interest and Late Payments ..................... 39
3.8 Right to Assume Payments Will be Made by Borrower ........... 39
3.9 Computation of Interest and Fees............................. 39
3.10 Non-Business Days ........................................... 39
3.11 Manner and Treatment of Payments ............................ 39
3.12 Funding Sources ............................................. 40
3.13 Failure to Charge Not Subsequent Waiver ..................... 40
3.14 Authority to Charge Account ................................. 40
3.15 Survivability ............................................... 41
ARTICLE 4
REPRESENTATIONS AND WARRANTIES ...................................... 42
4.1 Existence and Qualification; Power; Compliance With Laws .... 42
4.2 Authority; Compliance With Other Agreements and Instruments
and Government Regulations................................... 42
</TABLE>
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<TABLE>
<S> <C>
4.3 No Governmental Approvals Required .......................... 43
4.4 Subsidiaries ................................................ 43
4.5 Financial Statements ........................................ 43
4.6 No Other Liabilities; No Material Adverse Effect ............ 44
4.7 Title to and Location of Property ........................... 44
4.8 Real Property ............................................... 44
4.9 Intangible Assets ........................................... 44
4.10 Governmental Regulation ..................................... 44
4.11 Litigation .................................................. 44
4.12 Binding Obligations ......................................... 45
4.13 No Default .................................................. 45
4.14 ERISA ....................................................... 45
4.15 Regulations T, U and X ...................................... 46
4.16 Disclosure .................................................. 46
4.17 Tax Liability ............................................... 46
4.18 Projections ................................................. 46
4.19 Security Interests .......................................... 46
4.20 Hazardous Materials ......................................... 47
4.21 Material Contracts .......................................... 48
4.22 Year 2000 Compliance ........................................ 48
4.23 Merger and Purchase Agreement ............................... 48
4.24 Merger and Purchase Agreement ............................... 48
ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS) ............................................. 49
5.1 Payment of Taxes and Other Potential Liens .................. 49
5.2 Preservation of Existence ................................... 49
5.3 Maintenance of Properties ................................... 49
5.4 Maintenance of Insurance .................................... 49
5.5 Compliance With Laws ........................................ 50
5.6 Inspection Rights ........................................... 50
5.7 Keeping of Records and Books of Account ..................... 50
5.8 Compliance With Agreements .................................. 50
5.9 Use of Proceeds ............................................. 50
5.10 Hazardous Materials Laws .................................... 51
5.11 Future Guarantors and Collateral ............................ 51
5.12 Further Assurances .......................................... 51
ARTICLE 6
NEGATIVE COVENANTS .................................................. 53
6.1 Prepayment of Subordinated Obligations and Earn Out Payments. 53
6.2 Disposition of Property ..................................... 53
6.3 Mergers ..................................................... 53
6.4 Acquisitions and Investments ................................ 53
6.5 Distributions and Other Restricted Payments ................. 54
6.6 ERISA ....................................................... 54
</TABLE>
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<TABLE>
<S> <C>
6.7 Change in Name; Nature of Business .......................... 55
6.8 Indebtedness and Contingent Obligations ..................... 55
6.9 Liens; Negative Pledges; Sales and Leasebacks ............... 55
6.10 Transactions with Affiliates ................................ 56
6.11 Net Worth ................................................... 56
6.12 Leverage Ratio .............................................. 56
6.13 Minimum EBITDA .............................................. 56
6.14 Minimum EBITDA Prior to Fanning Losses ...................... 56
6.15 Fixed Charge Coverage Ratio ................................. 57
6.16 Current Ratio ............................................... 57
6.17 Profitability ............................................... 57
6.18 Maximum Capital Expenditures ................................ 57
6.19 Maximum Research and Development Expenditures ............... 57
6.20 Landec Distributions ........................................ 57
6.21 Earn-Out Payments ........................................... 58
6.22 Interest Rate Protection .................................... 59
6.23 Change of Location .......................................... 59
6.24 Use of Hazardous Substances ................................. 59
6.25 Consolidated Tax Returns .................................... 59
ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS .............................. 60
7.1 Financial and Business Information .......................... 60
7.2 Compliance Certificates ..................................... 62
ARTICLE 8
CONDITIONS .......................................................... 63
8.1 Conditions to the Initial Loans and Letters of Credit ....... 63
8.2 Any Increasing Loan ......................................... 66
ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES ...................................... 68
9.1 Events of Default ............................................ 68
9.2 Remedies Upon Event of Default ............................... 70
ARTICLE 10
THE ADMINISTRATIVE AGENT ............................................ 73
10.1 Appointment and Authorization ................................ 73
10.2 Delegation of Duties ......................................... 73
10.3 Liability of the Administrative Agent ........................ 73
10.4 Reliance by Administrative Agent ............................. 73
10.5 Notice of Default ............................................ 74
10.6 Credit Decision .............................................. 74
10.7 Indemnification .............................................. 75
10.8 Bank of America in its Individual Capacity ................... 75
10.9 Successor Agents ............................................. 75
10.10 Action by the Administrative Agent; Collateral Matters ....... 76
10.11 No Obligations of Borrower ................................... 76
10.12 Proportionate Interest of the Lenders in Collateral .......... 77
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 11
MISCELLANEOUS ....................................................... 78
11.1 Cumulative Remedies; No Waiver ............................... 78
11.2 Amendments; Consents ......................................... 78
11.3 Costs, Expenses and Taxes .................................... 79
11.4 Nature of Lenders' Obligations ............................... 79
11.5 Survival of Representations and Warranties ................... 79
11.6 Notices ...................................................... 79
11.7 Execution of Loan Documents .................................. 80
11.8 Binding Effect; Assignment ................................... 80
11.9 Foreign Lenders and Participants ............................. 81
11.10 Right of Setoff ... .......................................... 82
11.11 Sharing of Setoff ............................................ 82
11.12 Indemnity by Borrower ........................................ 83
11.13 Nonliability of the Creditors ................................ 83
11.14 No Third Parties Benefitted .................................. 84
11.15 Further Assurances ........................................... 84
11.16 Confidentiality .............................................. 84
11.17 Integration .................................................. 84
11.18 Severability of Provisions ................................... 85
11.19 Independent Covenants ........................................ 85
11.20 Headings ..................................................... 85
11.21 Arbitration Reference ........................................ 85
11.22 Environmental Indemnity ...................................... 86
11.23 Releases of the Pledge Agreements ............................ 87
11.24 Jurisdiction and Venue ....................................... 87
11.25 JURY TRIAL WAIVER ............................................ 87
11.26 GOVERNING LAW ................................................ 88
11.27 PURPORTED ORAL AMENDMENTS .................................... 88
</TABLE>
EXHIBITS
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A - Assignment Agreement
B - Borrowing Base Certificate
C - Compliance Certificate
D - Form of Revolving Note
E - Form of A Term Note
F - Farmer Agreement
G - Request For Letter of Credit
H - Request For Loan
I - Request For Redesignation
J - Trademark Security Agreement
K - Patent Security Agreement
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SCHEDULES
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1.1 - Existing Apio Debt
1.2 - Value Added Equipment Subject to Sale and Leaseback
4.1 - Warrants and Options
4.4 - Subsidiaries
4.5 - Pro Forma Opening Balance Sheet
4.7 - Locations of Property
4.8 - Real Property Owned and Leased
4.11 - Litigation
4.14 - Pension Plans
4.18 - Projections
4.21 - Material Contracts
6.8 - Existing Indebtedness
6.9 - Existing Liens
6.4 - Investments
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LOAN AGREEMENT
Dated as of November 29, 1999
This LOAN AGREEMENT is entered into by and among BUSH
ACQUISITION CORPORATION, a Delaware corporation (the "Borrower"), the lenders
named on the signature pages hereof or which hereafter become parties hereto in
accordance with Section 11.8, hereof, as the Lenders, and BANK OF AMERICA, N.A.,
as Administrative Agent for itself and for the other Lenders.
RECITALS
A. Pursuant to the Merger and Purchase Agreement described
herein, Borrower proposes to acquire, both by way of purchase
and by way of merger, the Acquired Companies described below.
B. Upon the consummation of the transactions contemplated by the
Merger and Purchase Agreement, Borrower shall (a) merge with
Apio, Inc., a California corporation ("Old Apio" with Borrower
the survivor) and assume the name Apio, Inc., a Delaware
corporation, and (b) acquire and thereafter hold as direct
Subsidiaries the remainder of the Acquired Companies (other
than Apio Produce Sales, a California general partnership,
which shall be immediately merged into Borrower with Borrower
as the surviving corporation).
In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINED TERMS. As used in this Agreement, the
following terms shall have the respective meanings set forth below:
"A TERM NOTES" means the notes evidencing the Term
Loans, substantially in the form of Exhibit E.
"ACQUIRED COMPANIES" means Old Apio and those of its
Affiliates to be acquired by Borrower pursuant to the Merger and
Purchase Agreement on the Closing Date.
"ACQUISITION" means any transaction, or any series of
related transactions, by which Borrower and/or any Subsidiary of
Borrower directly or indirectly (i) acquires any business or all or
substantially all of the assets of any firm, partnership, joint
venture, corporation or division thereof, whether through purchase of
assets, merger or otherwise, or (ii) acquires (in one transaction or as
the most recent transaction in a series of transactions) control of at
least a majority in ordinary voting power of the securities of a
corporation which
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have ordinary voting power for the election of directors, or (iii)
acquires control of a 50% or more ownership interest in any
partnership or joint venture.
"ADJUSTED QUARTERLY TAX DISTRIBUTIONS" means, for
any Fiscal Year, the sum of the Quarterly Tax Distributions made during
that Fiscal Year PLUS or minus (as applicable) the: Tax Settlement for
that Fiscal Year.
"ADMINISTRATIVE AGENT" means Bank of America, when
acting in its capacity as Administrative Agent under any of the Loan
Documents, or any successor Administrative Agent.
"ADMINISTRATIVE AGENT'S OFFICE" means the
Administrative Agent's address as set forth on the signature pages of
this Agreement, or such other address as the Administrative Agent
hereafter may designate by written notice to Borrower and the Lenders.
"ADVANCE" means any advance made or to be made by any
Lender under its Pro Rata Share of a Revolving Commitment or Term
Commitment, as the case may be, and INCLUDES each Base Rate Advance and
each Eurodollar Rate Advance.
"AFFILIATE" means, as to any Person, any other Person
which directly or indirectly controls, or is under common control with,
or is controlled by, such Person. As used in this definition, "control"
(and the correlative terms, "controlled by" and "under common control
with") shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether
through ownership of Securities or partnership or other ownership
interests, by contract or otherwise); PROVIDED that, in any event, any
Person that owns, directly or indirectly, 10% or more of the Securities
having ordinary voting power for the election of directors or other
governing body of a corporation (OTHER THAN Securities having such
power only by reason of the happening of a contingency), or 10% or more
of the partnership or other ownership interests of any other Person
(OTHER THAN as a limited partner of such other Person), will be deemed
to control such corporation or other Person.
"AGENT RELATED PERSONS" means Bank of America and any
successor Administrative Agent, together with their respective
Affiliates, and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"AGGREGATE TAX DISTRIBUTIONS" means, with respect to
any Fiscal Year, the total amount paid to Landec in respect of income
taxes for that Fiscal Year, whether by way of Quarterly Tax
Distributions, Tax Settlements, or Tax Gross-Up's.
"AGREEMENT" means this Loan Agreement, either as
originally executed or as it may from time to time be supplemented,
modified, amended, restated or extended.
"AMORTIZATION AMOUNT" means, as to each Amortization
Date described below, the amount set forth below opposite that
Amortization Date:
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AMORTIZATION DATES AMOUNT
------------------ ------
April 30, 2000 $500,000
July 31, 2000 $500,000
October 31, 2000 $500,000
January 31,2001
through October 31,2001 $562,500
January 31, 2002 through
the Term Maturity Date $875,000.
"AMORTIZATION DATE" means April 30, 2000 and each
subsequent July 31, October 31, January 31 and April 30 through the
Term Maturity Date.
"ANNUAL TAX AMOUNT" means, for each Fiscal Year, an
amount equal to Borrower's share of Landec's actual cash liability for
income tax payments due with respect to the income of Landec and its
consolidated subsidiaries during that Fiscal Year, with Borrower's
share being determined on the basis of the proportion which Borrower's
pre-tax profits during that Fiscal Year bear to the pre-tax profits of
Landec's other profitable Subsidiaries during that Fiscal Year.
"APIO COOLING" means Apio Cooling, a California
limited partnership of which Borrower is the sole general partner.
"APPROVED SWAP AGREEMENT" means each interest rate,
currency or other similar swap or hedging agreement between Borrower
and any Lender, either as originally executed or as the same may from
time to time be supplemented, modified, amended, renewed, extended,
replaced or supplanted.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement
substantially in the form of Exhibit A.
"BANK OF AMERICA" means Bank of America, N.A., its
successors and assigns.
"BASE MARGIN" means (a) for the Initial Pricing
Period, one-half of one percent (0.50%), and (b) for each subsequent
Pricing Period, the interest rate margin set forth below opposite the
Pricing Level for that Pricing Period:
PRICING LEVEL BASE RATE MARGIN
------------- ----------------
I 0.00%
II 0.25%
III 0.50%
"BASE RATE" means the greater of (a) the Prime Rate
or (b) the Federal Funds rate plus 0.50%.
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"BASE RATE ADVANCE" means each Advance made by a
Lender designated as a Base Rate Advance in accordance with Article 2.
"BASE RATE LOAN" means a Loan made hereunder and
designated as a Base Rate Loan in accordance with Article 2.
"BORROWER" means, Bush Acquisition Corporation, a
Delaware corporation, and its successors and permitted assigns,
including after the Merger, Apio, Inc., a Delaware corporation.
"BORROWER PLEDGE AGREEMENT" means the pledge
agreement to be executed and delivered, subject to Section 11.23, on
the Closing Date by Borrower with respect to 100% of the capital stock
of each of the Subsidiaries of Borrower, either as originally executed
or as it may from time to time be supplemented, modified, amended,
extended or supplanted.
"BORROWER SECURITY AGREEMENT" means a security
agreement executed on the Closing Date in favor of the Administrative
Agent for the benefit of the Lenders executed by Borrower, covering all
of the personal property of Borrower, either as originally executed or
as the same may from time to time be supplemented, modified, amended,
renewed, extended or supplanted.
"BORROWING BASE" means, as of each date of
determination, an amount determined by the Administrative Agent with
reference to the most recent Borrowing Base Certificate to be equal to
the SUM of:
(a) eighty percent (80%) of the aggregate book
value of the Eligible Receivables; PLUS
(b) fifty percent (50%) of the aggregate amount of
the of Eligible Notes Receivable (such aggregate amount not to
exceed $3,000,000 and resulting in an increase to the
Borrowing Base not to exceed $1,500,000); PLUS
(c) twenty five percent (25%) of Eligible
Inventory; MINUS
(d) one hundred percent (100%) of Grower Payables.
"BORROWING BASE CERTIFICATE" means a borrowing base
certificate in the form of Exhibit B, properly completed and executed
in the manner set forth in Section 2.11.
"BUSINESS DAY" means any Monday, Tuesday, Wednesday,
Thursday or Friday, OTHER THAN a day on which banks are authorized or
required to be closed in California.
"CAPITAL EXPENDITURE" means any expenditure during
any fiscal period that is considered a capital expenditure under GAAP,
consistently applied, INCLUDING any amount that is required to be
treated as an asset subject to a Capital Lease.
"CAPITAL LEASE" means, as to any Person, a lease of
any Property by that Person as lessee that is, or should be in
accordance with Financing Accounting Standards Board
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Statement No. 13, recorded as a "capital lease" on the balance sheet of
that Person prepared in accordance with GAAP.
"CASH" means, when used in connection with any
Person, all monetary and non-monetary items owned by that Person that
are treated as cash in accordance with GAAP, consistently applied.
"CASH EQUIVALENTS" means:
(a) direct obligations of the United States
government;
(b) commercial paper that is rated P-1 or higher by
Moody's Investors Service, Inc. or A-1 or higher by Standard and Poor's
Corporation and that is issued by issuers whose long term unsecured
debt rating is A1/A+ or better and that have not been identified by
either rating agency as an issuer whose rating is likely to be
downgraded;
(c) banker's acceptances and certificates of deposit
of any Lender or any United States bank whose total assets are at least
$10,000,000,000 and whose senior long term debt is rated A2/A or higher
by Moody's Investors Service, Inc. and Standard and Poor's Corporation;
and
(d) repurchase obligations, Dollar investments in
money market funds, and tax exempt municipal notes, PROVIDED that the
debt ratings and/or standings of the issuers thereof are comparable in
quality to those set forth in clauses (b) and (c) above;
PROVIDED that such Cash Equivalents that are not money market funds
must have remaining maturities not in excess of one year, and such Cash
Equivalents that are money market funds must have average remaining
maturities not in excess of one year and be able to be withdrawn by
Borrower upon demand.
"CHANGE IN CONTROL" means (a) any transaction or
series of related transactions in which any Unrelated Person or two or
more Unrelated Persons acting in concert acquire beneficial ownership
(within the meaning of Rule 13d-3(a) under the Securities Exchange Act
of 1934, as amended), directly or indirectly, of 10% or more of the
outstanding Common Stock, or 20% or more of the common stock of Landec,
(b) Landec, Borrower or any of its Subsidiaries consolidate with or
merge into another Person or convey, transfer, or lease their
properties and assets substantially as an entirety to any Person or any
Person consolidates with or merges into Landec, Borrower or such
Subsidiary (other than with respect to any Subsidiaries of Borrower,
into Borrower or any other Subsidiary of Borrower), in either event
pursuant to a transaction in which the outstanding Common Stock is
changed into or exchanged for cash, securities or other property, with
the effect that any Unrelated Person becomes the beneficial owner,
directly or indirectly, of 10% or more of Common Stock or 20% or more
of the common stock of Landec or that the Persons who were the holders
of Common Stock (or the common stock of Landec) immediately prior to
the transaction hold less than 90% (or in the case of Landec, 80%) of
the common stock of the surviving corporation after the transaction,
(c) during any period of 12 consecutive months, individuals who at the
beginning of such period constituted the board of directors of Landec
(together with any new or replacement directors whose election by the
board of directors, or whose nomination for election, was approved by a
vote of at least a majority of the directors then still in office who
were either directors at the
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beginning of such period or whose election or nomination for reelection
was previously so approved) cease for any reason to constitute a
majority of the directors then in office, (d) a "change in control" as
defined in any document governing Indebtedness of Borrower or any of
the Subsidiaries in excess of $500,000 which gives the holders of such
Indebtedness the right to accelerate or otherwise require payment of
such Indebtedness prior to the maturity date thereof, or (e) after the
Closing Date, Nicholas Tompkins fails, at any time, to be actively
involved in the management of the affairs of Borrower in a senior
executive capacity.
"CLOSING DATE" means the time and Business Day on
which the consummation of all of the transactions contemplated in
Section 8.1 occurs.
"CODE" means the Internal Revenue Code of 1986, as
amended or replaced and as in effect from time to time.
"COLLATERAL" means, collectively, all of the
collateral subject to the Liens, or intended to be subject to the
Liens, created by the Collateral Documents.
"COLLATERAL DOCUMENTS" means, collectively, the
Borrower Security Agreement, the Guarantor Security Agreement, the
Pacific West Security Agreement, the Landec Pledge Agreement, the
Borrower Pledge Agreement, the Trademark Security Agreement, the Patent
Security Agreement, the Deeds of Trust and any other pledge agreement,
hypothecation agreement, security agreement, assignment, deed of trust,
mortgage or similar instrument executed by Borrower or any of its
Subsidiaries to secure the Obligations.
"COMMISSION" means the Securities and Exchange
Commission.
"COMMITMENT FEE RATE" means (a) for the Initial
Pricing Period, one-quarter of one percent (0.25%), and (b) for each
Pricing Period thereafter, the rate per annum set forth below opposite
the Pricing Level in effect during that Pricing Period:
PRICING LEVEL COMMITMENT FEE RATE
------------- -------------------
I 0.125%
II 0.250%
III 0.250%
"COMMITMENTS" means, collectively, the Revolving
Commitment and the Term Commitment.
"COMMON STOCK" means the common stock of Borrower or
any of its Subsidiaries.
"COMPLIANCE CERTIFICATE" means a certificate
substantially in the form of Exhibit C, properly completed and signed
by a Senior Officer of Borrower and delivered to the Administrative
Agent.
"CONTINGENT OBLIGATION" means, as to any Person, any
(a) direct or indirect guarantee of Indebtedness of, or other
obligation performable by, any other Person, INCLUDING any endorsement
(other than for collection Or deposit in the ordinary course of
business),
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co-making or sale with recourse of the obligations of any other Person,
(b) contingent reimbursement obligations in respect of any letter of
credit, INCLUDING a Letter of Credit, or (c) assurance given to an
obligee with respect to the performance of an obligation by, or the
financial condition of, any other Person, whether direct, indirect or
contingent, INCLUDING any purchase or repurchase agreement coveting
such obligation or any collateral security therefor, any agreement to
provide funds (by means of loans, capital contributions or otherwise)
to such other Person, any agreement to support the solvency or level of
any balance sheet item to such other Person, or any "keep-well",
"take-or-pay", "through put" or other arrangement of whatever nature
having the effect of assuring or holding harmless any obligee against
loss with respect to any obligation of such other Person. The amount of
any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the related primary obligation (unless
the Contingent Obligation is limited by its terms to a lesser amount,
in which case to the extent of such amount) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined in good faith by the Person so obligated.
"CONTRACTUAL OBLIGATION" means, as to any Person, any
provision of any outstanding Securities issued by that Person or of any
material agreement, instrument or undertaking to which that Person is a
party or by which it or any of its Property is bound.
"CREDITORS" means, collectively the Administrative
Agent, the Issuing Lender, Bank of America, in its capacity as a party
to the Approved Swap Agreement, and the Lenders.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code of the
United States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws from time to time in effect affecting the rights of
creditors generally.
"DEEDS OF TRUST" means the Deeds of Trust executed by
Borrower and Pacific West Produce on the Closing Date pursuant to
Article 8, either as originally executed or as it may from time to time
be supplemented, modified, amended, extended or supplanted.
"DEFAULT" means any event that, which with the giving
of any applicable notice or passage of time set forth in Section 9.1,
or both, would be an Event of Default.
"DEFAULT RATE" means the rate of interest specified
in Section 3.7.
"DESIGNATED EURODOLLAR MARKET" means, with respect to
any Eurodollar Rate Loan, (a) the London Eurodollar Market, (b) if
prime banks in the London Eurodollar Market are at the relevant time
not accepting deposits of Dollars or if the Administrative Agent
determines that the London Eurodollar Market does not represent at the
relevant time the effective pricing to the Lenders for deposits of
Dollars in the London Eurodollar Market, the Cayman Islands Eurodollar
Market or (c) such other Eurodollar Market as may from time to time be
selected by the Administrative Agent with the approval of the Requisite
Lenders, PROVIDED that the Designated Eurodollar Market shall not be
changed (i) without notice to Borrower from the Administrative Agent or
(ii) with respect to any Eurodollar Rate Loan requested by Borrower,
prior to the making of that Eurodollar Loan unless consented to by
Borrower.
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"DISPOSITION" means the sale, transfer or other
disposition in any single transaction or series of related transactions
(INCLUDING by means of a sale-leaseback transaction) of any asset, or
group of related assets, of Borrower or of any Subsidiary of Borrower
(a) which asset or assets constitute a line of business or
substantially all the assets of Borrower or such Subsidiary or (b) the
aggregate amount of the Net Cash Proceeds of such assets in any one
transaction or series of related transactions is more than $200,000,
OTHER THAN (i) inventory or other assets sold or otherwise disposed of
in the ordinary course of business of Borrower or such Subsidiary, (ii)
equipment sold or otherwise disposed of where substantially similar
equipment in replacement thereof has theretofore been acquired, or
thereafter within 90 days is acquired, by Borrower or such Subsidiary
and (iii) obsolete assets no longer useful in the business of Borrower
or such Subsidiary whose carrying value on the books of Borrower or
such Subsidiary is zero or DE MINIMUS, provided that the U.S. Bank
Sale\Leaseback shall not be considered to be a Disposition.
"DISTRIBUTION" means, (i) with respect to any shares
of capital stock or any warrant or right to acquire shares of capital
stock or any other equity security issued by a Person (OTHER THAN
pursuant to the terms of Indebtedness which is convertible into or
exchangeable for capital stock or any other equity security), (a) the
retirement, redemption, purchase, or other acquisition for value by
such Person of any such security, (b) the declaration or (without
duplication) payment by such Person of any dividend in cash or in
Property (OTHER THAN common stock or any other equity security of such
Person) on or with respect to any such security, (c) any Investment by
such Person in the holder of any such security, and (d) any other
payment by such Person constituting a distribution under applicable
Laws with respect to such security, and (ii) any payment in respect of
Indebtedness owed by Borrower to any Affiliate or shareholder, or
Person not dealing at arm's length with Borrower, such Affiliate or
Person, which is not expressly permitted by this Agreement.
"DOLLARS" or the symbol "$" means United States
dollars.
"EARN OUT PAYMENTS" means the amounts payable to
Nicholas Tompkins and Kathleen Tompkins pursuant to Section 2.5 of the
Merger and Purchase Agreement.
"EBITDA" means, for any fiscal period, determined on
a consolidated basis for Borrower and its Subsidiaries, the sum,
without duplication of (i) Net Income, PLUS (ii) income tax expense (if
any), PLUS (iii) gross interest expense, PLUS (iv) depreciation, PLUS
(v) non-cash amortization, MINUS (vi) extraordinary income and gains
(other than proceeds of crop insurance settlements), MINUS (vii) gains
(or PLUS losses) on sales of fixed assets, PLUS accrued Management Fee
Distributions and accrued Tax Agreement Amounts, in each case
determined in accordance with GAAP for that fiscal period.
"ELIGIBLE ASSIGNEE" means (a) another Lender, (b)
with respect to any Lender, any Affiliate of that Lender, (c) any
commercial bank having a combined capital and surplus of $100,000,000
or more, (d) any (i) savings bank, savings and loan association or
similar financial institution or (ii) insurance company engaged in the
business of writing insurance which, in either case (A) has a net worth
of $200,000,000 or more, (B) is engaged in the business of lending
money and extending credit under credit facilities substantially
similar to those extended under this Agreement and (C) is operationally
and procedurally able to meet the obligations of a Lender hereunder to
the same degree as a commercial bank and (e) any other financial
institution (INCLUDING a mutual fund or other fund) having total assets
of $250,000,000
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or more which meets the requirements set forth in subclauses (B) and
(C) of clause (d) above; PROVIDED that each Eligible Assignee must
either (a) be organized under the Laws of the United States of America,
any State thereof or the District of Columbia or (b) be organized under
the Laws of the Cayman Islands or any country which is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision of such a country, and (i) act hereunder through a branch,
agency or funding office located in the United States of America and
(ii) be exempt from withholding of tax on interest and deliver the
documents related thereto pursuant to Section 11.22.
"ELIGIBLE GROWER ADVANCES" means, as of each date of
determination, all amounts advanced by Borrower to growers of
agricultural products which are not evidenced by notes or other
instruments which have contractually committed to provide their output
to Borrower for processing with proceeds to be used for picking,
packing and cooling said agricultural products, to the extent that the
Administrative Agent has a first priority perfected Lien in such
advances.
"ELIGIBLE INVENTORY" means all inventory of Borrower
and its Subsidiaries consisting of unbranded and unlabeled packaging
materials, provided that Eligible Inventory shall exclude:
(a) any inventory that is damaged, defective,
obsolete or in excess of that which may be used within a
twelve month period in the business of Borrower and its
Subsidiaries;
(b) any inventory which is not located at the
premises of Borrower and its Subsidiaries or other locations
reasonably acceptable to the Administrative Agent, it being
understood that the inclusion of inventory located at the
premises of others shall in any event be subject to the
following requirements:
(i) no inventory at any location at which
inventory having a value of less than
$100,000 is located shall be included in
Eligible Inventory;
(ii) the aggregate amount of the inventory
which is located at the locations of others
and which is included in Eligible Inventory
shall not exceed $1,000,000;
(iii) no such inventory will be included
unless it is segregated from other similar
property owned by Persons other than
Borrower and its Subsidiaries and located at
the relevant location; and
(iv) no such inventory will be included
unless it is the subject of a landlord
consent and a vendor consent which is
acceptable to the Administrative Agent;
(c) any inventory in which the Administrative Agent
does not have a first priority perfected security interest or
which is subject to any other lien or claim, or which has been
consigned or sold to any person as part of any bulk sale
unless there was compliance with all applicable bulk sale or
transfer laws.
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"ELIGIBLE NOTES RECEIVABLE" means, as of each date of
determination, all notes receivable by Borrower and its Subsidiaries
which are (a) evidenced by a negotiable promissory note delivered in
pledge to the Administrative Agent, (b) secured by a first priority
perfected Lien on growing crops to be harvested within the following
twelve month period, (c) as to which the obligor is not subject to any
proceeding under any Debtor Relief Law, and (d) not the obligations of
any Affiliate of Borrower.
"ELIGIBLE RECEIVABLE" means an account which
satisfies the following requirements:
(a) The account has resulted from the sale of goods
or the performance of services by the Borrower and its
Subsidiaries in the ordinary course of their business.
Eligible Grower Advances are not Eligible Receivables.
(b) There are no conditions which must be satisfied
before the Borrower and its Subsidiaries are entitled to
receive payment of the account. Accounts arising from COD
sales, consignments or guaranteed sales are not acceptable.
(c) The debtor upon the account does not claim any
defense to payment and has not asserted any counterclaims or
offsets against the Borrower or its Subsidiaries. To the
extent any credit balances exist in favor of the debtor, such
credit balances shall be deducted from the account balance.
(d) The account represents a genuine obligation of
the debtor for goods sold and accepted by the debtor, or for
services performed for and accepted by the debtor.
(e) The Borrower or the relevant Subsidiary has sent
an invoice to the debtor in the amount of the account.
(f) The account is owned by the Borrower and its
Subsidiaries free of any title defects or any liens or
interests of others, and is subject to a the first priority
perfected security interest in favor of the Administrative
Agent.
(g) The debtor upon the account is not any of the
following:
(i) an employee, affiliate, parent or
subsidiary of the Borrower, or have common officers
or directors with the Borrower.
(ii) the U.S. government or any agency or
department of the U.S. government unless the Lenders
agree in writing to accept the obligation and the
Borrower and any relevant Subsidiaries comply with
the procedures in the Federal Assignment of Claims
Act of 1940 with respect to the obligation.
(iii) any state, county, city, town or
municipality.
(iv) any person or entity located in a
foreign country unless the account is supported by a
letter of credit issued by a bank or foreign credit
insurance issued by an insurance company, in each
case reasonably acceptable
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to the Administrative Agent ("FCIA Insurance") except
that (x) Castle Cook Worldwide shall not be so
excluded for so long as they remain a Subsidiary of
Dole Food Company, Inc., and (y) the Administrative
Agent may from time to time approve for inclusion in
Eligible Receivables the accounts receivable of any
such foreign person or entity, PROVIDED that the
Administrative Agent may thereafter withdraw such
accounts receivable in the exercise of its
discretion.
(v) any person or entity to whom the
Borrower is obligated for goods purchased by the
Borrower or for services performed for the Borrower.
This will not exclude accounts upon which any such
debtor is obligated to the extent that the accounts
exceed the amount of the Borrower's obligation to
such debtor.
(h) The account is not in default. An account will be
considered in default if any of the following occur.
(i) The account is not paid within the 60
day period from the original invoice date (or, in the
case of any account which is supported by FCIA
Insurance 180 days);
(ii) The debtor obligated upon the account
suspends business, makes a general assignment for the
benefit of creditors, or fails to pay its debts
generally as they come due; or
(iii) Any petition is filed by or against
the debtor obligated upon the account under any
bankruptcy law or any other law or laws for the
relief of debtors.
(i) the dollar amount of accounts included as
Eligible Receivables which are the obligations of a single
debtor (or group of affiliated debtors) shall not exceed 10%
of the gross accounts receivables of the Borrower and its
Subsidiaries (or such higher concentration limit as may be
established for that debtor by the Administrative Agent in its
sole discretion), EXCEPT that the total dollar amount of the
accounts which are the obligations of each of the Major
Customers will be included to the extent that BOTH (y) the
aggregate dollar amount of the accounts so included which are
the obligations of that Major Customer do not exceed 15% of
the gross accounts receivable of the Borrower and its
Subsidiaries, and (z) that Major Customer is not in default
(as defined above) on 25% or more of the accounts upon which
it is obligated. To the extent the total of such accounts
exceeds a debtor's concentration limit, the amount of any such
excess shall be excluded
(j) The account is not the obligation of a debtor who
is in default (as defined above) on 50% or more of the
accounts upon which such debtor is obligated.
(k) The account does not arise from the sale of goods
which remain in the Borrower's possession or under the
Borrower's control.
(l) The account is not evidenced by a promissory note
or chattel paper.
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(m) The account is otherwise acceptable to the
Administrative Agent.
"ENFORCEMENT OR REMEDIAL ACTION" shall mean any step
taken by any Person to enforce compliance with or to collect or impose
penalties, fines or other sanctions provided by any Environmental Law.
"ENVIRONMENTAL CLAIMS" means all claims, however
asserted, by any Governmental Agency or other Person alleging potential
liability or responsibility for violation of any Environmental Law, or
any Enforcement or Remedial Action or for release or injury to the
environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage,
or otherwise alleging liability or responsibility for damages (punitive
or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other
type of relief, resulting from or based upon the presence, placement,
discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from
Property, whether or not owned by Borrower.
"ENVIRONMENTAL LAWS" means all federal, state or
local laws, statutes, common law duties, rules, regulations, ordinances
and codes together with all administrative orders, directed duties,
policies, notices, decrees, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Agencies, in each
case relating to, regulating or imposing liability or standards of
conduct regarding environmental, health, safety, project liability and
land use matters (including matters related to air and water quality,
the handling, transportation, storage, treatment, usage or disposal of
Hazardous Materials, air emissions, noise control, industrial hygiene,
zoning, and land-use permits) including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean
Air Act, the Federal Water Pollution Control Act of 1972, the Solid
Waste Disposal Act, the Federal Resource Conservation and Recovery Act,
the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the California Hazardous Waste Control Law, the
California Solid Waste Management, Resource, Recovery and Recycling
Act, the California Water Code and the California Health and Safety
Code.
"ERISA" means the Employee Retirement Income Security
Act of 1974, and any regulations issued pursuant thereto, as amended or
replaced and as in effect from time to time.
"ERISA AFFILIATE means, with respect to any Person,
any Person (or any trade or business, whether or not incorporated) that
is under common control with that Person within the meaning of Section
414 of the Code.
"EURODOLLAR BASE RATE" means, with respect to any
Eurodollar Rate Loan, the average per annum interest rate at which U.S.
dollar deposits would be offered for the applicable interest period by
major banks in the London Eurodollar Market, as shown on the Telerate
Page 3750 (or such other page as may replace it) at approximately 11:00
a.m. London time two Eurodollar Business Days before the commencement
of the interest period. If such rate does not appear on the Telerate
Page 3750 (or such other page that may replace it), the rate for that
interest period will be determined by such alternate method as
reasonably selected by
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the Administrative Agent. The Administrative Agent's determination of
the Eurodollar Base Rate shall be conclusive in the absence of manifest
error.
"EURODOLLAR BUSINESS DAY" means any Business Day on
which dealings in Dollar deposits are conducted by and among banks in
the Designated Eurodollar Market.
"EURODOLLAR LENDING OFFICE" means, as to each Lender,
its office or branch so designated by written notice to Borrower and
the Administrative Agent as its Eurodollar Lending Office. If no
Eurodollar Lending Office is designated by a Lender, its Eurodollar
Lending Office shall be its office at its address for purposes of
notices hereunder.
"EURODOLLAR MARGIN" means (a) for the Initial Pricing
Period, two and one-half percent (2.50%), and (b) for each subsequent
Pricing Period, the interest rate margin set forth below opposite the
Pricing Level for that Pricing Period:
Pricing Level Eurodollar Margin
------------- -----------------
I 1.50%
II 2.00%
III 2.50%
"EURODOLLAR MARKET" means a regular, established
market located outside the United States of America by and among banks
for the solicitation, offer and acceptance of Dollar deposits in such
banks.
"EURODOLLAR OBLIGATIONS" means eurocurrency
liabilities, as defined in Regulation D.
"EURODOLLAR PERIOD" means:
(a) as to each Eurodollar Rate Loan, the period
commencing on the date specified by Borrower pursuant to Section 2.1(b)
and ending one, two, three or six months thereafter, as specified by
Borrower in the applicable Request for Loan; PROVIDED that:
(i) The first day of any Eurodollar
Period shall be a Eurodollar Business Day;
(ii) Any Eurodollar Period that would
otherwise end on a day that is not a Eurodollar Business Day
shall be extended to the next succeeding Eurodollar Business
Day unless such Eurodollar Business Day falls in another
calendar month, in which case such Eurodollar Period shall end
on the next preceding Eurodollar Business Day;
(iii) No Eurodollar Period for any Revolving
Loan shall extend beyond the Revolver Termination Date, and no
Eurodollar Period for any Term Loan shall extend beyond the
Term Maturity Date; and
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<PAGE>
(iv) No Eurodollar Period shall extend
beyond the last day upon which any reduction to the
Commitments is required if, as a result of such required
reduction, the Borrower would be required to prepay the
related Eurodollar Loan.
"EURODOLLAR RATE" means, with respect to any
Eurodollar Rate Loan, the interest rate (rounded upward to the next
1/16 of 1%) determined to be equal to the Eurodollar Base Rate DIVIDED
by 1 MINUS the Eurodollar Reserve Percentage.
"EURODOLLAR RATE ADVANCE" means each Advance made by
a Lender designated as a Eurodollar Rate Advance in accordance with
Article 2.
"EURODOLLAR RATE LOAN" means a Loan made hereunder
and designated as a Eurodollar Rate Loan in accordance with Article 2.
"EURODOLLAR RESERVE PERCENTAGE" means, with respect
to any Eurodollar Rate Loan, as of the date of determination of the
Eurodollar Base Rate for that Eurodollar Rate Loan, the total of the
maximum reserve percentages for determining the reserves to be
maintained, if any, by member banks of the Federal Reserve System for
Eurocurrency Liabilities, as defined in Regulation D, rounded upward to
the nearest 1/100 of 1%. The percentage will be expressed as a decimal,
and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages. The determination
by the Administrative Agent of any applicable Eurodollar Reserve
Percentage shall be conclusive in the absence of manifest error.
"EVENT OF DEFAULT" has the meaning provided in
Section 9.1.
"EXCESS CASH FLOW" means, for any fiscal period, (i)
Net Income, PLUS (ii) income tax expense (if any), PLUS (iii) gross
interest expense, PLUS (iv) depreciation, PLUS (v) non-cash
amortization, MINUS (vi) non-cash extraordinary income and gains PLUS
(vii) non-cash extraordinary losses, MINUS (viii) gains (or PLUS
losses) on sales of fixed assets MINUS (ix) Capital Expenditures of
Borrower and its Subsidiaries (net of any Indebtedness constituting
purchase money incurred to finance those Capital Expenditures and not
repaid during that period), MINUS (x) any increase (or PLUS any
decrease) in working capital of Borrower and its Subsidiaries during
that period (other than intercompany payables, accrued Earnout
Payments, cash and revolver balances), MINUS (xi) payments of principal
and interest and payments made by Borrower and its Subsidiaries during
that period with respect to Capital Leases, PLUS (xii) any accruals for
Management Fee Distributions or Tax Agreement Amounts during that
Fiscal Year, and MINUS (xiii) the Aggregate Tax Distributions during
that Fiscal Year. The proceeds of the U.S. Bank Sale\Leaseback shall be
excluded from Excess Cash Flow.
"EXISTING APIO DEBT" means the approximately
$10,750,000 in Indebtedness of Old Apio and its Affiliates (prior to
the Closing Date) which is to be designated as to be repaid on the
Closing Date on Schedule 1.1.
"FARMER AGREEMENT" means a Farmer Agreement
substantially in the form of Exhibit F, with such changes thereto as
may be approved in writing by the Administrative Agent in the
reasonable exercise of its discretion.
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"FEDERAL FUNDS RATE" means, as of any date of
determination, a fluctuating interest rate per annum equal to the
federal funds effective rate for the previous Business Day as quoted by
the Federal Reserve Bank of New York or, if such rate is not so
published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by the Administrative Agent.
"FISCAL QUARTER" means the thirteen week fiscal
quarter of Borrower ending on a Sunday occurring approximately January
31, April 30, July 31 and October 31 of each year. Each reference
contained herein to fiscal quarters ending on any such date shall be
deemed to refer to the thirteen week fiscal quarter of Borrower ending
nearest such date.
"FISCAL YEAR" means the fiscal year of Borrower
ending each year on the Sunday nearest each October 31.
"FIXED CHARGE COVERAGE RATIO" means, as of the last
day of each Fiscal Quarter, the RATIO of (a) the SUM of (i) EBITDA for
the four Fiscal Quarters then ending MINUS (ii) Capital Expenditures
(net of any Indebtedness constituting purchase money incurred to
finance those Capital Expenditures), MINUS (iii) income taxes payable
in cash, MINUS (iv) Tax Gross-Up's, MINUS (v) Management Fee
Distributions to the extent paid in cash TO (b) Fixed Charges, PROVIDED
that as of the last day of the Fiscal Quarters ending July 31, 2000 and
October 31, 2000, the Fixed Charge Coverage Ratio shall be calculated
for the period since the Closing Date.
"FIXED CHARGES" means, for any period, determined on
a consolidated basis for Borrower and its Subsidiaries, (i) gross
interest expense (paid or payable in Cash), PLUS (ii) scheduled
principal payments on Indebtedness for borrowed money and Capital
Leases.
"FUNDING ACCOUNT" means account no. 1465801886
maintained by Borrower with Bank of America, or any other account
designated by Borrower and reasonably acceptable to the Administrative
Agent.
"GAAP" means, as of any date of determination,
accounting principles (a) set forth as generally accepted in then
currently effective Opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (b) set forth as
generally accepted in then currently effective Statements of the
Financial Accounting Standards Board or (c) that are then approved by
such other entity as may be approved by a significant segment of the
accounting profession in the United States of America. The term
"CONSISTENTLY APPLIED," as used in connection therewith, means that the
accounting principles applied are consistent in all material respects
to those applied at prior dates or for prior periods.
"GOVERNMENTAL AGENCY" means (a) any international,
foreign, federal, state, county or municipal government, or political
subdivision thereof, (b) any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or
public body, or (c) any court, administrative tribunal or public
utility.
"GOVERNMENT SECURITIES" means readily marketable
direct full faith and credit obligations of the United States of
America or obligations unconditionally guaranteed by the full faith and
credit of the United States of America.
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<PAGE>
"GROWER PAYABLES" means, as of each date of
determination, (a) all amounts then payable by Borrower and its
Subsidiaries to growers of agricultural products which the Borrower or
its Subsidiaries have purchased for processing or for use in producing
the Borrower's and its Subsidiaries' inventory, MINUS (b) in the case
of each such grower, the outstanding amount advanced by Borrower and
its Subsidiaries to that grower for the purpose of financing the
picking, washing and packing of crops produced by that grower, PROVIDED
THAT such grower has entered into a written Farmer Agreement with
Borrower or the relevant Subsidiary in a form which is in the form of
Exhibit F or another form reasonably acceptable to the Administrative
Agent and in each case pursuant to which it has enforceably waived its
producer's lien rights under California Food & Agriculture Code Section
55631 ET SEQ. and to the extent that the same are not subject to any
set-off, recoupment or other reduction by reason of the trust
established by the Perishable Agricultural Commodities Act, and MINUS
(without duplication) (c) in the case of each such grower, any amount
payable to Borrower and its Subsidiaries by such grower by reason of
any joint venture or other similar investment by Borrower and its
Subsidiaries with or in such grower in the ordinary course of business
which legally entitles Borrower and its Subsidiaries to a proportionate
share of the sale proceeds of such crops.
"GUARANTOR SECURITY AGREEMENT" means a security
agreement executed by each Guarantor other than Pacific West on the
Closing Date in favor of the Administrative Agent for the benefit of
the Lenders to secure the Subsidiary Guaranty, covering all of the
personal property of each such Guarantor, either as originally executed
or as the same may from time to time be supplemented, modified,
amended, renewed, extended or supplanted.
"GUARANTORS" means, collectively, (i) as of the
Closing Date, Landec and each Subsidiary of Borrower existing as of the
Closing Date, (ii) each Person hereafter formed to hold any of the
capital stock of Borrower, and (iii) and each other Person which is or
hereafter becomes a Subsidiary of Borrower.
"HAZARDOUS MATERIALS" means all those substances
which are regulated by, or which may form the basis of liability under,
any Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituent, special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived
substance or waste.
"INDEBTEDNESS" means, as to any Person, without
duplication, (a) all indebtedness of such Person for borrowed money,
(b) that portion of the obligations of such Person under Capital Leases
which is properly recorded as a liability on a balance sheet of that
Person prepared in accordance with GAAP, (c) any obligation of such
Person that is evidenced by a promissory note or other instrument
representing an extension of credit to such Person, whether or not for
borrowed money, (d) any payment obligation of such Person for the
deferred purchase price of Property or services (OTHER THAN trade or
other accounts payable in the ordinary course of business in accordance
with customary industry terms and payments), (e) any payment obligation
of such Person that is secured by a Lien on assets of such Person,
whether or not that Person has assumed such obligation or whether or
not such obligation is non-recourse to the credit of such Person, but
only to the extent of the fair market value of the assets so subject to
the Lien, (f) payment obligations of such Person arising under
acceptance facilities or under facilities for the discount of accounts
receivable of such Person, (g) any direct
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<PAGE>
or contingent obligations of such Person under letters of credit issued
for the account of such Person, and (h) any obligations of such Person
under a Swap Agreement.
"INITIAL PRICING PERIOD" means the period from the
Closing Date to and including July 31, 2000.
"INTELLIPAC ASSETS" means the assets (net of
liabilities) of the Intellipac division of Landec as stated in
accordance with GAAP, to be contributed by Landec into Borrower.
"INVESTMENT" means, when used in connection with any
Person, any investment by or of that Person, whether by means of
purchase or other acquisition of capital stock or other Securities of
any other Person or by means of loan, advance, capital contribution,
guaranty or other debt or equity participation or interest, or
otherwise, in any other Person, INCLUDING any partnership and joint
venture interests of such Person in any other Person. The amount of any
Investment shall be the amount actually invested, without adjustment
for increases or decreases in the value of such Investment.
"ISSUING LENDER" means Bank of America, when acting
in its capacity as issuer of any Letter of Credit hereunder.
"LANDEC" means Landec Corporation, a California
corporation, its successors and permitted assigns.
"LANDEC CAPITAL CALLS" means payments defined as such
in the Landec Keep Well made by Landec to Borrower pursuant to the
Landec Keep-Well and Section 9.2(c) of this Agreement.
"LANDEC EQUITY CONTRIBUTIONS" means payments defined
as such in the Landec Keep Well made by Landec to Borrower pursuant to
the Landec Keep-Well.
"LANDEC GUARANTY" means the continuing guaranty of
the Obligations to be executed and delivered pursuant to Article 8 by
Landec on the Closing Date, either as originally executed or as it may
from time to time be supplemented, modified, amended, extended or
supplanted.
"LANDEC KEEP WELL" means the Landec Keep Well to be
executed and delivered pursuant to Article 8 by Landec on the Closing
Date, either as originally executed or as it may from time to time be
supplemented, modified, amended, extended or supplanted.
"LANDEC PLEDGE AGREEMENT" means the pledge agreement
to be executed and delivered, subject to Section 11.23, on the Closing
Date by Landec with respect to 100% of the capital stock of Borrower,
either as originally executed or as it may from time to time be
supplemented, modified, amended, extended or supplanted.
"LAWS" means, collectively, all international,
foreign, federal, state, and local statutes, treaties, roles,
regulations, ordinances, codes and administrative or judicial
precedents.
"LENDERS" means Bank of America and each other Lender
which hereafter becomes a party hereto pursuant to Section 11.8.
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"LETTER OF CREDIT" means a standby letter of credit
issued by the Issuing Lender for the account of Borrower in the
ordinary course of its business.
"LETTER OF CREDIT USAGE" means, at any date of
determination, the sum of (i) the maximum aggregate amount that is or
at any time thereafter may become available for drawing or payment
under issued and outstanding Letters of Credit issued pursuant to the
Revolving Commitment, PLUS (ii) the aggregate amount of all drawings
honored or payments made by the Issuing Lender under such Letters of
Credit and not reimbursed by Borrower.
"LEVERAGE RATIO" means, as of the last day of each
Fiscal Quarter, the RATIO OF (a) the Total Funded Debt of Borrower and
its Subsidiaries as of the last day of that Fiscal Quarter to (b)
EBITDA of Borrower and its Subsidiaries for the four Fiscal Quarter
period then ended (in the case of the four fiscal quarter period ending
October 31, 2000, including the pre-merger results of Borrower and its
Subsidiaries).
"LICENSE AGREEMENT" means the License Agreement dated
as of November 1, 1999, between Borrower and Landec, as in effect on
the Closing Date.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest, encumbrance,
lien or charge of any kind, whether voluntarily incurred or arising by
operation of Law or otherwise, affecting any Property, INCLUDING any
agreement to grant any of the foregoing, any conditional sale or other
title retention agreement, any lease in the nature of a security
interest, and/or the filing of or agreement to give any financing
statement (OTHER THAN a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the
Uniform Commercial Code or comparable Law of any jurisdiction with
respect to any Property.
"LOAN" means any Revolving Loan or Term Loan, each of
which may also be a Base Rate Loan or a Eurodollar Rate Loan.
"LOAN DOCUMENTS" means, collectively, this Agreement,
the Notes, the Collateral Documents, the Landec Guaranty, the Landec
Keep Well, the Pacific West Guaranty, the Subsidiary Guaranty, the
Subordination Agreements each Request for Loan, each Request for Letter
of Credit, each Request for Redesignation, each Letter of Credit, the
Subordination Agreement, each Compliance Certificate, each Borrowing
Base Certificate, each Approved Swap Agreement, and any other
certificates, documents or agreements to, with or for the benefit of
the Creditors, of any type or nature heretofore or hereafter executed
and delivered by Borrower or any of its Subsidiaries or Affiliates to
the Creditors in any way relating to or in furtherance of this
Agreement, in each case either as originally executed or as the same
may from time to time be supplemented, modified, amended, restated,
extended or supplanted.
"MAJOR CUSTOMERS" means each of Winn Dixie, Food
Lion, Walmart, and Price-Costco, and their respective affiliates and
such other customers as the Administrative Agent may approve from time
to time.
"MANAGEMENT AGREEMENT" means the Management Agreement
dated as of November 15, 1999 between Borrower and Landec, as in effect
on the Closing Date.
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"MANAGEMENT FEE DISTRIBUTIONS" means during any
period, payments made to Landec or accrued by Borrower pursuant to the
Management Agreement during that period.
"MATERIAL ADVERSE EFFECT" means any set of
circumstances or events which (a) has or may reasonably be expected to
have any material adverse effect whatsoever upon the validity or
enforceability of any Loan Document, (b) has or may reasonably be
expected to have a materially adverse effect on the condition
(financial or otherwise) or business operations of Borrower and its
Subsidiaries, taken as a whole, or the prospects of Borrower and its
Subsidiaries, taken as a whole, (c) materially impairs or may
reasonably be expected to materially impair the ability of Borrower and
its Subsidiaries, to perform their Obligations or (d) materially
impairs or may reasonably be expected to materially impair the ability
of the Creditors to enforce their legal remedies pursuant to the Loan
Documents.
"MATERIAL CONTRACT" means each agreement existing as
of the Closing Date to which Borrower or any of its Subsidiaries is a
party, contemplating annual payments or receipts of monies, or the
exchange of Property having a value in excess of $250,000.
"MAXIMUM REVOLVING CREDIT AMOUNT" means, as of any
date of determination, the lesser of (a) the then applicable Borrowing
Base and (b) the then applicable Revolving Commitment.
"MERGER" means the merger of Borrower with Old Apio,
with Borrower the survivor (assuming the name "Apio, Inc."), in
accordance with Merger and Purchase Agreement.
"MERGER AND PURCHASE AGREEMENT" means the Agreement
and Plan of Merger and Purchase Agreement dated as of November 29, 1999
among Landec, Borrower, Old Apio., South Coast Paper Co., Inc, Pacific
West Produce Marketing, Inc., Cal Ex Trading Company, Inc, Apio Produce
Sales and certain of their shareholders and partners, and each material
instrument, document and agreement executed in connection therewith.
"MULTIEMPLOYER PLAN" means any employee benefit plan
of the type described in Section 4001(a)(3) of ERISA.
"NEGATIVE PLEDGE" means any covenant binding on
Borrower or any current or future guarantor of the Obligations that
prohibits the creation of Liens on any Property of Borrower or of any
such guarantor to the Creditors or prohibiting the granting of any such
covenant to any of the Creditors.
"NET CASH PROCEEDS" means, with respect to any sale,
transfer or other disposition of assets, the cash proceeds received by
Borrower or by any Subsidiary of Borrower upon such sale, transfer or
other disposition MINUS, (a) the actual expenses of such sale paid or
payable by Borrower or by any Subsidiary of Borrower in connection with
such sale, transfer or other disposition, (b) any amount paid or
payable by the transferor to retire existing Liens on the assets sold
to the extent that the transferor is contractually obligated to do so,
and (c) an amount representing the taxes (other than income taxes)
reasonably estimated by Borrower to be payable by Borrower with respect
to such sale, transfer or other disposition.
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"NET INCOME" means, for any fiscal period, the
consolidated net income of Borrower and its Subsidiaries, determined in
accordance with GAAP, consistently applied.
"NET WORTH" means, as of the last day of any Fiscal
Quarter, the consolidated net worth of Borrower and its Subsidiaries
determined in accordance with GAAP as of that date.
"NOTE" means either a Revolving Note or an A Term
Note and "Notes" means the Revolving Notes and the A Term Notes.
"OBLIGATIONS" means all present and future
obligations of every kind or nature of Borrower or any Party at any
time and from time to time owed to any of the Creditors under any of
the Loan Documents, whether due or to become due, matured or unmatured,
liquidated or unliquidated, or contingent or noncontingent, INCLUDING
obligations of performance as well as obligations of payment, and
INCLUDING interest that accrues after the commencement of any
proceeding under any Debtor Relief Law by or against Borrower or any
Affiliate of Borrower now existing or hereafter arising pursuant to the
terms of this Agreement and the other Loan Documents.
"OLD APIO" means Apio, Inc., a California corporation
"PACIFIC WEST GUARANTY" means the continuing guaranty
of the Obligations to be executed and delivered pursuant to Article 8
by Pacific West Produce Marketing, Inc. on the Closing Date, either as
originally executed or as it may from time to time be supplemented,
modified, amended, extended or supplanted.
"PACIFIC WEST SECURITY AGREEMENT" means the Security
Agreement to be executed and delivered pursuant to Article 8 by Pacific
West Produce Marketing, Inc. on the Closing Date to secure the Pacific
West Guaranty, either as originally executed or as it may from time to
time be supplemented, modified, amended, extended or supplanted.
"PARTY" means each party to the Loan Documents other
than the Creditors.
"PATENT SECURITY AGREEMENT" means the Patent Security
Agreement executed by Borrower in favor of the Administrative Agent for
the benefit of the Lenders on the Closing Date pursuant to Article 8
(or, to the extent there are no patents on the Closing Date, later
executed pursuant to Section 5.11), substantially in the form of
Exhibit K, either as originally executed or as the same may from time
to time be supplemented, modified, amended, renewed, extended or
supplanted.
"PBGC" means the Pension Benefit Guaranty Corporation
or any successor thereof established under ERISA.
"PENSION PLAN" means any "employee pension benefit
plan" that is subject to Title IV of ERISA and which is maintained for
employees of Borrower or of any ERISA Affiliate of Borrower, OTHER THAN
a Multiemployer Plan.
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"PERMITTED ENCUMBRANCES" means:
(a) Inchoate Liens incident to construction or
maintenance of real property, or Liens incident to construction or
maintenance of real property, now or hereafter filed of record for
which adequate reserves have been set aside and which are being or will
be, within 30 days, contested in good faith by appropriate proceedings
diligently pursued and have not proceeded to judgment, PROVIDED that,
by reason of nonpayment of the obligations secured by such Liens, no
such real property is subject to a material risk of loss or forfeiture;
(b) Liens for taxes and assessments on real property
which are not yet past due or for which adequate reserves have been set
aside and are being contested in good faith by appropriate proceedings
diligently pursued and have not proceeded to judgment, PROVIDED that,
by reason of nonpayment of the obligations secured by such Liens, no
such real property is subject to a material risk of loss or forfeiture;
(c) easements, exceptions, reservations, covenants,
conditions, restrictions, and assessment Liens arising thereunder,
operating agreements, or other agreements granted, reserved or entered
into before or after the date hereof for the purpose of ingress,
egress, parking, encroaching, pipelines, conduits, cables, wire
communication lines, power lines and substations, streets, trails,
walkways, drainage, irrigation, water, and sewerage purposes, dikes,
canals, ditches, the removal of oil, gas, coal, or other minerals, use,
operation, repair, maintenance and reconstruction, and other like
purposes affecting real property which in the aggregate do not
materially burden or impair the fair market value or use of such real
property for the purposes for which it is or may reasonably be expected
to be held;
(d) rights reserved to or vested in any Governmental
Agency by Law to control or regulate, or obligations or duties under
Law to any Governmental Agency with respect to, the use of any real
property;
(e) statutory Liens, other than those described in
clauses (a) or (b) above, arising in the ordinary course of business
with respect to obligations which are not delinquent or are being
contested in good faith by appropriate proceedings diligently pursued,
PROVIDED that, if delinquent, adequate reserves have been set aside
with respect thereto and, by reason of nonpayment, no Property is
subject to a material risk of loss or forfeiture;
(f) Liens consisting of pledges or deposits to secure
obligations under workers' compensation laws or similar legislation,
that do not exceed $500,000 in the aggregate at any time outstanding,
INCLUDING Liens of judgments thereunder which are not currently
dischargeable;
(g) Liens consisting of deposits of Property to
secure statutory obligations of Borrower or of any Subsidiary of
Borrower in the ordinary course of its business;
(h) Liens created by or resulting from any litigation
or legal proceeding involving Borrower or any Subsidiary of Borrower in
the ordinary course of its business which are currently being contested
in good faith by appropriate proceedings diligently pursued, PROVIDED
that adequate reserves have been set aside, and such Liens are
discharged or stayed within 30 days of creation and no Property is
subject to a material risk of loss or forfeiture; and
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(i) Rights of vendors and lessors under conditional
sale agreements, Capital Leases or other title retention agreements,
provided that, in each case (i) such rights secure or otherwise relate
to Indebtedness permitted pursuant to Section 6.8, (ii) such rights do
not extend to any property other than property acquired with the
proceeds of such Indebtedness permitted pursuant to Section 6.8 and
(iii) such rights do not secure any Indebtedness other than such
Indebtedness; and
(j) Growers Liens' including those arising under the
Perishable Agricultural Commodities Act.
"PERSON" means any entity, whether an individual,
trustee, corporation, general partnership, limited partnership, limited
liability company, joint stock company, trust, estate, unincorporated
organization, business association, firm, joint venture, Governmental
Agency, or otherwise.
"PRICING LEVEL" means, for each Pricing Period, level
set forth below opposite the Leverage Ratio as of the last day of the
Fiscal Quarter ending two months prior to the commencement of that
Pricing Period:
PRICING LEVEL LEVERAGE RATIO
------------- --------------
I Less than or equal
to 1.50:1.00
II Greater than 1.50:1.00,
but less or equal to
than 2.25:1.00
III Greater than 2.25:1.00
The Pricing Level shall change as of the first day of each Pricing
Period on the basis of the then most recently delivered Compliance
Certificate. In the event that Borrower fails to deliver a Compliance
Certificate on a timely basis, the Pricing Level for shall increase to
the highest level set forth above until such time as Borrower delivers
a Compliance Certificate.
"PRICING PERIOD" means, the Initial Pricing Period
and each subsequent period of three calendar months which commences on
the first day of each November, February, May and August ends of the
last day of the immediately following January, April, July and October.
"PRIME RATE" means the rate of interest publicly
announced from time to time by Bank of America as its "Prime Rate" or
"Reference Rate." The Prime Rate is set by Bank of America based on
various factors, including Bank of America's costs and desired returns,
general economic conditions and other factors, and is used as a
reference point for pricing some loans. Bank of America may price loans
at, above or below its Prime Rate. Any change in the Prime Rate shall
take effect on the day specified in the public announcement of such
change.
"PROPERTY" means any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or intangible.
"PROJECTIONS" means the projected financial
information prepared by Borrower and attached hereto as Schedule 4.18.
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"PRO RATA SHARE" means (a) with respect to the
Revolving Commitment, the percentage of the Revolving Commitment held
by any particular Lender from time to time, (b) with respect to the
Term Commitment, the percentage of the Term Commitment held by any
particular Lender from time to time and (c) with respect to the
Commitment, the percentage of the Commitment held by any particular
Lender from time to time. As of the Closing Date, Bank of America's Pro
Rata Share of the Commitment is 100%.
"QUARTERLY TAX DISTRIBUTIONS" means payments made by
Borrower to Landec on a quarterly basis and when no Default of Event of
Default exists equal to Borrower's share of Landec's actual cash
liability for quarterly income tax payments due with respect to the
income of Landec and its consolidated subsidiaries, with Borrower's
share being determined on the basis of the proportion which Borrower's
pre-tax profits bear to the pre-tax profits of Landec's other
profitable Subsidiaries.
"REGULATIONS D, T, U AND X" means Regulations D, T, U
and X, as at any time amended, of the Board of Governors of the Federal
Reserve System, or any other regulations in substance substituted
therefor.
"REQUEST FOR LETTER OF CREDIT" means a written
request for a Letter of Credit, substantially in the form of Exhibit G,
together with the standard form of application for letters of credit
used by the Issuing Lender, signed by a Responsible Official of
Borrower and properly completed to provide all information to be
included therein.
"REQUEST FOR LOAN" means a written request for a
Loan, substantially in the form of Exhibit H, signed by a Responsible
Official of Borrower and properly completed to provide all information
required to be included therein.
"REQUEST FOR REDESIGNATION" means a written request
to continue or redesignate a Loan substantially in the form of Exhibit
I, signed by a Responsible Official of Borrower and properly completed
to provide all information required to be included therein.
"REQUIREMENT OF LAW" means, as to any Person, the
articles or certificate of incorporation and by-laws or other
organizational or governing documents of such Person, and any Law, or
judgment, award, decree, writ or determination of a Governmental
Agency, in each case applicable to or binding upon such Person or any
of its Property or to which such Person or any of its Property is
subject.
"REQUISITE LENDERS" means as of any date of
determination, Lenders having in the aggregate 66 2/3% or more of the
Commitments then in effect, PROVIDED that when there are fewer than
three Lenders, "Requisite Lenders" shall mean all of the Lenders.
"RESPONSIBLE OFFICIAL" means (a) when used with
reference to a Person other than an individual, any corporate officer
of such Person, general partner of such Person, corporate officer of a
corporate general partner of such Person, or corporate officer of a
corporate general partner of a partnership that is a general partner of
such Person, or any other responsible official thereof duly acting on
behalf thereof, and (b) when used with reference to a Person who is an
individual, such Person. Any document or certificate hereunder that is
signed or executed by a Responsible Official of a Person shall be
conclusively presumed to have been
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authorized by all necessary corporate, partnership and/or other action
on the part of that Person.
"RESTRICTED PAYMENT" means each payment by Borrower
or any of its Subsidiaries (a) constituting a Distribution, (b)
consisting of payments to Landec under the Management Agreement, (c)
consisting of payments to Landec under the Tax Agreement, or (d)
consisting of Earn Out Payments.
"REVOLVER TERMINATION DATE" means May 1, 2002, or
such later anniversary of such date as may be established pursuant to
Section 2.6.
"REVOLVING COMMITMENT" means the commitment by
Lenders to make Revolving Loans to Borrower in an aggregate principal
amount, subject to Section 2.8, not to exceed $12,000,000.
"REVOLVING LOAN" means any Advance or group of
Advances made by the Lenders at any one time under the Revolving
Commitment pursuant to Article 2.
"REVOLVING NOTES" means, collectively, each of the
promissory notes made by Borrower to a Lender evidencing Loans under
the Revolving Commitment, substantially in the form of Exhibit D,
either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"REVOLVING AVAILABILITY" means, as of each date of
determination, the difference between the Borrowing Base and Revolving
Usage.
"REVOLVING USAGE" means, as of each date of
determination, the sum of (a) the aggregate principal Indebtedness then
outstanding under the Revolving Notes plus (b) the Letter of Credit
Usage.
"RIGHT OF OTHERS" means, as to any Property in which
a Person has an interest, (a) any legal or equitable right, title or
other interest (OTHER THAN a Lien) held by any other Person in or with
respect to that Property, and (b) any option or right held by any other
Person to acquire any right, title or other interest in or with respect
to that Property, INCLUDING any option or right to acquire a Lien.
"SECURITIES" means any capital stock, share, voting
trust certificate, bonds, debentures, notes or other evidences of
indebtedness, limited partnership interests, or any warrant, option or
other right to purchase or acquire any of the foregoing.
"SENIOR OFFICER" means the (a) President, (b) Vice
President, (c) Chief Financial Officer or (d) Treasurer of a Person or
the persons performing the equivalent functions.
"SPECIAL EURODOLLAR CIRCUMSTANCE" means the
application or adoption of any Law or interpretation, or any change
therein or thereof, or any change in the interpretation or
administration thereof by any Governmental Agency, central bank or
comparable authority charged with the interpretation or administration
thereof, or compliance by any Lender or its Eurodollar Lending Office
with any request or directive (whether or not having the force of
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Law) of any such Governmental Agency, central bank or comparable
authority, or the existence or occurrence of circumstances affecting
the Designated Eurodollar Market generally that are beyond the
reasonable control of that Lender.
"SUBORDINATED OBLIGATIONS" means Indebtedness of
Borrower that is subordinated to the Obligations, all of the provisions
of which (including amount, maturity, amortization, interest rate,
covenants, defaults, remedies and subordination), have been approved in
writing as to form and substance by the Administrative Agent with the
written consent of the Requisite Lenders.
"SUBORDINATION AGREEMENT" means the Subordination
Agreement, to be executed on the Closing Date in favor of the
Administrative Agent by Nicholas Tompkins and Kathleen Tompkins, with
respect to the Earn Out Payments.
"SUBSIDIARY" means, as of any date of determination
and with respect to any Person, any corporation, partnership or joint
venture, whether now existing or hereafter organized or acquired: (a)
in the case of a corporation, of which a majority of the securities
having ordinary voting power for the election of directors or other
governing body (other than securities having such power only by reason
of the happening of a contingency) are at the time beneficially owned
by such Person and/or one or more Subsidiaries of such Person, or (b)
in the case of a partnership or joint venture, of which such Person or
a Subsidiary of such Person is a general partner or joint venturer or
of which a majority of the partnership or other ownership interests are
at the time beneficially owned by such Person and/or one or more of
their Subsidiaries.
"SUBSIDIARY GUARANTY" means a guaranty of the
Obligations executed by each Subsidiary of Borrower other than Apio
Cooling and Pacific West on the Closing Date, either as originally
executed or as it may from time to time be supplemented, modified,
amended, restated or extended.
"SWAP AGREEMENTS" means one or more written
agreements between Borrower and one or more financial institutions
providing for "swap", "cap", "collar" or other interest rate or
currency risk protection with respect to any Indebtedness.
"TAX AGREEMENT" means the Tax Agreement dated
November 15, 1999 between Borrower and Landec, as in effect on the
Closing Date.
"TAX AGREEMENT AMOUNT" means an amount payable by
Borrower under the Tax Agreement which does not, in any Fiscal Year,
exceed 44% of consolidated pre-tax net income of Borrower and its
Subsidiaries for that Fiscal Year, determined in accordance with the
Tax Agreement.
"TAX GROSS-UP" means a payment made by Borrower to
Landec pursuant to the Tax Agreement on or about February 15 of each
year, equal to the amount by which the Tax Agreement Amount for the
preceding Fiscal Year exceeds the Adjusted Quarterly Tax Distributions
theretofore made with respect to the preceding Fiscal Year.
"TAX SETTLEMENT" means an amount, to be paid prior to
February 15 of each year, (a) paid by Borrower to Landec in the amount
by which the Quarterly Tax Distributions
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made during the preceding year are less than the Annual Tax Amount for
that Fiscal Year, or (b) paid by Landec to Borrower in the amount by
which the Quarterly Tax Distributions made during the preceding Fiscal
Year exceeded the Annual Tax Amount for the preceding Fiscal Year.
"TERM COMMITMENT" means $11,250,000.
"TERMINATION EVENT" means (a) a "reportable event" as
defined in Section 4043 of ERISA (OTHER THAN a "reportable event" that
is not subject to the provision for 30 day notice to the PBGC), (b) the
withdrawal of Borrower or any of its ERISA Affiliates from a Pension
Plan during any plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of
intent to terminate a Pension Plan or the treatment of an amendment to
a Pension Plan as a termination thereof pursuant to Section 4041 of
ERISA, (d) the institution of proceedings to terminate a Pension Plan
by the PBGC or (e) any other event or condition which, in any such case
as aforesaid, might reasonably be expected to constitute grounds under
ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan.
"TERM LOAN" means any Advance or group of Advances
made by the Lenders at any one time under the Term Commitment pursuant
to Article 2.
"TERM MATURITY DATE" means October 31, 2004.
"TOTAL FUNDED DEBT" means, as of each date of
determination, determined on a consolidated basis for Borrower and its
Subsidiaries, the sum, without duplication of (a) all outstanding
principal Indebtedness for borrowed money (INCLUDING debt securities
issued by Borrower or any of its Subsidiaries) on that date, minus (b)
obligations with respect to the Earn Out Payments and accumulated
amounts due under the Management Agreement and the Tax Agreement PLUS
(c) all interest bearing obligations, PLUS (d) the aggregate amount of
all Capital Lease Obligations on that date, PLUS (e) all obligations in
respect of letters of credit or other similar instruments for which
Borrower or any of its Subsidiaries are account parties or are
otherwise obligated, PLUS (f) the aggregate amount of all Contingent
Obligations and other similar contingent obligations of Borrower and
its Subsidiaries with respect to any of the foregoing, and PLUS (g) any
obligations of Borrower or any of its Subsidiaries to the extent that
the same are secured by a Lien on any of the assets of Borrower or its
Subsidiaries. In calculating Total Funded Debt, the outstanding
principal balance of the Revolving Commitment shall be deemed to equal
(y) as of October 31, 2000, the average of the outstanding Revolving
Usage as of October 31, 2000 and as of each of the last days of the two
immediately preceding Fiscal Quarters, and (z) as of the last day of
each subsequent Fiscal Quarter, the average of the outstanding
Revolving Usage as of the last days of that Fiscal Quarter and the
three immediately preceding Fiscal Quarters.
"TO THE BEST KNOWLEDGE OF" means, when modifying a
representation, warranty or other statement of any Person, that the
fact or situation described therein is known by the Person (or, in the
case of a Person other than a natural Person, known by a Responsible
Official of that Person) making the representation, warranty or other
statement, or with the exercise of reasonable due diligence under the
circumstances (in accordance with the standard of what a reasonable
Person in similar circumstances would have done) should have been known
by the
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Person (or, in the case of a Person other than a natural Person, should
have been known by a Responsible Official of that Person).
"TRADEMARK SECURITY AGREEMENT" means the Trademark
Security Agreement executed by Borrower pursuant to Section 5.12(c) in
favor of the Administrative Agent for the benefit of the Lenders,
either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"UNRELATED PERSON" means any Person OTHER THAN (a)
any member of the Irvin Family, trusts for their benefit, and (b) any
employee stock ownership plan or other employee benefit plan covering
the employees of Borrower and its Subsidiaries.
"U.S. BANK SALE\LEASEBACK" means the sale to U.S.
Bank, National Association and subsequent leaseback by Borrower of the
equipment described on Schedule 1.2.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary of
Borrower, 100% of the capital stock or other equity interest of which
is owned, directly or indirectly, by Borrower, EXCEPT for director's
qualifying shares required by applicable Laws.
1.2 USE OF DEFINED TERMS. Any defined term used in the plural
shall refer to all members of the relevant class, and any defined term used in
the singular shall refer to any one or more of the members of the relevant
class.
1.3 ACCOUNTING TERMS. All accounting terms not specifically
defined in this Agreement shall be construed in conformity with, and all
financial data required to be submitted by this Agreement shall be prepared in
conformity with, GAAP applied on a consistent basis, EXCEPT as otherwise
specifically prescribed herein. In the event that GAAP change during the term of
this Agreement such that the financial covenants contained in Sections 6.11
through 6.19 would then be calculated in a different manner or with different
components, Borrower and the Lenders agree to amend this Agreement in such
respects as are necessary to conform those covenants as criteria for evaluating
Borrower's financial condition to substantially the same criteria as were
effective prior to such change in GAAP.
1.4 ROUNDING. Any financial ratios required to be maintained
by Borrower pursuant to this Agreement shall be calculated by dividing the
appropriate component by the other component, carrying the result to one place
more than the number of places by which such ratio is expressed in this
Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
1.5 EXHIBITS AND SCHEDULES. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified, amended, or supplanted are incorporated herein by this
reference.
1.6 MISCELLANEOUS TERMS. The term "or" is disjunctive; the
term "and" is conjunctive. The term "shall" is mandatory; the term "may" is
permissive. Masculine terms also apply to females; feminine terms also apply to
males. The term "including" is by way of example and not limitation.
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ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1 LOANS -- GENERAL.
(a) Subject to the terms and conditions set forth in
this Agreement, at any time and from time to time from the Closing Date
through the Revolver Termination Date, each Lender shall, pro rata
according to that Lender's Pro Rata Share of the Revolving Commitment,
make Advances to Borrower under the Revolving Commitment in such
amounts as Borrower may request that do not exceed in the aggregate at
any one time outstanding that Lender's Pro Rata Share of the Revolving
Commitment; PROVIDED that, giving effect to the requested Loan,
Revolving Usage does not exceed the Maximum Revolving Credit Amount.
Subject to the limitations set forth herein (including, without
limitation, the requirements of Section 3.6(d)), Borrower may borrow,
repay and reborrow under the Revolving Commitment without premium or
penalty.
(b) Subject to the terms and conditions set forth in
this Agreement, on the Closing Date, each Lender shall make a Term Loan
to Borrower under the Term Commitment in the full amount of such
Lender's Pro Rata Share of the Term Commitment. The Term Loan shall be
evidenced by the A Term Notes. Amounts repaid under the Term Commitment
may not be reborrowed, but may be refinanced with the proceeds of new
Term Loans.
(c) Subject to the next sentence, each Loan shall be
made pursuant to a written Request for Loan which shall specify (i) the
requested date of such Loan, (ii) whether such Loan is to be under the
Revolving Commitment or the Term Commitment, (iii) whether such Loan is
to be a Base Rate Loan or a Eurodollar Rate Loan, (iv) the amount of
such Loan, and (v) the Eurodollar Period for such Loan if such Loan is
to be a Eurodollar Rate Loan.
(d) Promptly following receipt of a Request for Loan,
the Administrative Agent shall notify each Lender by telephone or
telecopier of the date and type of the Loan, the applicable Eurodollar
Period, and that Lender's Pro Rata Share of the Loan. Not later than
11:00 a.m., Los Angeles time, on the date specified for any Loan, each
Lender shall make its Pro Rata Share of that Loan available to the
Administrative Agent at the Administrative Agent's Office in
immediately available funds. Upon fulfilment of the applicable
conditions set forth in Article 8, the Loan shall be credited in
immediately available funds to the Funding Account.
(e) Unless the Requisite Lenders otherwise consent,
(i) each Base Rate Loan shall be in an integral multiple of $100,000
which is not less than $250,000 and (ii) each Eurodollar Rate Loan
shall be in an integral multiple of $100,000 which is not less than
$1,000,000.
(f) If no Request for Loan has been delivered within
the requisite notice periods set forth in Sections 2.2 or 2.3 in
connection with a Loan which, if made, would not increase the
outstanding principal amount of the Obligations, then Borrower shall be
deemed to have requested, as of the date upon which the related then
outstanding Loan is due pursuant to Section 3.1(d)(i) and not paid, a
Base Rate Loan in an amount equal to the amount necessary to cause the
outstanding principal amount of the Obligations to remain the same and
the Lenders
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shall make the Advances necessary to make such Loan notwithstanding
Borrower's failure to deliver a Request for Loan or other notice
required by Sections 2.1(b), 2.2 and 2.3.
(g) Unless the Administrative Agent otherwise
consents, no more than ten Eurodollar Rate Loans shall be outstanding
at any one time.
(h) A Request for Loan shall be irrevocable upon the
Administrative Agent's first notification thereof.
2.2 BASE RATE LOANS. Each request by Borrower for a Base Rate
Loan shall be made pursuant to a Request for Loan received by the Administrative
Agent, at the Administrative Agent's Office, not later than 1:00 p.m., Los
Angeles time, on the Business Day prior to the Business Day of the requested
Base Rate Loan. All Loans shall constitute Base Rate Loans unless properly
designated as Eurodollar Rate Loans pursuant to Section 2.3.
2.3 EURODOLLAR RATE LOANS.
(a) Each request by Borrower for a Eurodollar Rate
Loan shall be made pursuant to a Request for Loan received by the
Administrative Agent, at the Administrative Agent's Office, not later
than 10:00 a.m., Los Angeles time, at least three Eurodollar Business
Days before the first day of the applicable Eurodollar Period.
(b) At or about 11:00 a.m., Los Angeles time, two
Eurodollar Business Days before the first day of the applicable
Eurodollar Period, the Administrative Agent shall determine the
applicable Eurodollar Rate (which determination shall be conclusive in
the absence of manifest error) and promptly shall give notice of the
same to Borrower and the Lenders by telephone, telecopier or telex.
(c) No Eurodollar Rate Loan may be requested during
the continuance of a Default or Event of Default.
(d) Nothing contained herein shall require any Lender
to fund any Eurodollar Rate Loan in the Designated Eurodollar Market.
2.4 REDESIGNATION OF LOANS. Borrower may redesignate a Base
Rate Loan, or any portion thereof subject to Sections 2.1(e) and 2.1(g), as a
Eurodollar Rate Loan by delivering a Request for Redesignation to the
Administrative Agent at the Administrative Agent's Office subject to the same
time limitations and other conditions set forth in Sections 2.3 and 3.1(e)(iv)
in the case of a Request for Loan. Borrower may redesignate a Eurodollar Rate
Loan, or any portion thereof subject to Section 2.1(e), as a Base Rate Loan by
delivering a Request for Redesignation to the Administrative Agent at the
Administrative Agent's Office subject to the same time limitations and other
conditions set forth in Sections 2.2 and 3.1(e)(iv); PROVIDED that such
redesignation shall not be effective prior to the end of the Eurodollar Period
for that Eurodollar Rate Loan. If no timely Request for Redesignation is
delivered to the Administrative Agent prior to the end of the Eurodollar Period
for any Eurodollar Rate Loan, it shall automatically be redesignated as a Base
Rate Loan as of the end of such Eurodollar Period.
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2.5 LETTERS OF CREDIT.
(a) Subject to the terms and conditions hereof, at
any time and from time to time from the Closing Date through the day
prior to the Revolver Termination Date, the Issuing Lender shall issue
such Letters of Credit as Borrower may request by a Request for Letter
of Credit; PROVIDED that, giving effect to the issuance of such Letter
of Credit, (i) in no event shall the Letter of Credit Usage exceed
$500,000 at any time, and (ii) after giving effect to the requested
Letter of Credit, Revolving Usage does not exceed the Maximum Revolving
Credit Amount.
(b) Unless all the Lenders otherwise consent in
writing, no Letter of Credit shall have a term which exceeds one year
or extends more than 90 days beyond the Revolver Termination Date.
(c) Each Request for Letter of Credit shall be
submitted to the Issuing Lender at least five Business Days prior to
the date when the issuance of the Letter of Credit is requested. Upon
issuance of each Letter of Credit, the Issuing Lender shall promptly
notify the Administrative Agent, and the Administrative Agent shall
thereafter promptly notify the Lenders, of the amount and terms
thereof.
(d) Upon the issuance of each Letter of Credit, each
Lender shall be deemed to have purchased a pro rata participation from
the Issuing Lender, in an amount equal to that Lender's Pro Rata Share
of the Revolving Commitment, of the Letter of Credit. Without limiting
the scope and nature of each such Lender's participation in any Letter
of Credit, to the extent that the Issuing Lender has not been
reimbursed by Borrower for any payment required to be made by the
Issuing Lender under any Letter of Credit, each such Lender shall
reimburse the Administrative Agent for the account of the Issuing
Lender, promptly upon demand for the amount of such payment in
accordance with its Pro Rata Share of the Revolving Commitment. The
obligation of each such Lender to so reimburse the Issuing Lender shall
be absolute and unconditional and shall not be affected by the
occurrence of an Event of Default or any other occurrence or event. Any
such reimbursement shall not relieve or otherwise impair the obligation
of Borrower to reimburse the Issuing Lender for the amount of any
payment made by the Issuing Lender under any Letter of Credit together
with interest as hereinafter provided.
(e) After the making by the Issuing Lender of any
payment with respect to any Letter of Credit issued for the account of
Borrower, Borrower agrees to pay to the Issuing Lender, within one
Business Day after demand therefor, a principal amount equal to any
payment made by the Issuing Lender under that Letter of Credit,
together with interest at the Default Rate on such amount from the date
of any payment made by the Issuing Lender through the date of payment
by Borrower. The principal amount of any such payment made to the
Issuing Lender shall be used to reimburse the Issuing Lender for the
payment made by it under the Letter of Credit. Each Lender that has
reimbursed the Issuing Lender pursuant to Section 2.5(d) for its Pro
Rata Share of any payment made by the Issuing Lender under a Letter of
Credit shall thereupon acquire a participation, to the extent of such
reimbursement, in the claim of the Issuing Lender against Borrower
under this Section 2.5(e).
(f) If Borrower fail to make the payment required by
Section 2.5(d), the Administrative Agent may but is not required to,
without notice to or the consent of Borrower, cause Advances to be made
by the Lenders having a Pro Rata Share in the Revolving
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Commitment in accordance with their respective Pro
Rata Shares of the Revolving Commitment in an aggregate amount equal to
the amount paid by the Issuing Lender on that Letter of Credit and, for
this purpose, the conditions precedent set forth in Article 8 shall not
apply. The proceeds of such Advances shall be paid to the Issuing
Lender to reimburse it for the payment made by it under the Letter of
Credit.
(g) The issuance of any supplement, modification,
amendment, renewal, or extension to or of any Letter of Credit shall be
treated in all respects the same as the issuance of a new Letter of
Credit, and shall require the submission of a new Request for Letter of
Credit; PROVIDED however that nothing contained in this clause (h)
shall require the payment of any additional issuance fees in respect
thereof by Borrower OTHER THAN with respect to any extension of the
term thereof or renewal thereof or any increase in the amount of such
Letter of Credit.
(h) The obligation of Borrower to pay to the Issuing
Lender the amount of any payment made by the Issuing Lender under any
Letter of Credit issued to Borrower shall be absolute, unconditional,
and irrevocable, subject only to performance by the Issuing Lender of
its obligations to Borrower under California Commercial Code Section
5109. Without limiting the foregoing, the obligations of Borrower shall
not be affected by any of the following circumstances but only to the
extent such circumstances are not a result of the gross negligence or
willful misconduct of the Issuing Lender:
(i) any lack of validity or
enforceability of the Letter of Credit, this Agreement, or any
other agreement or instrument relating thereto;
(ii) any amendment or waiver of or any
consent to departure from the Letter of Credit, this
Agreement, or any other agreement or instrument relating
thereto;
(iii) the existence of any claim, setoff,
defense, or other rights which Borrower may have at any time
against any Lender, any beneficiary of the Letter of Credit
(or any persons or entities for whom any such beneficiary may
be acting) or any other Person, whether in connection with the
Letter of Credit, this Agreement, or any other agreement or
instrument relating thereto, or any unrelated transactions;
(iv) any demand, statement, or any other
document presented under the Letter of Credit proving to be
forged, fraudulent, invalid, or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect whatsoever so long as any such document appeared to
comply with the terms of the Letter of Credit;
(v) the solvency or financial responsibility
of any party issuing any documents in connection with a Letter
of Credit;
(vi) any failure or delay in notice of
shipments or arrival of any Property;
(vii) any error in the transmission of any
message relating to a Letter of Credit not caused by the
Issuing Lender, or any delay or interruption in any such
message;
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(viii) any error, neglect or default of any
correspondent of the Issuing Lender in connection with a
Letter of Credit;
(ix) any consequence arising from acts of
God, war, insurrection, disturbances, labor disputes,
emergency conditions or other causes beyond the control of the
Lenders;
(x) so long as the Issuing Lender in good
faith determines that the draft, contract or document appears
to comply with the terms of the Letter of Credit, the form,
accuracy, genuineness or legal effect of any contract or
document referred to in any document submitted to the Issuing
Lender in connection with a Letter of Credit; and
(xi) where the Issuing Lender has acted in
good faith and without gross negligence, any other
circumstance whatsoever.
(i) The Issuing Lender shall be entitled to the
protection accorded to the Administrative Agent pursuant to Article 10,
MUTATIS MUTANDIS.
2.6 EXTENSIONS OF THE REVOLVER TERMINATION DATE. The Revolver
Termination Date may be extended for the periods described below at the request
of Borrower and with the written consent of all of the Lenders (which may be
withheld in the sole and absolute discretion of each Lender) pursuant to this
Section, PROVIDED that not more than two such extensions shall occur. Not
earlier than April 1, 2001 nor later than August 31,2001, Borrower may deliver
to the Administrative Agent and the Lenders a written request for a one year
extension of the Revolver Termination Date stating the amount of the extension
fee offered for the ratable account of the Lenders in consideration of the
requested extension. Each such written request shall be accompanied by a
Certificate signed by a Senior Officer stating that no Default or Event of
Default exists and confirming that each of the representations and warranties
set forth in ARTICLE 4 (OTHER THAN Sections 4.6 (first sentence), 4.11, and
4.18) are tree and correct as of the date of the Certificate as though made on
that date (except such representations and warranties expressly made as of a
specified date, which shall be tree and correct as of such specified date).
Each Lender shall notify the Administrative Agent within 60
days of receipt of such request whether (in its sole and absolute discretion) it
consents to the requested extension. The Administrative Agent shall, after
receiving notice from all of the Lenders or the expiration of such period,
whichever is earlier, notify Borrower and the Lenders of the results thereof.
Any Lender that has not expressly consented to such request within such 60 day
period shall be treated as a non-consenting Lender hereunder. If all of the
Lenders have consented, then the Revolver Termination Date shall automatically
be extended for one year. If any Lender either (a) fails to affirmatively
consent or (b) declines, then the Revolving Termination Date shall not be
extended.
2.7 MANDATORY PREPAYMENTS OF THE TERM LOANS. The outstanding
principal amount of the Term Loans shall be prepaid (and the Term Commitment
shall concurrently automatically and permanently reduce):
(a) ninety days following the date upon which
Borrower or any of its Subsidiaries receive the proceeds of any sales
of fixed or capital assets or the proceeds of any
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casualty insurance (other than proceeds received from
crop insurance settlements) or the proceeds of any eminent domain,
condemnation or similar taking, in an amount which is equal to 100% of
the Net Cash Proceeds thereof unless the Borrower or such Subsidiary
has reinvested such Net Cash Proceeds in similar Collateral;
(b) on the date upon which Borrower or its
Subsidiaries receive the proceeds of their issuance of any Indebtedness
(other than the proceeds of purchase money Indebtedness permitted by
Section 6.8(e), in an amount equal to the net proceeds to Borrower and
its Subsidiaries of such Indebtedness;
(c) on the date upon which Borrower or any of its
Subsidiaries, or any holding company for the stock of Borrower, receive
the proceeds of the issuance of any equity securities following the
Closing Date, in an amount equal to 50% of, the Net Cash Proceeds
thereof (other than the exercise of management or employee incentive
options in an aggregate amount which does not exceed $250,000); and
(d) by February 15,2001 and by February 15 of each
succeeding year, in an amount equal to 50% of Excess Cash Flow for the
immediately preceding Fiscal Year PROVIDED that if no Default or Event
of Default then exists and Borrower demonstrates to the reasonable
satisfaction of the Administrative Agent that no material diminution in
the real and fixed asset values of Borrower and its Subsidiaries have
occurred since the Closing Date, then Borrower shall not be required to
make any of the prepayments referred to in this clause (d) to the
extent that the aggregate principal balance of the outstanding Term
Loans would be reduced to an amount which is less than $5,250,000.
(e) concurrently with the receipt by Borrower of any
Landec Equity Contributions, (i) to the extent of the first $2,500,000
in Landec Equity Contributions, prepay the installments due with
respect to the A Term Notes (with application in the manner set forth
in the last sentence of this Section), and (ii) to the extent of any
Landec Equity Contributions which exceed $2,500,000, first (A) to the
outstanding principal Obligations under the Revolving Commitment until
the average daily Revolving Availability plus cash balances for the six
month period then ending (after giving effect to such prepayment on a
pro forma basis for the entire period) is increased to $2,000,000, and
then (B) to the Obligations in the manner specified by Borrower. The
Landec Equity Contributions are limited to $5,000,000.
Each prepayment made pursuant to this Section (other than those under clause
(e)(ii) hereof) shall reduce the amount required to be repaid on each of the
last twelve Amortization Dates ratably (or, if fewer such dates remain, the
remaining number).
2.8 REDUCTIONS OF THE REVOLVING COMMITMENT. Borrower shall
have the right, at any time and from time to time, without penalty or charge,
upon at least five Business Days prior written notice to the Administrative
Agent, voluntarily to reduce, permanently and irrevocably, in aggregate
principal amounts in an integral multiple of $500,000, or to terminate, all or
any portion of the then undisbursed portion of the Revolving Commitment,
PROVIDED that any such reduction or termination shall be accompanied by payment
of all accrued and unpaid commitment fees with respect to the portion of the
Revolving Commitment being reduced or terminated.
2.9 RIGHTS TO ASSUME FUNDS AVAILABLE FOR ADVANCES.
Unless the Administrative Agent shall have been notified by any Lender no later
than 10:00 a.m. (Los Angeles time) no later than
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the Business Day prior to the Business Day proposed for the
funding by the Administrative Agent of any Loan that any such Lender does not
intend to make available to the Administrative Agent such Lender's portion of
the total amount of any such Loan, the Administrative Agent may assume that such
Lender has made such amount available to the Administrative Agent on the date of
the Loan and may, in reliance upon such assumption, make available to Borrower a
corresponding amount. If the Administrative Agent has made funds available to
Borrower based on such an assumption and such corresponding amount is not in
fact made available to the Administrative Agent by such Lender, the
Administrative Agent shall be entitled to recover such corresponding amount on
demand from such Lender. If such Lender does not pay such corresponding amount
forthwith upon demand therefor, the Administrative Agent promptly shall notify
Borrower and Borrower shall pay such corresponding amount to the Administrative
Agent. The Administrative Agent also shall be entitled to recover from such
Lender interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Administrative Agent to
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to the Federal Funds Rate.
Nothing herein shall be deemed to relieve any Lender from its obligation to
fulfill its Pro Rata Share or to prejudice any rights which the Administrative
Agent may have against any Lender as a result of any default by such Lender
hereunder.
2.10 COLLATERAL. The Obligations shall be secured by a first
priority (SUBJECT TO Liens permitted by Section 6.9) perfected Lien on the
Collateral pursuant to the Collateral Documents.
2.11 DETERMINATION OF BORROWING BASE. Borrower acknowledges
that the advance rates against Eligible Receivables, Eligible Inventory,
Eligible Grower Advances and Eligible Note Receivables shall be subject to
periodic collateral audits and field examinations to be completed by auditors
selected by the Administrative Agent from time to time subsequent to the Closing
Date at the expense of Borrower and such auditors' review of inventory reporting
information, whether such reporting information is specifically required
hereunder or otherwise, PROVIDED, HOWEVER, that in the absence of the occurrence
and continuance of an Event of Default, Lender agrees that it will not perform
any such audit and field examination more frequently than twice per calendar
year. Each such advance rate may be reduced as a result of such audits and field
examinations, in which case Lender shall notify Borrower in writing of such
reduced advance rate. If no Event of Default has occurred, at Borrower's
request, the Administrative Agent will provide an estimate of the costs
anticipated in connection with any audit or inspection.
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ARTICLE 3
PAYMENTS AND FEES
3.1 PRINCIPAL AND INTEREST.
(a) Interest shall be payable on the outstanding
daily unpaid principal amount of each Loan from the date thereof until
payment in full is made and shall accrue and be payable at the rates
set forth herein before and after default, before and after maturity,
before and after judgment, and before and after the commencement of any
proceeding under any Debtor Relief Law, with interest on overdue
interest to bear interest at the Default Rate to the fullest extent
permitted by applicable Laws.
(b) Interest accrued on each Base Rate Loan shall be
due and payable on the last day of each calendar month. EXCEPT as
otherwise provided in Section 3.7, the unpaid principal amount of each
Base Rate Loan shall bear interest at a fluctuating rate per annum
equal to the Base Rate plus the Base Rate Margin. Each change in the
interest rate hereunder shall take effect simultaneously with the
corresponding changes in the Base Rate.
(c) Interest accrued on each Eurodollar Rate Loan
shall be due and payable on the earlier of (i) the last day of the
related Eurodollar Period or (ii) the last day of each calendar
quarter. EXCEPT as otherwise provided in Section 3.7 the unpaid
principal amount of any Eurodollar Rate Loan shall bear interest at a
rate per annum equal to the Eurodollar Rate for that Eurodollar Rate
Loan PLUS the Applicable Eurodollar Margin.
(d) If not sooner paid, the principal Indebtedness
under this Agreement shall be payable as follows:
(i) The amount, if any, by which the
principal Indebtedness evidenced by the Revolving Notes at any
time exceeds the Maximum Revolving Credit Amount shall be
payable immediately.
(ii) The A Term Notes shall be payable on
each Amortization Date in the related Amortization Amount
until paid in full.
(iii) The principal amount of each
Eurodollar Rate Loan shall be immediately payable in cash on
the last day of the related Eurodollar Period.
(iv) The outstanding principal balance of
all of the other Loans shall, in any event, be payable on the
Term Maturity Date.
(e) The Loans may, at any time and from time to time,
voluntarily be paid or prepaid in whole or in part without premium or
penalty and without prior notice, EXCEPT that with respect to any
voluntary prepayment under this Section 3.1 (e), (i) each prepayment
shall be in an integral multiple of $100,000, which is, in the case of
any prepayment of any Eurodollar Rate Loan, not less than $500,000,
(ii) the Administrative Agent shall have received written notice of any
prepayment at least one Business Day, in the case of a Base Rate Loan,
or three Business Days, in the case of a Eurodollar Rate Loan, before
the date of prepayment, which notice shall identify the date and amount
of the prepayment and the Loan(s) being
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prepaid, (iii) each prepayment of principal shall be accompanied by
payment of interest accrued through the date of payment on the amount
of principal paid, and (iv) in any event, any payment or prepayment of
all or any part of any Eurodollar Rate Loan on a day other than the
last day of the applicable Eurodollar Period shall be subject to
Section 3.6(d).
3.2 COMMITMENT FEES. From and after the Closing Date, Borrower
shall pay commitment fees to the Administrative Agent for the account of the
Lenders in accordance with their Pro Rata Shares of the Revolving Commitment, an
amount equal to the Commitment Fee Rate applicable to each relevant Pricing
Period TIMES the actual daily difference between (a) the Revolving Commitment
and (b) Revolving Usage. Commitment fees shall be payable quarterly in arrears
on each the last Business Day of each calendar quarter, and on the Revolver
Termination Date.
3.3 LETTER OF CREDIT FEES. With respect to each Letter of
Credit issued by the Issuing Lender, Borrower shall pay to the Issuing Lender
the following fees on a non-refundable basis:
(i) quarterly, in arrears, for the duration
of any Letter of Credit, for the ratable account of the
Lenders with a Pro Rata Share under which such Letter of
Credit is issued, a letter of credit fee equal to the
Applicable Eurodollar Margin times the maximum face amount of
each Letter of Credit, but not less than $1,000, PLUS
(ii) for the sole account of the Issuing
Lender, such standard payment, negotiation, processing,
amendment and other similar charges as and when the Issuing
Lender may from time to time advise Borrower are applicable to
Letters of Credit.
3.4 FACILITY FEES. On the Closing Date, Borrower shall pay to
the Administrative Agent a fee in an amount set forth in a letter agreement
dated November 16, 1999 between the Administrative Agent and Borrower.
3.5 CAPITAL ADEQUACY. If any Lender determines that either (i)
the introduction of or any change in any law, order or regulation or in the
interpretation or administration of any law, order or regulation by any
Governmental Agency charged with the interpretation thereof or (ii) compliance
with any guideline or request issued or made from the date hereof from any such
Governmental Agency (whether or not having the force of law) has or would have
the effect of reducing the rate of return on the capital of that Lender or any
corporation controlling that Lender as a consequence of that Lender's Pro Rata
Share or the making or maintaining of Loans or Letters of Credit below the rate
at which that Lender or such other corporation could have achieved but for such
introduction, change or compliance (taking into account the policies of that
Lender or corporation with regard to capital), then Borrower shall from time to
time, within five Business Days after demand by such Lender, pay to that Lender
additional amounts sufficient to compensate such Lender or other corporation for
such reduction. A certificate as to such amounts, submitted to Borrower by the
relevant Lender, shall be conclusive and binding for all purposes, absent
manifest error.
3.6 EURODOLLAR FEES AND COSTS.
(a) If, after the date hereof, the existence or
occurrence of any Special Eurodollar Circumstance:
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(1) shall subject any Lender or its
Eurodollar Lending Office to any tax, duty or other charge or
cost with respect to any Eurodollar Rate Advance, or its
obligation to make Eurodollar Rate Advances, or shall change
the basis of taxation of payments to any Lender of the
principal of or interest on any Eurodollar Rate Advance or any
other amounts due under this Agreement in respect of any
Eurodollar Rate Advance or its obligation to make Eurodollar
Rate Advances (EXCEPT for changes in any tax, duty or other
charge on the overall net income, gross income or gross
receipts of such Lender or its Eurodollar Lending Office);
(2) shall impose, modify or deem applicable
any reserve (INCLUDING any reserve imposed by the Board of
Governors of the Federal Reserve System), special deposit or
similar requirements against assets of, deposits with or for
the account of, or credit extended by, any Lender or its
Eurodollar Lending Office; or
(3) shall impose on any Lender or its
Eurodollar Lending Office or the Designated Eurodollar Market
any other condition affecting any Eurodollar Rate Loan, its
obligation to make Eurodollar Rate Advances or this Agreement,
or shall otherwise affect any of the same;
and the result of any of the foregoing, as reasonably determined by
such Lender, increases the cost to such Lender or its Eurodollar
Lending Office of making or maintaining any Eurodollar Rate Advance or
in respect of any Eurodollar Rate Advance, its obligation to make
Eurodollar Rate Advances or reduces the amount of any sum received or
receivable by such Lender or its Eurodollar Lending Office with respect
to any Eurodollar Rate Advance or its obligation to make Eurodollar
Rate Advances (assuming the Lender's Eurodollar Lending Office had
funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar
Market), then, within five Business Days after demand by such Lender
(with a copy to the Administrative Agent) Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender
for such increased cost or reduction (determined as though such
Lender's Eurodollar Lending Office had funded 100% of its Eurodollar
Rate Advance in the Designated Eurodollar Market). A statement of any
Lender claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. Each Lender agrees to
endeavor promptly to notify Borrower of any event of which it has
actual knowledge (and, in any event, within one year from the date on
which it obtained such knowledge), occurring after the Closing Date,
which will entitle such Lender to compensation pursuant to this
Section, and agrees to designate a different Eurodollar Lending Office
if such designation will avoid the need for or reduce the amount of
such compensation and will not, in the judgment of such Lender,
otherwise be disadvantageous to such Lender.
(b) If, after the date hereof, the existence or
occurrence of any Special Eurodollar Circumstance shall, in the
reasonable opinion of any Lender, make it unlawful, impossible or
impracticable for such Lender or its Eurodollar Lending Office to make,
maintain or fund any Eurodollar Rate Loan, or materially restrict the
authority of such Lender to purchase or sell, or to take deposits of,
Dollars in the Designated Eurodollar Market, or to determine or charge
interest rates based upon the Eurodollar Rate, and such Lender shall so
notify the Administrative Agent and Borrower, then such Lender's
obligation to make Eurodollar Rate Advances shall be suspended for the
duration of such illegality, impossibility or impracticability and the
Administrative Agent forthwith shall give notice thereof to the other
Lenders and Borrower. Upon receipt of such notice, the outstanding
principal amount of such
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Lender's Eurodollar Rate Advances, together with accrued interest
thereon, automatically shall be converted to Base Rate Advances
with Eurodollar Periods corresponding to the Eurodollar Loans
of which such Eurodollar Rate Advances were a part on either (1) the
last day of the Eurodollar Period(s) applicable to such Eurodollar Rate
Advances if such Lender may lawfully continue to maintain and fund such
Eurodollar Rate Advances to such day(s) or (2) immediately if such
Lender may not lawfully continue to fund and maintain such Eurodollar
Rate Advances to such day(s), PROVIDED that in such event the
conversion shall not be subject to payment of a prepayment fee under
Section 3.6(d). In the event that such Lender is unable, for the
reasons set forth above, to make, maintain or fund any Eurodollar Rate
Loan, such Lender shall fired such amount as a Base Rate Advance for
the same period of time, and such amount shall be treated in all
respects as a Base Rate Advance.
(c) If, with respect to any proposed Eurodollar Rate
Loan:
(1) the Administrative Agent reasonably
determines that, by reason of circumstances affecting the
Designated Eurodollar Market generally that are beyond the
reasonable control of the Lenders, deposits in Dollars (in the
applicable amounts) are not being offered to the Lenders in
the Designated Eurodollar Market for the applicable Eurodollar
Period; or
(2) the Requisite Lenders advise the
Administrative Agent that the Eurodollar Rate as determined by
the Administrative Agent (i) does not represent the effective
pricing to such Lenders for deposits in Dollars in the
Designated Eurodollar Market in the relevant amount for the
applicable Eurodollar Period, or (ii) will not adequately and
fairly reflect the cost to such Lenders of making the
applicable Eurodollar Rate Advances;
then the Administrative Agent forthwith shall give notice thereof to
Borrower and the Lenders, whereupon until the Administrative Agent
notifies Borrower that the circumstances giving rise to such suspension
no longer exist, the obligation of the Lenders to make any future
Eurodollar Rate Advances shall be suspended. If at the time of such
notice there is then pending a Request for Loan that specifies a
Eurodollar Rate Loan, such Request for Loan shall be deemed to specify
a Base Rate Loan.
(d) Upon payment or prepayment of any Eurodollar Rate
Loan, (OTHER THAN as the result of a conversion required under Section
3.6(b)), on a day other than the last day in the applicable Eurodollar
Period (whether voluntarily, involuntarily, by reason of acceleration,
or otherwise), or upon the failure of Borrower to borrow on the date or
in the amount specified for a Eurodollar Rate Loan in any Request for
Loan, Borrower shall indemnify the Lenders against and reimburse each
Lender on demand for all costs, expenses, penalties, losses, legal fees
and damages incurred or sustained, or that would be incurred or
sustained, by the Lenders, INCLUDING loss of interest, as reasonably
determined by the Lenders, to the extent that the same are a direct
result of such payment, prepayment or failure to borrow. Each Lender's
determination of the amount payable under this Section 3.6(d) shall be
conclusive in the absence of manifest error. The loss of interest by a
Lender will be calculated as (i) the principal amount of the subject
Loan, TIMES (ii) a fraction the numerator of which is the number of
days between the date of payment and the last day of the applicable
Eurodollar Period, and the denominator of which is 360, TIMES (iii) the
Eurodollar Rate for the subject Loan, MINUS the Eurodollar Rate that
would be applicable to a Loan in the amount of the
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subject Loan to be made on the date of prepayment or a period equal to
the number of days remaining in the applicable Eurodollar Period (to
the extent such difference is a positive number).
3.7 POST DEFAULT INTEREST AND LATE PAYMENTS. At the option of
the Requisite Lenders, so long as any Event of Default has occurred and is
continuing, the Loans shall thereafter bear interest, and if any installment of
principal or interest or any fee or cost or other amount payable under any Loan
Document to any Creditor is not paid when due, it shall thereafter bear interest
until paid in full, at a fluctuating interest rate per annum at all times equal
to the greater of (a) the Base Rate plus 2% per annum or (b) 2% per annum above
the rate of interest that would otherwise be applicable pursuant to this
Agreement (the "Default Rate"), to the fullest extent permitted by applicable
Laws. Accrued and unpaid interest on past due amounts (INCLUDING interest on
past due interest) shall be compounded quarterly, on the last day of each
calendar quarter, to the fullest extent permitted by applicable Laws.
3.8 RIGHT TO ASSUME PAYMENTS WILL BE MADE BY BORROWER. Unless
the Administrative Agent shall have been notified by Borrower prior to the date
on which any payment to be made by Borrower hereunder is due that Borrower does
not intend to remit such payment, the Administrative Agent may, in its sole
discretion, assume that Borrower has remitted such payment when so due and may,
in its sole discretion and in reliance upon such assumption, make available to
each Lender on such payment date an amount equal to such Lender's share of such
assumed payment. If Borrower has not in fact remitted such payment to the
Administrative Agent each Lender shall forthwith on demand repay to the
Administrative Agent the amount of such assumed payment made available to such
Lender, together with interest thereon in respect of each day from and including
the date such amount was made available by the Administrative Agent to such
Lender to the date such amount is repaid to the Administrative Agent at the
Federal Funds Rate.
3.9 COMPUTATION OF INTEREST AND FEES. Computation of interest
or fees under this Agreement shall be calculated on the basis of a year of 360
days and the actual number of days elapsed. Borrower acknowledges that such
calculation method will result in a higher yield to the Lenders than a method
based on a year of 365 or 366 days.
3.10 NON-BUSINESS DAYS. If any payment to be made by Borrower
or any other Party under any Loan Document shall come due on a day other than a
Business Day, payment shall instead be considered due on the next succeeding
Business Day and the extension of time shall be reflected in computing interest.
3.11 MANNER AND TREATMENT OF PAYMENTS.
(a) Each payment hereunder shall be made to the
Administrative Agent, at the Administrative Agent's Office, for the
account of the relevant Creditor in immediately available funds not
later than 1:00 p.m., Los Angeles time, on the day of payment (which
must be a Business Day). All payments received after these deadlines on
any Business Day, shall be deemed received on the next succeeding
Business Day. The amount of all payments received by the Administrative
Agent for the account of any Lender shall be promptly paid by the
Administrative Agent to that Lender in immediately available funds. All
payments shall be made in lawful money of the United States of America.
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(b) Each Lender shall use its best efforts to keep a
record of Advances made by it and payments received by it with respect
to each of the Loans and such record shall, as against Borrower, be
presumptive evidence of the amounts owing. Notwithstanding the
foregoing sentence, no Lender shall be liable to any Party for any
failure to keep such a record.
(c) Each payment of any amount payable by Borrower or
any other Party under this Agreement or any other Loan Document shall
be made free and clear of, and without reduction by reason of, any
taxes, assessments or other charges imposed by any Governmental Agency,
central bank or comparable authority (other than taxes on overall net
income, gross income or gross receipts of a Lender or its Eurodollar
Lending Office). To the extent that Borrower is obligated by applicable
Laws to make any deduction or withholding on account of taxes,
assessments or other charges imposed by any Governmental Agency from
any amount payable to any Lender under this Agreement, Borrower shall
(i) make such deduction or withholding and pay the same to the relevant
Governmental Agency and (ii) pay such additional amount to that Lender
as is necessary to result in that Lender's receiving a net after-tax
(or after-assessment or after-charge) amount equal to the amount to
which that Lender would have been entitled under this Agreement absent
such deduction or withholding.
3.12 FUNDING SOURCES. Nothing in this Agreement shall be
deemed to obligate any Lender to obtain the funds for any Loan in any particular
place or manner or to constitute a representation by any Lender that it has
obtained or will obtain the funds for any Loan in any particular place or
manner.
3.13 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by
any Creditor not to require payment of any interest (INCLUDING interest arising
under Section 3.7), fee, cost or other amount payable under any Loan Document,
or to calculate any amount payable by a particular method, on any occasion shall
in no way limit or be deemed a waiver of that Creditor's right to require full
payment of any interest (INCLUDING interest arising under Section 3.7), fee,
cost or other amount payable under any Loan Document, or to calculate an amount
payable by another method, on any other or subsequent occasion.
3.14 AUTHORITY TO CHARGE ACCOUNT.
(a) Borrower hereby authorizes Bank of America upon
notice from the Administrative Agent to charge the Funding Account and
thereafter to remit to the Administrative Agent, in such amounts as may
from time to time be necessary to cause timely payment of principal,
interest, fees and other charges payable by Borrower under the Loan
Documents.
(b) Approximately five days prior to the date any
payment is due from Borrower under any of the Loan Documents, the
Administrative Agent shall provide to Borrower a statement of the
amounts that will be due on such date (the "Billed Amount"). The
calculation of the Billed Amount shall be made on the assumption that
no new Loans or payments will be made between the date of the billing
statement and the date the amounts are due, and that there will be no
changes in the applicable interest rate.
(c) Bank of America, upon notice from the
Administrative Agent, will charge the Funding Account for the Billed
Amount regardless of the actual amount of interest accrued (the
"Accrued Amount"). If the Billed Amount charged to the Funding Account
differs
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from the Accrued Amount, the discrepancy will be treated as follows:
(i) if the Billed Amount is less than the Accrued Amount, the Billed
Amount for the following payment date will be increased by the amount
of the discrepancy (and no Default or Event of Default shall be deemed
to have occurred solely as a result of such discrepancy); and (ii) if
the Billed Amount is more than the Accrued Amount, the Billed Amount
for the following payment date will be decreased by the amount of the
discrepancy. Regardless of any such discrepancy, interest will continue
to accrue based on the actual amount of principal outstanding under the
Loans, without compounding. The Administrative Agent and the Lenders
shall not pay to Borrower any interest on any excess payment.
(d) Nothing herein shall obligate the Administrative
Agent to charge the Funding Account as provided above at a time when
there are not sufficient good funds in such account, and if there are
insufficient funds in the Funding Account on a date the Administrative
Agent enters any debit authorized hereby, the Administrative Agent
shall reverse such debit to the extent of such insufficiency.
3.15 SURVIVABILITY. All of Borrower's obligations under
Sections 3.5 and 3.6 shall survive for six months following the date on which
all Loans hereunder are fully paid.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Creditors as follows:
4.1 EXISTENCE AND QUALIFICATION; POWER; COMPLIANCE WITH LAWS.
Each of Borrower and Landec is a corporation duly formed, validly existing and
in good standing under the laws of the state of its incorporation, as described
in the preamble to this Agreement. Each of Borrower and Landec is duly qualified
to transact business, is in good standing in its jurisdiction of incorporation
and each other jurisdiction, in which the conduct of its business or the
ownership or leasing of its properties makes such qualification or registration
necessary, EXCEPT where the failure so to qualify or register and to be in good
standing would not constitute a Material Adverse Effect. The chief executive
offices and principal place of business of Borrower are located at the addresses
for notices set forth for Borrower in the signature pages to this Agreement.
Each of Borrower and Landec has all requisite corporate power and authority to
conduct its business, to own and lease its properties and to execute and deliver
each Loan Document to which it is a party and to perform the Obligations. All
outstanding shares of capital stock of Borrower are duly authorized, validly
issued, fully paid, non-assessable and issued in compliance with all applicable
state and federal securities and other Laws, and are owned of record by Landec.
Except as described in Schedule 4.1, as of the Closing Date, no Person holds any
option, warrant or other right to acquire any shares of capital stock of
Borrower. Each of Borrower and Landec is in compliance with all Laws and other
legal requirements applicable to its business, has obtained all authorizations,
consents, approvals, orders, licenses and permits from, and has accomplished all
filings, registrations and qualifications with, or obtained exemptions from any
of the foregoing from, any Governmental Agency that are necessary for the
transaction of its business, EXCEPT where the failure so to comply, file,
register, qualify or obtain exemptions does not constitute a Material Adverse
Effect.
4.2 AUTHORITY; COMPLIANCE WITH OTHER AGREEMENTS AND
INSTRUMENTS AND GOVERNMENT REGULATIONS. The execution, delivery and performance
by Borrower and the Guarantors of each Loan Document to which each is a Party
have been duly authorized by all necessary corporate action, and do not:
(a) Require any consent or approval not heretofore
obtained of any partner, director, stockholder, security holder or
creditor of such Party, EXCEPT as heretofore obtained;
(b) Violate or conflict with any provision of such
Party's charter, articles of incorporation or bylaws, as applicable;
(c) Result in or require the creation or imposition
of any Lien or right of others (OTHER THAN pursuant to the Collateral
Documents) upon or with respect to any Property now owned or leased or
hereafter acquired by that Party;
(d) Violate any Requirement of Law applicable to
such Party in any material respect;
(e) Result in a breach of or constitute a default
under, or cause or permit the acceleration of any obligation owed
under, any material indenture or loan or credit
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agreement or any other Contractual Obligation to which such Party is a
party or by which such Party or any of its Property is bound or
affected; and
(f) No Party is in violation of, or default under,
any Requirement of Law or Contractual Obligation, or any indenture,
loan or credit agreement described in Section 4.2(e), in any respect
that constitutes a Material Adverse Effect.
4.3 NO GOVERNMENTAL APPROVALS REQUIRED. No authorization,
consent, approval, order, license or permit from, or filing, registration or
qualification with, any Governmental Agency is required to authorize or permit
under applicable Laws the execution, delivery and performance by Borrower and
the Guarantors of any of the Loan Documents to which it is a Party, except for
those which have been made or obtained and are in full force and effect.
4.4 SUBSIDIARIES.
(a) As of the Closing Date, Schedule 4.4 hereto
correctly sets forth the names, the form of legal entity, jurisdictions
of organization, chief executive offices and principal place of
business of all Subsidiaries of Borrower. Except as described in
Schedule 4.4, Borrower does not own as of the Closing Date any capital
stock or equity interest in any Person. All of the outstanding shares
of capital stock, or all of the units of equity interest, as the case
may be, of each such Subsidiary are owned of record and beneficially as
indicated on Schedule 4.4, and all such shares or equity interests so
owned are duly authorized, validly issued, fully paid, nonassessable,
and were issued in compliance with all applicable state, federal and
other Laws, and are free and clear of all Liens.
(b) Each such Subsidiary is a legal entity of the
form described for that Subsidiary in Schedule 4.4, duly organized,
validly existing, and in good standing under the Laws of its
jurisdiction of organization, is duly qualified to do business as a
foreign organization and is in good standing as such, and has filed
fictitious business name statements, in each jurisdiction in which the
conduct of its business or the ownership or leasing of its properties
makes such qualification necessary (EXCEPT where the failure to be so
duly qualified and in good standing does not constitute a Material
Adverse Effect), and has all requisite power and authority to conduct
its business and to own and lease its properties.
(c) Each such Subsidiary is in compliance with all
Laws and other requirements applicable to its business and has obtained
all authorizations, consents, approvals, orders, licenses, and permits
from, and each such Subsidiary has accomplished all filings,
registrations, and qualifications with, or obtained exemptions from any
of the foregoing from, any Governmental Agency that are necessary for
the transaction of its business, EXCEPT where the failure to be in such
compliance, obtain such authorizations, consents, approvals, orders,
licenses, and permits, accomplish such filings, registrations, and
qualifications, or obtain such exemptions, does not constitute a
Material Adverse Effect.
4.5 FINANCIAL STATEMENTS. Borrower has furnished to the
Administrative Agent (a) the pro forma opening balance sheet of Borrower as of
the Closing Date, (b) the audited combined financial statements of the Acquired
Companies on the Closing Date for the Fiscal Year ended December 31, 1998, and
(c) the internally prepared combined financial statements of the Acquired
Companies for the nine-month fiscal period ended September 30, 1999. Such
financial statements fairly present in all material respects the financial
condition, results of operations and changes in financial
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position of the Acquired Companies as of such dates and for such respective
periods in conformity with GAAP consistently applied, subject only to normal
year-end accruals and audit adjustments.
4.6 NO OTHER LIABILITIES; NO MATERIAL ADVERSE EFFECT. Landec,
Borrower and its Subsidiaries do not have any material liability or material
contingent liability required under GAAP to be reflected or disclosed, and not
reflected or disclosed, in the financial statements described in Section 4.5,
OTHER THAN liabilities and contingent liabilities arising in the ordinary course
of business since the date of such financial statements. As of the Closing Date,
no circumstance or event has occurred that constitutes a Material Adverse Effect
since December 31, 1998.
4.7 TITLE TO AND LOCATION OF PROPERTY. Borrower and its
Subsidiaries have valid title to the Property (OTHER THAN assets which are the
subject of a Capital Lease) reflected in the financial statements described in
Section 4.5, OTHER THAN items of Property or exceptions to title which are in
each case immaterial and Property subsequently sold or disposed of in the
ordinary course of business. Such Property is free and clear of all Liens and
Rights of Others, OTHER THAN those permitted under Section 6.9. All Property of
Borrower and its Subsidiaries is located at one of the locations described in
Schedule 4.7 other than Property constituting equipment or inventory which are
in transit to such locations or in transit to a third party purchaser which will
become obligated on a receivable to Borrower upon receipt.
4.8 REAL PROPERTY. Schedule 4.8 sets forth as of the Closing
Date a summary description of all real property owned by Borrower and its
Subsidiaries, and of all real property leasehold estates held by Borrower and
its Subsidiaries, which summary is accurate and complete in all material
respects except for real property acquired or leased after the Closing Date
after notice to the Administrative Agent.
4.9 INTANGIBLE ASSETS. Borrower and its Subsidiaries own, or
possess the right to use to the extent necessary in their respective businesses,
all trademarks, trade names, copyrights, patents, patent rights, computer
software, licenses and other intangible assets that are used in the conduct of
their businesses as now operated. None of the intangible assets described in the
first sentence of this Section, to the best knowledge of Borrower, conflicts
with the valid trademark, trade name, copyright, patent, patent right or
intangible asset of any other Person. The License Agreement is in full force and
effect and entitles Borrower and its Subsidiaries to the unrestricted use of the
"Intelimer" process and any related, derivative or successor products in
connection with the perishable produce products packing industry.
4.10 GOVERNMENTAL REGULATION. Neither Borrower nor any
Subsidiary of Borrower is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the
Investment Company Act of 1940 or to any other Law limiting or regulating its
ability to incur Indebtedness for money borrowed.
4.11 LITIGATION. EXCEPT for (a) any matter fully covered
(subject to applicable deductibles and retentions) by insurance for which the
insurance carrier has assumed full responsibility, (b) any matter, or series of
related matters, involving a claim against Landec, Borrower or any of its
Subsidiaries of less than $250,000, and (c) matters set forth in Schedule 4.11,
as of the Closing Date, there are no actions, suits, proceedings or
investigations pending as to which Landec, Borrower or any Subsidiary of
Borrower has been served or has received written notice or, to the best
knowledge of Landec and Borrower, threatened against or affecting Landec,
Borrower, any Subsidiary of Borrower or any Property of any of them before any
Governmental Agency. There is no reasonable basis, to the best
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knowledge of Borrower, for any action, suit, proceeding or investigation
against or affecting Landec, Borrower, any Subsidiary of Borrower or any
Property of any of them before any Governmental Agency which would constitute
a Material Adverse Effect.
4.12 BINDING OBLIGATIONS. Each of the Loan Documents to
which Borrower and the Guarantors are a party will, when executed and
delivered by such Party, constitute the legal, valid and binding obligation
of such Party, enforceable against such Party in accordance with its terms,
EXCEPT as enforcement may be limited by Debtor Relief Laws or equitable
principles relating to the granting of specific performance and other
equitable remedies and/or defenses as a matter of judicial discretion.
4.13 NO DEFAULT. No event has occurred and is continuing
that is a Default or Event of Default.
4.14 ERISA.
(a) EXCEPT as disclosed in Schedule 4.14, as of the
Closing Date neither Borrower nor any ERISA Affiliate of Borrower
maintains, contributes to or is required to contribute to any "employee
pension benefit plan" that is subject to Title IV of ERISA.
(b) With respect to each Pension Plan disclosed in
Schedule 4.14:
(i) such Pension Plan complies in all
material respects with ERISA and any other applicable Laws;
(ii) such Pension Plan has not incurred any
material "accumulated funding deficiency", as that term is
defined in Section 302 of ERISA;
(iii) no "reportable event" (as defined in
Section 4043 of ERISA) (other than a "reportable event" that
is not subject to the provision of 30-day notice to the PBGC)
has occurred that would subject Borrower or any Subsidiary of
Borrower to any liability with respect to such Pension Plan
that would constitute a Material Adverse Effect;
(iv) neither Borrower nor any Subsidiary of
Borrower has engaged in any non-exempt "prohibited
transaction" (as defined in Section 4975 of the Code) that
would subject Borrower or any Subsidiary of Borrower to any
penalty that would constitute a Material Adverse Effect;
(v) no Termination Event has occurred or, to
the best knowledge of Borrower, may reasonably be expected to
occur; and
(vi) no material unfunded vested liabilities
exist under any Pension Plan and the present value of all
benefit liabilities under each Pension Plan and each Pension
Plan of a Subsidiary and of an ERISA Affiliate do not exceed
by a material amount the value of the assets of such Plan.
(c) As of the Closing Date, all contributions
required to be made by Borrower or any of its Subsidiaries to a
Multiemployer Plan described in Schedule 4.14 have been made except as
may be described in Schedule 4.14. Neither Borrower, any Subsidiary of
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Borrower, nor any ERISA Affiliate has incurred any withdrawal liability
under Section 4201 of ERISA that could have a material adverse effect
on Borrower, its Subsidiaries or any ERISA Affiliate. Neither Borrower
nor any ERISA Affiliate of Borrower has received any notification that
any Multiemployer Plan is in reorganization or has been terminated,
within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated, where
such reorganization has resulted or can reasonably be expected to
result in an increase in the contributions required to be made to such
Plan that could have a material adverse effect on Borrower and its
Subsidiaries taken as a whole.
(d) Each of Borrower, its Subsidiaries and its ERISA
Affiliates are in compliance with those provisions of ERISA which are
applicable to Borrower, its Subsidiaries and its ERISA Affiliates, the
non-compliance with which would have a Material Adverse Effect on
Borrower.
4.15 REGULATIONS T, U AND X. No part of the proceeds of any
Loan hereunder will be used to purchase or carry, or to extend credit to others
for the purpose of purchasing or carrying, any "margin stock" (as such term is
defined in Regulation U) in violation of Regulations T, U or X. Neither Landec,
Borrower nor any Subsidiary of Borrower is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any such "margin stock."
4.16 DISCLOSURE. No written statement made by a Responsible
Official of Borrower or any Guarantor to any Creditor in connection with this
Agreement, or in connection with any Loan, contains any untrue statement of a
material fact or omits a material fact (which fact is known to Borrower or such
Guarantor, in the case of materials not furnished by Borrower or such Guarantor)
necessary to make the statement made not misleading in light of all the
circumstances existing at the date the statement was made and taken together
with all of the information so provided. There is no fact known to Borrower or
any Guarantor (OTHER THAN facts generally applicable to businesses of the types
engaged in by Borrower) which would constitute a Material Adverse Effect that
has not been disclosed in writing to the Lenders.
4.17 TAX LIABILITY. Borrower and its Subsidiaries have filed
all tax returns which are required to be filed, and have paid, withheld,
collected or remitted, all taxes, interest, penalties and installments of taxes
due and payable by them with respect to the periods, Property or transactions
covered by such returns, or pursuant to any assessment received by either
Borrower or any Subsidiary of Borrower, EXCEPT (a) taxes for which Borrower or
such Subsidiary has been fully indemnified and (b) such taxes, if any, as are
being contested in good faith by appropriate proceedings diligently pursued and
as to which adequate reserves have been established arid maintained. To the best
knowledge of Borrower, there is no tax assessment contemplated or proposed by
any Governmental Agency against Borrower or any Subsidiary of Borrower that
would constitute a Material Adverse Effect.
4.18 PROJECTIONS. To the best knowledge of Landec and
Borrower, the assumptions set forth in the Projections attached hereto as
Schedule 4.18 are reasonable and consistent with each other and with all facts
known to Landec or Borrower and no material assumption is omitted as a basis for
the Projections, and the Projections are reasonably based on such assumptions.
Nothing in this Section shall be construed as a representation or covenant that
the Projections in fact will be achieved.
4.19 SECURITY INTERESTS. The Collateral Documents create a
valid security interest in the Collateral described therein in favor of the
Administrative Agent securing the Obligations. Upon
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(a) the filing of UCC-1 financing statements delivered to the Administrative
Agent pursuant to Section 8.1(a) with the appropriate Governmental Agencies,
(b) the filing of the Trademark Security Agreement and Patent Security
Agreement with the United States Patent and Trademark Office, and (c) the
recording of each Deed of Trust with the appropriate Governmental Agencies,
all action necessary to perfect the security interests so created by the
Collateral Documents described in this sentence that can be perfected by
possession or by such filing or recordation, will have been taken and
completed (EXCEPT for the requirement that continuation statements
periodically must be filed and/or recorded with respect to financing
statements on file in favor of the Administrative Agent). Such security
interests are of first priority EXCEPT as otherwise permitted under this
Agreement.
4.20 HAZARDOUS MATERIALS.
(a) The ongoing operations of Borrower and its
Subsidiaries, and to the best knowledge of Borrower, the ongoing
operations of all current tenants, subtenants or other occupants of all
or any part of the real property described on Schedule 4.8 (the "Real
Property"), are conducted and comply in all respects with all
Environmental Laws, except such non-compliance which would not (if
enforced in accordance with applicable law) result in liability in
excess of $100,000 in the aggregate.
(b) Borrower and each of its Subsidiaries have
obtained all licenses, permits, authorizations and registrations
required under any Environmental Law ("ENVIRONMENTAL PERMITS") and
necessary for their respective ordinary course operations except where
the failure to obtain such licenses, permits, authorizations and
registrations does not constitute a Material Adverse Effect, all such
Environmental Permits are in good standing, and Borrower and each of
its Subsidiaries are in compliance with all material terms and
conditions of such Environmental Permits.
(c) Neither any of Borrower nor any Subsidiary of
Borrower (nor to the best knowledge of Borrower no current tenants, or
other occupants of all or part of the Real Property) or any of their
respective present Property or operations, is subject to any existing,
pending, or, to the best knowledge of Borrower, threatened or
outstanding written order, suit, claim, proceeding, investigation,
order, comment, injunction, writ, award, action or proceeding from or
agreement with any Governmental Agency or third party, nor subject to
any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material.
(d) There are no Hazardous Materials or other
conditions or circumstances existing with respect to any Property, or
arising from operations prior to the Closing Date, of Borrower or any
of its Subsidiaries that could reasonably be expected to give rise to
Environmental Claims with a potential liability of Borrower and its
Subsidiaries in excess of $100,000 in the aggregate for any such
condition, circumstance or Property. In addition, (i) neither Borrower
nor any Subsidiary of Borrower has any underground storage tanks (x)
that are not properly registered or permitted under applicable
Environmental Laws, or (y) that are leaking or disposing of Hazardous
Materials off-site, and (ii) Borrower and its Subsidiaries have
notified all of their employees of the existence, if any, of any health
hazard arising from the conditions of their employment and have met all
notification requirements under Title III of CERCLA and all other
Environmental Laws except where the failure to so notify does not
constitute a Material Adverse Effect.
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4.21 MATERIAL CONTRACTS. As of the Closing Date, except as
disclosed on Schedule 4.21, neither Borrower nor any Subsidiary of Borrower is a
party to any Material Contract.
4.22 YEAR 2000 COMPLIANCE. Landec and Borrower have conducted
a comprehensive review and assessment of its systems and equipment applications
and made appropriate inquiry of Borrower's key suppliers, vendors and customers
with respect to the "year 2000 problem" (that is, the inability of computers, as
well as embedded microchips in non-computing devices, to properly perform
date-sensitive functions with respect to certain dates prior to and after
December 31, 1999). Based on that review and inquiry, Borrower does not believe
the year 2000 problem, including costs of remediation, will result in a material
adverse change in Borrower's business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit. Borrower
has developed appropriate contingency plans in respect to uninterrupted and
unimpaired business operation in the event of a failure of its own or a third
party's systems or equipment due to the year 2000 problem, including those of
vendors, customers, and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure.
4.23 MERGER AND PURCHASE AGREEMENT. As of the Closing Date,
the purchase of each of the Guarantors (other than Landec) and the other
transactions contemplated by the Merger and Purchase Agreement to occur on the
Closing Date have been consummated in conformity with the Merger and Purchase
Agreement and in material compliance with all applicable laws.
4.24 MERGER AND PURCHASE AGREEMENT. As of the Closing
Date, Landec has contributed all of its interests in the Intellipac Assets to
Borrower.
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ARTICLE 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Loan remains unpaid, any Letter of Credit
remains outstanding, any other Obligation remains unpaid, or any portion of the
Commitments remains in force, Borrower shall, and shall cause each Subsidiary
to, unless the Requisite Lenders otherwise consent in writing:
5.1 PAYMENT OF TAXES AND OTHER POTENTIAL LIENS. Pay, collect,
withhold, remit and discharge promptly all taxes, assessments and governmental
charges or levies imposed upon any of them, upon their respective Property or
any part thereof, upon their respective income or profits or any part thereof or
upon any right or interest of the Creditors under any Loan Document, EXCEPT that
Borrower and its Subsidiaries shall not be required to pay or cause to be paid
(a) any income or gross receipts tax or any other tax on or measured by income
generally applicable to banks or their corporate parents or (b) any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings diligently pursued, so long as the
relevant entity has established and maintains adequate reserves for the payment
of the same and by reason of such nonpayment and contest no item or portion of
Property of Borrower or its Subsidiaries is in jeopardy of being seized, levied
upon or forfeited.
5.2 PRESERVATION OF EXISTENCE. Except as otherwise permitted
pursuant to Section 6.3, preserve and maintain, or cause to be maintained and
preserved, their respective existences in the jurisdictions of their formation
and all authorizations, rights, franchises, privileges, consents, approvals,
orders, licenses, permits, or registrations from any Governmental Agency that
are necessary for the transaction of their respective businesses, and qualify
and remain qualified to transact business in each jurisdiction in which such
qualification is necessary in view of their respective businesses or the
ownership or leasing of their respective properties.
5.3 MAINTENANCE OF PROPERTIES. Except as otherwise permitted
pursuant to Section 6.2, maintain, preserve and protect, or cause to be
maintained, preserved and protected, all of their respective depreciable
properties in good order and condition, subject to wear and tear in the ordinary
course of business, or damage or destruction from casualties which are fully
covered by insurance (subject to customary deductibles and retentions), and not
permit any waste of their respective properties, EXCEPT that the failure to
maintain, preserve and protect a particular item of depreciable Property that is
not of significant value, either intrinsically or to the operations of Borrower
and its Subsidiaries, taken as a whole, shall not constitute a violation of this
covenant.
5.4 MAINTENANCE OF INSURANCE. Maintain, or cause to be
maintained, liability, casualty and other insurance (subject to customary
deductibles and retentions) in such amounts and against such risks as are
customary for similarly situated businesses, INCLUDING public liability
insurance, business interruption insurance and all-risk casualty insurance with
respect to all of Borrower's tangible personal property. Such insurance shall be
maintained, in amounts and with responsible insurance companies reasonably
acceptable to the Requisite Lenders. The Administrative Agent shall be named as
additional insured and loss payee as its interests may appear, with respect to
casualty insurance on all Collateral, and Borrower shall deliver to the
Administrative Agent, not less frequently than once in each calendar year, (a)
an "accord certificate" (or its equivalent) evidencing that insurance of the
types required by this Section and the Collateral Documents is in force and (b)
a
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Lenders Loss Payable Endorsement on a form reasonably acceptable to the
Administrative Agent evidencing that the Administrative Agent is an additional
insured and loss payee with respect to all risk casualty insurance and other
insurance requested by the Administrative Agent. Borrower agrees that for so
long as the Commitments are in effect or any Obligation remains outstanding, it
shall maintain the $2,500,000 policy of key man life insurance on the life of
Nick Tompkins referred to in Section 8.1(a), and that, in the event of any
payment thereunder, the proceeds thereof may be applied by the Lenders to the
principal amount of the Obligations in such manner as they direct (with a
corresponding reduction in the Commitments).
5.5 COMPLIANCE WITH LAWS. Comply with, or cause to be complied
with, all Requirements of Laws, noncompliance with which could constitute a
Material Adverse Effect.
5.6 INSPECTION RIGHTS. At any time during regular business
hours and as often as requested (but not so as to materially interfere with the
business of Borrower or any of its Subsidiaries) and, if no Event of Default has
occurred and is continuing, upon reasonable notice, permit the Administrative
Agent or any Lender, or any authorized employee, agent or representative
thereof, (a) to examine, audit and make copies and abstracts from the records
and books of account of, (b) to visit, and inspect the Properties of, Borrower
and its Subsidiaries, (c) to discuss the affairs, finances and accounts of
Borrower and its Subsidiaries with any of their officers, key employees or
accountants or with any relevant taxing authority (and Borrower shall promptly
execute and deliver to the Administrative Agent any waivers of confidentiality
required to permit such discussions), and (d) in the case of the Administrative
Agent, to discuss the accounts of Borrower and its Subsidiaries with vendors
upon the occurrence and during the continuance of an Event of Default, and, upon
request, furnish promptly to the Administrative Agent tree copies of all
financial information made available to the senior management of Borrower or any
of its Subsidiaries. Audits of Borrower's books and records and of the
Collateral shall be conducted by the Administrative Agent or its employees,
agents or representatives twice per year, or more frequently if reasonably
requested by the Requisite Lenders. The Administrative Agent may, at any time,
either orally or in writing, request confirmation from any account debtor, of
the current amount and status of the accounts receivable upon which such account
debtor is obligated to Borrower.
5.7 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep adequate
records and books of account reflecting all financial transactions in conformity
with GAAP, consistently applied, and in material conformity with all applicable
requirements of any Governmental Agency having regulatory jurisdiction over
Borrower or any of its Subsidiaries.
5.8 COMPLIANCE WITH AGREEMENTS. Promptly and fully comply with
all Contractual Obligations under all material agreements, indentures, leases
and/or instruments to which any one or more of them is a party, whether such
material agreements, indentures, leases or instruments are with a Creditor or
another Person, noncompliance with which could constitute a Material Adverse
Effect, EXCEPT that Borrower and its Subsidiaries need not comply with
Contractual Obligations (OTHER THAN the Loan Documents) under any such
agreements, indentures, leases or instruments then being contested by any of
them in good faith by appropriate proceedings diligently pursued.
5.9 USE OF PROCEEDS. Use the proceeds of the Loans during the
term of this Agreement for solely for (i) partially financing the purchase of
Old Apio by Borrower pursuant to the Merger and Purchase Agreement, (ii)
refinancing of approximately $10,750,000 of existing indebtedness of Old Apio
and certain of its Affiliates, (iii) payment of expenses and costs associated
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with the execution and delivery of the Loan Documents and the transactions
contemplated thereby and (iv) for general corporate purposes and working capital
needs.
5.10 HAZARDOUS MATERIALS LAWS.
(a) Conduct their operations and keep and maintain
their Property in compliance with all Environmental Laws noncompliance
with which could constitute a Material Adverse Effect.
(b) Notify the Administrative Agent in writing upon,
but in no event later than 10 days after, becoming aware of (i) any and
all enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed or threatened against Borrower or any
Subsidiary of Borrower or any of their respective Properties pursuant
to any applicable Environmental Laws, (ii) all other Environmental
Claims, and (iii) any environmental or similar condition on any real
property adjoining or in the vicinity of the Property of Borrower or
such Subsidiary that could reasonably be anticipated to cause such
Property or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of such Property under any
Environmental Laws.
(c) Upon the written request of the Administrative
Agent or the Requisite Lenders, submit to the Administrative Agent with
sufficient copies for each Lender, at Borrower's sole cost and expense,
at reasonable intervals, a report providing an update of the status of
any environmental, health or safety compliance, hazard or liability
issue identified in any notice or report required pursuant to Section
5.10(b), that could, individually or in the aggregate, result in
liability in excess of $200,000.
5.11 FUTURE GUARANTORS AND COLLATERAL. In the event that
Borrower hereafter forms or acquires any Subsidiary (other than Apio Cooling and
any Subsidiary thereof), Borrower shall promptly and in any event within 10
Business Days (a) cause such Subsidiary to execute a guarantee of the
obligations, a related security agreement (substantially in the form of the
Subsidiary Guaranty and Guarantor Security Agreement), and joinders to the
Patent Security Agreement and the Trademark Security Agreement and to deliver
such Uniform Commercial Code financing statements as the Administrative Agent
may reasonably require in connection with the Guarantor Security Agreement and
(b) subject to Section 11.23, to execute a Pledge Agreement, substantially in
the form of the Landec Pledge Agreement, and deliver the stock or other equity
securities of such Subsidiary to the Administrative Agent in pledge. In the
event that Borrower or any of its Subsidiaries hereafter obtains any United
States trademarks or patents, they shall promptly, and in any event within 10
Business Days, execute the Trademark Security Agreement or the Patent Security
Agreement, as applicable, with respect thereto.
5.12 FURTHER ASSURANCES.
(a) Borrower shall ensure that all written
information, exhibits and reports furnished to any Creditor do not and
will not contain any untrue statement of a material fact and do not and
will not omit to state any material fact or any fact necessary to make
the statements contained therein not misleading in light of the
circumstances existing as of the date when made.
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(b) Promptly upon request by the Administrative Agent
or the Requisite Lenders, Borrower shall (and shall cause its
Subsidiaries to) do, execute, acknowledge, deliver, record, re-record,
file, re-file, register and re-register, any and all such further acts,
deeds, conveyances, security agreements, mortgages, assignments,
estoppel certificates, financing statements and continuations thereof,
termination statements, notices of assignment, transfers, certificates,
assurances and other instruments the Administrative Agent or such
Lenders, as the case may be, may reasonably require from time to time
in order (i) to carry out more effectively the purposes of this
Agreement Or any other Loan Document, (ii) to subject to the Liens
created by any of the Collateral Documents any of the Properties of
Borrower and its Subsidiaries, rights or interests covered by any of
the Collateral Documents, (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and the
Liens intended to be created thereby, and (iv) to better assure,
convey, grant, assign, transfer, preserve, protect and confirm to the
Creditors the rights granted or now or hereafter intended to be granted
to the Lenders under any Loan Document or under any other document
executed in connection therewith.
(c) Borrower shall diligently prosecute the
re-registration of the United States federal trademark "Eat Smart."
Within 10 Business Days following such re-registration, Borrower shall
execute and deliver a Trademark Security Agreement substantially in the
form of Exhibit J with respect thereto, granting a first priority Lien
upon such trademark.
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ARTICLE 6
NEGATIVE COVENANTS
So long as any Loan remains unpaid, any Letter of Credit
remains outstanding, any other Obligation remains unpaid, or any portion of the
Commitments remains in force, Borrower shall not, and shall not permit any of
its Subsidiaries to, unless the Requisite Lenders otherwise consent in writing:
6.1 PREPAYMENT OF SUBORDINATED OBLIGATIONS AND EARN OUT
PAYMENTS. (a) Prepay or repay any principal (INCLUDING sinking fund payments) in
respect of any Subordinated Obligations or Earn Out Payments, or (b) pay any
principal, interest or other amounts in respect of any Subordinated Obligations
except in accordance with the definitive subordination agreement between the
Administrative Agent and the holder of such Subordinated Obligations or Earn Out
Payments, or (c) prepay any principal (INCLUDING sinking fund payments),
interest or other amounts on any other Indebtedness of Borrower or any of its
Subsidiaries prior to the date when due.
6.2 DISPOSITION OF PROPERTY. Make any Disposition of its
Property, whether now owned or hereafter acquired, EXCEPT a Disposition by
Borrower to a Wholly-Owned Subsidiary, or by a Subsidiary to Borrower or a
Wholly-Owned Subsidiary.
6.3 MERGERS. Merge or consolidate with or into any Person,
EXCEPT (a) mergers and consolidations of a Subsidiary of Borrower into Borrower
or a Wholly-Owned Subsidiary or of Subsidiaries with each other and (b) a merger
or consolidation of a Person into Borrower or with or into a Wholly-Owned
Subsidiary of Borrower; PROVIDED that (i) Borrower or a Wholly-Owned Subsidiary
is the surviving entity, (ii) no Change in Control results therefrom, (iii) no
Default or Event of Default then exists or would result therefrom and (iv)
Borrower and each of the Guarantors execute such amendments to the Loan
Documents as the Lender may reasonably determine are appropriate as a result of
such merger.
6.4 ACQUISITIONS AND INVESTMENTS. Make any Acquisition or make
or suffer to exist any Investments other than:
(a) Investments existing as of the Closing Date
and described on Schedule 6.4; and
(b) Investments in Cash Equivalents;
(c) Investments consisting of advances to officers,
directors and employees of Borrower and its Subsidiaries for travel,
entertainment, relocation, anticipated bonus and analogous ordinary
business purposes;
(d) Investments under the Approved Swap
Agreement; and
(e) Investments in Grower Notes and Grower
Advances and investments in crops made in the ordinary course of
business.
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6.5 DISTRIBUTIONS AND OTHER RESTRICTED PAYMENTS. Make any
Distribution or other Restricted Payment, whether from capital, income or
otherwise, and whether in cash or other Property, EXCEPT:
(a) a one time Restricted Payment of an amount
not in excess of $725,000 made by Borrower on the Closing Date to
Landec;
(b) Distributions by any Subsidiary of Borrower
to Borrower or to any Wholly-Owned Subsidiary of Borrower;
(c) Management Fee Distributions, Quarterly Tax
Distributions and Tax Settlements, in each case to the extent permitted
by Section 6.20; and
(d) Earn Out Payments made in accordance with the
Subordination Agreement and when no Default or Event of Default exists.
6.6 ERISA.
(a) At any time, maintain, or be or become obligated
to contribute on behalf of its employees to, any "employee pension
benefit plan" that is subject to Title IV of ERISA other than those
Pension Plans disclosed in Schedule 4.14, and Multiemployer Plans to
which Borrower or any Subsidiary of Borrower becomes obligated to
contribute pursuant to the terms of a collective bargaining agreement.
(b) At any time, permit any Pension Plan disclosed in
Schedule 4.14, in such case if to do so would constitute a Material
Adverse Effect, to:
(i) engage in any non-exempt "prohibited
transaction", as such term is defined in Section 4975 of the
Code;
(ii) incur any material "accumulated funding
deficiency", as that term is defined in Section 302 of ERISA;
or
(iii) suffer a Termination Event to occur
which may reasonably be expected to result in liability of
Borrower or any ERISA Affiliate thereof to the Pension Plan or
to the PBGC or the imposition of a Lien on the Property of
Borrower or any ERISA Affiliate thereof pursuant to Section
4068 of ERISA.
(c) Fail, upon a Responsible Official of Borrower
becoming aware thereof, promptly to notify the Administrative Agent of
the occurrence of any "reportable event" (as defined in Section 4043 of
ERISA) (other than a "reportable event" that is not subject to the
provision of 30-day notice to the PBGC) or of any non-exempt
"prohibited transaction" (as defined in Section 4975 of the Code) with
respect to any Pension Plan described in Schedule 4.14 or any trust
created thereunder.
(d) At any time, permit any Pension Plan described in
Schedule 4.14 to fail to comply with ERISA or other applicable Laws in
any respect that could result in a Material Adverse Effect.
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6.7 CHANGE IN NAME; NATURE OF BUSINESS. Change the legal name
of Borrower or of any Subsidiary of Borrower or make any material change in the
nature of the business of Borrower and its Subsidiaries, taken as a whole, as at
present conducted.
6.8 INDEBTEDNESS AND CONTINGENT OBLIGATIONS. Create,
incur, assume or suffer to exist any Indebtedness or Contingent Obligation,
EXCEPT:
(a) Existing Indebtedness and Contingent
Obligations disclosed on Schedule 6.8;
(b) Indebtedness and Contingent Obligations in
favor of the Creditors under the Loan Documents;
(c) Indebtedness and Contingent Obligations
arising from the endorsement of instruments for collection in
the ordinary course of Borrower's business;
(d) Indebtedness and Contingent Obligations
consisting of the Approved Swap Agreement;
(e) purchase money Indebtedness and obligations
in connection with Capital Leases PROVIDED that the aggregate amount of
such Indebtedness and Capital Leases incurred in any Fiscal Year does
not exceed $500,000;
(f) Subordinated Obligations;
(g) deferred obligations under the Management
Agreement and the Tax Agreement (subject to the subordination
provisions contained in the Landec Guaranty);
(h) Indebtedness and Contingent Obligations
under initial or successive refinancings of any Indebtedness permitted
under clauses (a) and (f) above, provided that the principal amount of
any such refinancing does not exceed the principal amount of the
Indebtedness being refinanced and the material terms and provisions of
any such refinancing (including maturity, redemption, prepayment,
default and subordination provisions) are no less favorable to the
Lenders than the Indebtedness being refinanced; and
(i) Indebtedness of Borrower with respect to the
Secondary Partner Deferred Payments referred to in Section 2.6 of the
Merger and Purchase Agreement.
6.9 LIENS; NEGATIVE PLEDGES; SALES AND LEASEBACKS. Create,
incur, assume or suffer to exist any Lien or Right of Others of any nature upon
or with respect to any of its Property, whether now owned or hereafter acquired;
or suffer to exist any Negative Pledge with respect to any of its Property; or
engage in any sale and leaseback transaction with respect to any of its
Property; EXCEPT:
(a) Permitted Encumbrances;
(b) Liens and Negative Pledges in favor of the
Creditors under the Loan Documents;
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(c) Existing Liens disclosed in Schedule 6.9 and
permitted refinancings thereof; and
(d) purchase money Liens securing Indebtedness
permitted under Section 6.8(d).
6.10 TRANSACTIONS WITH AFFILIATES. Enter into any transaction
of any kind with any officer or Affiliate of Borrower, or any Person that owns
or holds 5% or more of the outstanding common stock of Borrower, OTHER THAN
transactions (INCLUDING real property lease transactions) on terms at least as
favorable to Borrower or its Subsidiaries as would be the case in an
arm's-length transaction between unrelated parties of equal bargaining power.
6.11 NET WORTH. Permit Net Worth, as of the last day of any
Fiscal Quarter beginning April 30, 2000, to be less than the sum of (a)
$19,125,000 PLUS (b) 75% of cumulative Net Income for each Fiscal Quarter which
has then ended since the Closing Date (including the stub financial period
beginning on the Closing Date and ending on January 31, 2000) and without
deduction for any net loss during any such Fiscal Quarter), PLUS (c) 100% of the
Net Cash Proceeds to Borrower of the issuance of any equity securities by
Borrower (or any holding company for any capital stock of Borrower) since the
Closing Date.
6.12 LEVERAGE RATIO. Beginning October 31, 2000, permit the
Leverage Ratio as of the last day of any Fiscal Quarter described in the matrix
set forth below, to be greater than the ratio set forth opposite that Fiscal
Quarter:
Fiscal Quarters Ending Maximum Ratio
---------------------- -------------
October 31, 2000 through and
including July 31, 2001 2.75:1.00
October 31,2001 through and
including July 31, 2002 2.00:1.00
Later Fiscal Quarters 1.50:1.00.
6.13 MINIMUM EBITDA. Permit EBITDA, for any period set forth
below in this Section to be less than the amount set forth opposite that period:
Period Minimum EBITDA
------ --------------
Closing Date through January 31, 2000 $630,000
Closing Date through April 30, 2000 $1,150,000
Closing Date through July 31, 2000 $4,500,000.
6.14 MINIMUM EBITDA PRIOR TO FARMING LOSSES. Permit EBITDA
PLUS farming losses, for any period set forth below in this Section to be less
than the amount set forth opposite that period:
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Period Minimum EBITDA
------ --------------
Closing Date through January 31, 2000 $1,100,000
Closing Date through April 30, 2000 $2,300,000
Closing Date through July 31, 2000 $6,000,000.
6.15 FIXED CHARGE COVERAGE RATIO. Permit the Fixed Charge
Coverage Ratio as of the last day of the Fiscal Quarter ending July 31, 2000 or
any subsequent Fiscal Quarter to be less than 1.25:1.00.
6.16 CURRENT RATIO. Permit the ratio of (a) the consolidated
current assets of Borrower and its Subsidiaries as of the last day of any Fiscal
Quarter, to (b) the consolidated current liabilities of Borrower and its
Subsidiaries as of the same date (excluding accrual accounts for Earn Out
Payments, Tax Agreement Amounts and Management Fee Distributions, but in any
event including the Revolving Usage) in each case determined in accordance with
GAAP, to be less than 0.90:1.00.
6.17 PROFITABILITY. Permit Net Income PLUS accrued but unpaid
Management Fee Distributions to be less than zero for any two consecutive Fiscal
Quarters, (beginning with the two Fiscal Quarters ending April 30, 2000 and July
31, 2000).
6.18 MAXIMUM CAPITAL EXPENDITURES. Permit Capital Expenditures
during any Fiscal Year, to exceed the amount set forth below opposite that
Fiscal Year:
Fiscal Year Ending Maximum Amount
------------------ --------------
October 31, 2000 $3,300,000
October 31,2001 $3,300,000
October 31, 2002 and
subsequent Fiscal Years $1,800,000;
PROVIDED that (a) not more than $500,000 in Capital Expenditures not made during
the Fiscal Year ending October 31, 2000 may be expended during the Fiscal Year
ending October 31, 2001, and (b) not more than $500,000 in Capital Expenditures
not made during the Fiscal Year ending October 31, 2001 may be expended during
the Fiscal Year ending October 31, 2002.
6.19 MAXIMUM RESEARCH AND DEVELOPMENT EXPENDITURES. Permit
research and development expenditures during any Fiscal Year, to exceed
$1,500,000.
6.20 LANDEC DISTRIBUTIONS. Make any Management Fee
Distributions, Quarterly Tax Distributions or Tax Settlements, provided that
Borrower may make such payments in accordance with the terms of the Management
Agreement and the Tax Agreement if all of the following conditions are
satisfied:
(a) Quarterly Tax Distributions and Tax Settlements
made to Landec made when no Default or Event of Default exists or would
result therefrom;
(b) In the case of Management Fee Distributions and
Tax Gross-Up's, (i) Borrower shall have delivered a calculation of
Excess Cash Flow for the Fiscal Year then most recently ended, and
shall have previously made all pre-payments of the Term Loans
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required under Section 2.5(d) on the basis of Excess Cash Flow for that
Fiscal Year, (ii) not more than one month prior to the date of the
making thereof, the Administrative Agent shall have received the
Borrower's audited financial statements in accordance with Section
7.1(a), (iii), giving effect to the making thereof, (A) the sum of the
Borrower's current cash balances PLUS Revolving Availability is at
least $2,000,000, (B) Borrower shall be in pro forma compliance with
the covenants set forth in Section 6.11 through 6.19, inclusive, and
shall have delivered a certificate to that effect setting forth
calculations thereof reasonably acceptable to the Administrative Agent,
and (C) no Default or Event of Default shall exist or result therefrom;
(c) If Borrower is required to make prepayments of
the Term Loans on the basis of Excess Cash Flow for that Fiscal Year as
set forth in Section 2.7(d), the aggregate amount of the sum of (i)
Management Fee Distributions, (ii) Aggregate Landec Tax Distributions
and (iii) Landec Tax Gross-Up's made with respect to any Fiscal Year
shall not exceed 50% of Excess Cash Flow for that Fiscal Year;
(d) Without limitation as to (c), the aggregate
amount of the Adjusted Quarterly Tax Distributions made during any
Fiscal Year shall not exceed the related Annual Tax Amount; and
(e) Without limitation as to (c), the amount of the
Management Fee Distributions made during any Fiscal Year shall not
exceed $1,500,000 (plus the amount of any Management Fee Distributions
deferred during any prior Fiscal Year).
Management Fee Distributions and Adjusted Quarterly Tax Distributions which
accrue during any Fiscal Year but are not paid may continue to accrue and be
paid in subsequent Fiscal Years to the extent permitted by the foregoing
provisions of this Section. Borrower shall cause Landec to promptly and in
any event within 10 days following February 15th of each year to pay to
Borrower any Tax Settlement due to Borrower with respect to that Fiscal Year.
6.21 EARN-OUT PAYMENTS. Make any Earn Out Payments unless
all of the following conditions are satisfied:
(i) Borrower shall have delivered a calculation of Excess Cash
Flow for the Fiscal Year then most recently ended, and shall have
previously made all pre-payments of the Term Loans required under
Section 2.5(d) on the basis of Excess Cash Flow for that Fiscal Year;
(ii) not more than one month prior to the date of the making
thereof, the Administrative Agent shall have received the Borrower's
audited financial statements in accordance with Section 7.1(a); and
(iii) giving effect to the making thereof, (A) the sum of the
Borrower's current cash balances PLUS Revolving Availability is at
least $2,000,000, (B) Borrower shall be in pro forma compliance with
the covenants set forth in Section 6.11 through 6.19, inclusive, and
shall have delivered a certificate to that effect setting forth
calculations thereof reasonably acceptable to the Administrative Agent,
and (C) no Default or Event of Default shall exist or result therefrom.
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6.22 INTEREST RATE PROTECTION. Fail within 60 days of the
Closing Date to enter into Swap Agreements providing interest rate protection
for an amount of the Obligations equal to 100% of the Term Loan for a minimum
period of three years with terms acceptable to the Administrative Agent.
6.23 CHANGE OF LOCATION. Change the place of their respective
chief executive offices or principal places of business unless the
Administrative Agent has been notified in writing at least 30 days prior to such
change.
6.24 USE OF HAZARDOUS SUBSTANCES. Borrower and its
Subsidiaries will not use, generate, manufacture, treat, store, allow to remain
or dispose of on, under, or about their real property or transport to or from
such real property any Hazardous Substances such that it could reasonably be
expected to result in a Material Adverse Effect without prior written consent
from the Administrative Agent.
6.25 CONSOLIDATED TAX RETURNS. Fail to cause Landec to
file consolidated federal and state income tax returns with Borrower and its
Subsidiaries.
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ARTICLE 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 FINANCIAL AND BUSINESS INFORMATION. So long as any Loan
remains unpaid, any Letter of Credit remains outstanding, any other Obligation
remains unpaid, or any portion of the Commitments remain in force, Borrower
shall, unless the Requisite Lenders otherwise consent in writing, deliver to the
Administrative Agent, at its sole expense:
(a) As soon as practicable, and in any event within
45 days after the end of each calendar month beginning with the
calendar month ending on or about December 31, 1999 (including the last
calendar month in each year), (i) the consolidated balance sheet of
Borrower and its Subsidiaries as at the end of such calendar month,
(ii) a consolidated statement of income and statement of cash flows of
Borrower and its Subsidiaries for that calendar month and for the
portion of the Fiscal Year then ended, (iii) a statement of revenues by
division of Borrower, and (iv) a comparison of such financial
statements with the Projections, and, beginning with the month ending
on or about December 31, 2000, with the financial results as of the end
of the same fiscal period (where such data exists) during the
immediately preceding Fiscal Year, all in reasonable detail. Such
financial statements shall be certified by a Senior Officer of Borrower
as fairly presenting the financial condition, results of operations and
changes in financial position of Borrower and its Subsidiaries, and
shall be prepared and presented in accordance with GAAP (other than any
requirement for footnote disclosures), consistently applied, as at such
date and for such periods, subject only to normal year-end accruals and
audit adjustments. For the last calendar month in each of the Fiscal
Quarters ending January 31, 2000, April 30, 2000, July 31, 2000 and
October 31, 2000, such financial statements shall have been reviewed by
Ernst & Young or other accountants reasonably acceptable to the
Administrative Agent;
(b) As soon as practicable, and in any event within
90 days after the end of each Fiscal Year, (i) the audited consolidated
balance sheet and statement of income and cash flows of Borrower and
its Subsidiaries prepared and presented in accordance with GAAP,
consistently applied, and accompanied by (A) a report and opinion of
Ernst & Young or another independent public accountants of recognized
standing selected by Borrower and reasonably satisfactory to the
Requisite Lenders, which report and opinion shall be prepared in
accordance with generally accepted auditing standards as at such date,
and shall not be subject to any qualifications or exceptions as to the
scope of the audit nor to any other qualification or exception which
the Requisite Lenders determine is unacceptable and (B) a management
letter from Borrower's auditors, and (ii) an unaudited statement of
revenues by division, and (iii) a calculation of Excess Cash Flow for
that Fiscal Year;
(c) As soon as practicable, and in any event within
120 days after the end of each fiscal year of Landec, (i) the audited
consolidated balance sheet and statement of income and cash flows of
Landec and its Subsidiaries prepared and presented in accordance with
GAAP, consistently applied, and accompanied by a report and opinion of
independent public accountants of nationally recognized standing
selected by Landec and reasonably satisfactory to the Requisite
Lenders, which report and opinion shall be prepared in accordance with
generally accepted auditing standards as at such date, and shall not be
subject to any qualifications or exceptions as to the scope of the
audit nor to any other qualification or exception which the Requisite
Lenders determine is unacceptable, and which shall be
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accompanied by any management letter prepared by such accountants, and
(ii) the unaudited company-prepared consolidating balance sheets and
statements of income and cash flows for Landec and its Subsidiaries;
(d) Not later than 45 days following the Closing
Date, a company prepared opening balance sheet for Borrower and its
Subsidiaries as of the Closing Date, which balance sheet shall be based
upon a physical inventory count conducted by Borrower and its
Subsidiaries and observed by Ernst & Young on the Closing Date, and
otherwise in form and substance acceptable to the Administrative Agent;
(e) Not later than 30 days following the end of each
fiscal month of Borrower, a monthly Borrowing Base Certificate as of
the last Business Day of such fiscal month, together with an accounts
receivable aging report, accounts payable aging report, inventory
listings, reports detailing grower advances and grower payables, and
such other collateral reports as the Administrative Agent may
reasonably require, all in form and substance reasonably acceptable to
the Administrative Agent;
(f) As soon as practicable, and in any event no later
than the commencement of each Fiscal Year, a business plan and
projections by calendar month for that Fiscal Year and by Fiscal Year
for each of the following Fiscal Years through the Term Maturity Date,
all in form and detail reasonably satisfactory to the Administrative
Agent;
(g) Promptly and in any event within five Business
Days following receipt thereof, copies of any detailed audit reports,
management letters or recommendations submitted to Borrower or any of
its Subsidiaries by independent accountants in connection with the
accounts or books of Borrower or any of its Subsidiaries, or any audit
of any of them;
(h) Promptly after the same are available and in any
event within 90 days following the end of each Fiscal Year (or within
30 days following their filing with the Commission), copies of each
annual report, proxy or financial statement or other report or
communication sent to the shareholders of Landec or Borrower, and
copies of all annual, regular, periodic and special reports and
registration statements which Landec or Borrower may file or be
required to file under Sections 13 or 15(d) of the Securities Exchange
Act of 1934;
(i) Promptly after request by the Requisite Lenders
submitted through the Administrative Agent, copies of any other
specific report or other document that was filed by either Borrower or
any Subsidiary of Borrower with any Governmental Agency;
(j) Promptly upon a Responsible Official of Borrower
becoming aware, and in any event within ten Business Days after
becoming aware, of the occurrence of any (i) "reportable event" (as
such term is defined in Section 4043 of ERISA) (other than a
"reportable event" that is not subject to the provision of 30-day
notice to the PBGC) or (ii) of a non-exempt "prohibited transaction"
(as such term is defined in Section 4975 of the Code) in connection
with any Pension Plan or any trust created thereunder, written notice
specifying the nature thereof and specifying what action Borrower or
any of its Subsidiaries is taking or proposes to take with respect
thereto, and, when known, any action taken by the Internal Revenue
Service with respect thereto;
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(k) As soon as practicable, and in any event within
two Business Days after a Responsible Official of Borrower becomes
aware of the existence of any condition or event which constitutes a
Default, written notice specifying the nature and period of existence
thereof and specifying what action Borrower and its Subsidiaries are
taking or propose to take with respect thereto;
(l) Promptly upon a Responsible Official of Borrower
becoming aware that (i) any Person commenced a legal proceeding with
respect to a claim against Borrower or any of its Subsidiaries that is
stated to be $250,000 or more in excess of the amount thereof that is
believed by such Responsible Official to be fully covered by insurance
(subject to customary deductibles and retentions), (ii) any creditor or
lessor under a written credit agreement or material lease has asserted
a default thereunder on the part of Borrower or any of its
Subsidiaries, and, in the case of a lease, such default has not been
cured or rescinded within any applicable cure period under the lease or
applicable Laws, (iii) any Person commenced a legal proceeding with
respect to a claim against Borrower or any of its Subsidiaries under a
contract that is not a credit agreement or material lease stated to be
in excess of $250,000, or (iv) any other event or circumstance occurs
or exists that would constitute a Material Adverse Effect, in each case
a written notice describing the pertinent facts relating thereto and
what action Borrower and its Subsidiaries are taking or propose to take
with respect thereto;
(m) Not less frequently than once in each calendar
quarter, provide notice to the Administrative Agent of each new
trademark issued to Borrower or any Subsidiary of Borrower together
with any amendments to the Trademark Security Agreement as are
necessary to make such new trademarks subject to the Lien thereof;
(n) Not less frequently than annually, and in any
event promptly following the request of the Administrative Agent; a
master list of the customers of Borrower and its Subsidiaries including
addresses and telephone numbers and such other data as the
Administrative Agent may reasonably request in relation thereto;
(o) Such other data and information as from time to
time may be reasonably requested by the Administrative Agent or any
Lender.
7.2 COMPLIANCE CERTIFICATES. So long as any Loan remains
unpaid, any Letter of Credit remains outstanding, any other Obligation remains
unpaid, or any portion of the Commitments remains outstanding, Borrower shall
deliver to the Administrative Agent, concurrently with the delivery of its
monthly financial statements for the last month in each Fiscal Quarter in
accordance with Section 7.1 (a), a Compliance Certificate signed by a Senior
Officer of Borrower setting forth Borrower's calculation of its compliance with
the covenants set forth in Sections 6.11 through 6.19 and the outstanding
balances of any Indebtedness permitted under Section 6.8.
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ARTICLE 8
CONDITIONS
8.1 CONDITIONS TO THE INITIAL LOANS AND LETTERS OF CREDIT. The
obligation of each Lender to make the initial Advance to be made by it, and the
obligation of the Issuing Lender to issue the initial Letters of Credit, is
subject to the following conditions precedent, each of which shall be satisfied
prior to the making of the initial Advances (unless all of the Lenders, in their
sole and absolute discretion, shall agree otherwise):
(a) The Administrative Agent shall have received all
of the following, each of which shall be originals unless otherwise
specified or, where applicable, the context otherwise requires, each
properly executed by a Responsible Official of each party thereto, each
dated as of the Closing Date and each in form and substance
satisfactory to the Administrative Agent and its legal counsel (unless
otherwise specified or, in the case of the date of any of the
following, unless the Administrative Agent otherwise agrees or
directs):
(1) executed counterparts of this Agreement;
(2) a completed Borrowing Base Certificate
prepared by the Administrative Agent based upon an on site
inspection conducted by the Administrative Agent and executed
by the Borrower;
(3) executed Revolving Notes for each Lender;
(4) executed A Term Notes for each Lender;
(5) the Landec Guaranty and the Landec Keep
Well executed by Landec;
(6) the Subsidiary Guaranty, executed by each
party thereto;
(7) the Pacific West Guaranty;
(8) the Borrower Security Agreement executed
by Borrower, together with sufficient copies of financing
statements on Form UCC-1 for filing in every United States
jurisdiction in which Borrower owns Property;
(9) the Guarantor Security Agreement
executed by each Subsidiary Guarantor, together with
sufficient copies of financing statements and fixture
financing statements on Form UCC-1 for filing in every
United States jurisdiction in which the Guarantors own
Property;
(10) the Pacific West Security Agreement;
(11) financing statements on Form UCC-1
executed by Pacific West;
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(12) the Landec Pledge Agreement and the
Borrower Pledge Agreement, together with certificates
representing 100% of the capital stock or other equity
ownership interests of Borrower and its Subsidiaries,
together with related stock assignments;
(13) Deeds of Trust executed by Borrower and
Pacific West with respect to their respective interests in
the 19.3 acre cold storage facility in Reedly, California
and the value added shed in Guadalupe, California;
(14) a Memorandum of Lease and Landlord
Consent executed by Apio Cooling with respect to the
leasehold of Borrower located in Guadalupe, California;
(15) ALTA title insurance policies insuring
the Deeds of Trust in an amount (subject to tie in
endorsements) of not less than $7,250,000 issued by Chicago
Title Insurance Company, with such endorsements to coverage
as may be requested by the Administrative Agent;
(16) to the extent that either Borrower or
any of its Subsidiaries then owns any registered federal
patents, the Patent Security Agreement executed by all Parties
thereto;
(17) the Subordination Agreement and the
subordination agreement to be executed by Central Coast
Federal Land Bank;
(18) with respect to Borrower, the
Guarantors and each of their respective Subsidiaries, such
documentation as the Administrative Agent may reasonably
require to establish the due organization, valid existence and
good standing of each of Borrower, the Guarantors, and each
such Subsidiary, its qualification to engage in business in
each jurisdiction in which it is engaged in business or
required to be so qualified, its authority to execute, deliver
and perform any Loan Documents to which it is a Party, and the
identity, authority and capacity of each Responsible Official
thereof authorized to act on its behalf, INCLUDING, without
limitation, certified copies of articles of incorporation and
amendments thereto, bylaws and amendments thereto,
certificates of good standing and/or qualification to engage
in business, tax clearance certificates, certificates of
corporate resolutions, incumbency certificates, Certificates
of Responsible Officials, and the like;
(19) a Certificate of Borrower and Landec
certifying that (i) the conditions specified in Sections
8.1(d) and 8.1(e), have been satisfied and (ii) attaching a
copy of the Merger and Purchase Agreement, the License
Agreement, the Management Agreement and the Tax Agreement and
all material instruments, documents and agreements executed in
connection therewith, together with evidence satisfactory to
the Administrative Agent that the transactions contemplated by
the Merger and Purchase Agreement have occurred pursuant to
the Merger and Purchase Agreement and in material compliance
with all applicable laws, including without limitation:
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(i) the assets of the Intellipac
division of Landec (having a net value of
approximately $2,028,000 and in any event
including Intellipac Assets) shall have been
contributed to Borrower by Landec;
(ii) Nicholas Tompkins and Timothy
Murphy and Borrower shall have executed the
Employment Agreements referred to in the
Merger and Purchase Agreement;
(iii) the Merger and the merger of
Apio Produce Sales with Borrower shall have
occurred or shall substantially concurrently
occur;
(iv) the Existing Apio Debt shall
have been repaid in the approximate amount
of $10,750,000 or shall be repaid out of the
proceeds of the initial Loans;
(v) Borrower and Landec shall have
received a fairness opinion as to the
transactions contemplated by the Merger and
Purchase Agreement from Lehman Brothers;
(vi) Ernst & Young shall have
observed a physical inventory count at the
locations of Borrower and its Subsidiaries
as of the Closing Date;
(20) evidence satisfactory to the
Administrative Agent that Borrower has received $9,000,000 in
new cash equity contributions from Landec;
(21) evidence satisfactory to the
Administrative Agent that the Liens and security interest of
the Administrative Agent in the Collateral have been perfected
and are of first priority (EXCEPT for Permitted Encumbrances
and Liens referred to on Schedule 6.8);
(22) evidence of the insurance policies
required by Section 5.4, together with such endorsements as
are acceptable to the Administrative Agent to show the
Administrative Agent as loss payee thereunder;
(23) a Request for Loan and, if applicable,
a Request for Letter of Credit;
(24) the written legal opinions of (A)
Orrick, Herrington & Sutcliffe, LLP regarding the due
execution, delivery and performance of the Loan Documents,
their valid binding and enforceable nature, the absence of
conflicts between the Loan Documents and applicable law, the
perfection of the Liens granted by the Collateral Documents,
the consummation of the merger, and such other matters as the
Administrative Agent may require, and (B) of Rynn & Janowsky
as to certain agricultural law matters;
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(25) a collateral assignment of a key man
policy of life insurance owned by Borrower on the life of Nick
Tompkins which is in form and substance acceptable to the
Administrative Agent; and
(26) such other assurances, certificates,
documents, consents or opinions, consistent with the
foregoing, as the Administrative Agent or any Lender
reasonably may require;
(b) The fees payable pursuant to Sections 3.2 and 3.3
and any amounts payable pursuant to clause (a) of Section 11.3 shall be
paid concurrently;
(c) The Lenders shall have reviewed and found
satisfactory each of the following:
(1) a copy of the Projections certified by a
Responsible Officer of Borrower;
(2) the terms and conditions of any real
property leases and Material Contracts to which Borrower is
party;
(3) the corporate and management structure
of Borrower, including any employment contracts with senior
management of Borrower and contracts with any Affiliates;
(4) the audited consolidated and
consolidating financial statements of Borrower and its
Subsidiaries for the Fiscal Year ended December 31, 1998,
together with any management letter from their auditors;
(5) the internally-prepared financial
statements of Borrower and its Subsidiaries for the nine-month
fiscal period ended September 30, 1999; and
(d) the representations and warranties of
Borrower contained in Article 4 shall be tree and correct; and
(e) Borrower shall be in compliance with all the
terms and provisions of the Loan Documents, no Default or Event of
Default shall have occurred and be continuing, and no event shall have
occurred since December 31, 1998 which constitutes a Material Adverse
Effect.
8.2 ANY INCREASING LOAN. The obligation of each Lender to make
any Advance which would increase the outstanding principal amount of the Loans,
and the obligation of the Issuing Lenders to issue any Letter of Credit, is
subject to the following conditions precedent, each of which shall be satisfied
prior to the making of such an Advance or the issuance of a Letter of Credit:
(a) EXCEPT as disclosed by Borrower and approved in
writing by the Requisite Lenders, the representations and warranties
contained in Article 4 (OTHER THAN Sections 4.6 (first sentence), 4.11
and 4.18) shall be tree and correct on and as of the date of the Loan
or Letter of Credit as though made on that date (except such
representations and
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warranties expressly made as of a specified date, which shall be tree
and correct as of such specified date);
(b) other than matters described in Schedule 4.11, or
matters not required as of the Closing Date to be therein described, or
matters disclosed by Borrower and approved in writing by the Requisite
Lenders, there shall not be then pending or threatened in writing any
action, suit, proceeding or investigation against or affecting Borrower
or any of its Subsidiaries or any Property of any of them before any
Governmental Agency that constitutes a Material Adverse Effect;
(c) the Administrative Agent shall have received a
timely Request for Loan in compliance with Article 2 in compliance with
Article 2, or the Issuing Lender and the Administrative Agent shall
have timely received a Request for Letter of Credit in compliance with
Article 2, as applicable.
(d) the Administrative Agent shall have received, in
form and substance reasonably satisfactory to the Administrative Agent,
such other assurances, certificates, documents or consents related to
and consistent with the foregoing as the Administrative Agent or the
Requisite Lenders may reasonably require.
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ARTICLE 9
EVENTS OF DEFAULT AND REMEDIES
9.1 EVENTS OF DEFAULT. The existence or occurrence of any one
or more of the following events shall constitute an Event of Default:
(a) Borrower fails to pay any principal or
interest in respect of the Loans or Letters of Credit hereunder when
due; or
(b) Borrower fails to pay any commitment fee, letter
of credit fee, expense or other amount in respect of the Loans or
Letters of Credit hereunder, or any portion thereof, within five days
of the date when due; or
(c) Any failure to comply with any covenant in
Article 6 or Article 7; or
(d) Borrower or any other Party fails to perform or
observe any other covenant or agreement contained herein on its part to
be performed or observed and fails to cure such Default within twenty
days following the first occurrence thereof; or
(e) Borrower or any other Party fails to perform or
observe any other covenant or agreement contained in any Loan Document
OTHER THAN this Agreement, giving effect to any grace period and/or
notice requirements set forth therein; or
(f) Any representation or warranty made in any Loan
Document proves to have been incorrect when made or reaffirmed; or
(g) Landec, Borrower or any of its Subsidiaries (i)
fails to pay the principal, or any principal installment, of any
present or future indebtedness for borrowed money or Capital Lease of
$250,000 or more, or any guaranty of present or future Indebtedness for
borrowed money or Capital Lease of $250,000 or more, on its part to be
paid, when due (or within any stated grace period), whether at the
stated maturity, upon acceleration, by reason of required prepayment or
otherwise or (ii) fails to perform or observe any other term, covenant
or agreement on its part to be performed or observed, or suffers any
event to occur, in connection with any present or future indebtedness
for borrowed money or Capital Lease of $250,000 or more, or of any
guaranty of present or future indebtedness for borrowed money or
Capital Lease of $250,000 or more, if as a result of such failure or
sufferance any holder or holders thereof (or an agent or trustee on its
or their behalf) has the right to declare such Indebtedness due before
the date on which it otherwise would become due; or
(h) Any event occurs which gives the holder or
holders of any Subordinated Obligation (or an agent or trustee on its
or their behalf) the right to declare such Indebtedness due before the
date on which it otherwise would become due, or the right to require
the issuer thereof to redeem or purchase, or offer to redeem or
purchase, all or any portion of any Subordinated Obligation; or
(i) This Agreement or any other Loan Document at any
time after its execution and delivery and for any reason, other than
the agreement of the Lenders or satisfaction in full of all the
Obligations, ceases to be in full force and effect or is declared by a
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court of competent jurisdiction to be null and void, invalid or
unenforceable in any respect which, in any such event in the reasonable
opinion of the Requisite Lenders, is materially adverse to the
interests of the Lenders; or any Party thereto denies that it has any
or further liability or obligation under any Loan Document, or purports
to revoke, terminate or rescind same (OTHER THAN in accordance with the
terms and conditions of the Loan Documents); or
(j) Any judgments or arbitration awards are entered
against Landec Borrower or any of its Subsidiaries, or Borrower or any
of its Subsidiaries enters into any settlement agreements with respect
to any litigation or arbitration, in an aggregate amount of $500,000 or
more in excess of any insurance coverage; or
(k) Landec, Borrower or any of its Subsidiaries
institutes or consents to any proceeding under a Debtor Relief Law
relating to it or to all or any part of its Property, or is unable or
admits in writing its inability to pay its debts as they mature, or
makes a general assignment for the benefit of creditors; or applies for
or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for
all or any part of its Property; or any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer is appointed
without the application or consent of that Person and the appointment
continues undischarged or unstayed for sixty calendar days; or any
proceeding under a Debtor Relief Law relating to any such Person or to
all or any part of its Property is instituted without the consent of
that Person and continues undismissed or unstayed for sixty calendar
days; or any judgment, writ, warrant of attachment or execution or
similar process is issued or levied against all or any material part of
the Property of any such Person and is not released, vacated or fully
bonded within sixty calendar days after its issue or levy; or
(l) Any Lien on any Collateral created by any Loan
Document, at any time after the execution and delivery of that Loan
Document and for any reason ceases to be perfected or of less than
first priority (subject to any Lien permitted by this Agreement); or
(m) The opening balance sheet of Borrower referred to
in Section 7.1 (d) differs from the pro forma opening balance sheet
heretofore delivered to the Administrative Agent in any manner which,
when all such differences are taken together, is material and adverse;
(n) The occurrence of a Termination Event with
respect to any Pension Plan if the aggregate liability of and its ERISA
Affiliates under ERISA as a result thereof exceeds $250,000; or the
complete or partial withdrawal by Borrower or any of its Subsidiaries
or any of their ERISA Affiliates from any Multiemployer Plan if the
aggregate liability of Borrower and its ERISA affiliates as a result
thereof exceeds $250,000; or
(o) The occurrence of an Event of Default (as such
term is or may hereafter be specifically defined in any other Loan
Document) under any other Loan Document; or
(p) Any judgment, order or ruling, whether or not
final, is made by a court of competent jurisdiction that payment of
principal or interest or both shall be made to the holder of any
Subordinated Obligation which would not be permitted by Section 6.1 or
that any Subordinated Obligation is not subordinated in accordance with
its terms to the Obligations; or
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(q) The results of any audit of the Collateral by or
on behalf of the Creditors shall establish in the opinion of the
Requisite Lenders, material issues concerning (a) the reliability of
the accounting practices or financial information provided, employed or
generated by Borrower in connection with the Collateral, or (b) the
value of the Collateral in any respect that is material, individually
or in the aggregate and, in either such case, Borrower shall not have
cured such Default to the reasonable satisfaction of the Requisite
Lenders within twenty days after notice from the Administrative Agent;
or
(r) The Administrative Agent determines reasonably
and in good faith that a circumstance or event has occurred that
constitutes a Material Adverse Effect; or
(s) The occurrence of a Change in Control.
9.2 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other
rights or remedies of the Creditors provided for elsewhere in this Agreement or
the Loan Documents, or by applicable Law, or in equity, or otherwise:
(a) Upon the occurrence of any Event of Default other
than an Event of Default described in Section 9.1(k):
(1) the Commitments to make Advances and to
issue Letters of Credit and all other obligations of the
Creditors and all rights of Borrower and any other Party under
the Loan Documents shall terminate without notice to or demand
upon Borrower, which are expressly waived by Borrower, EXCEPT
that the Requisite Lenders (or, to the extent required by
Section 11.2, all of the Lenders) may waive the Event of
Default or, without waiving, determine, upon terms and
conditions satisfactory to the Requisite Lenders (or, to the
extent required by Section 11.2, all of the Lenders), to make
further Advances, which waiver or determination shall apply
equally to, and shall be binding upon, all the Lenders;
(2) the Requisite Lenders (or, to the extent
required by Section 11.2, all of the Lenders) may request the
Issuing Lender to, and the Issuing Lender thereupon shall,
demand immediate payment by Borrower of an amount equal to the
aggregate effective face amount of all outstanding Letters of
Credit issued to Borrower as provided in Section 2.5 to be
held as cash collateral for the reimbursement obligations of
Borrower under such Letter of Credit; and
(3) the Requisite Lenders (or, to the extent
required by Section 11.2, all of the Lenders) may request the
Administrative Agent to, and the Administrative Agent
thereupon shall, declare all or any part of the unpaid
principal of all Loans, all interest accrued and unpaid
thereon and all other amounts payable under the Loan Documents
to be forthwith due and payable, whereupon the same shall
become and be forthwith due and payable, without protest,
presentment, notice of dishonor, demand or further notice of
any kind, all of which are expressly waived by Borrower.
(b) Upon the occurrence of any Event of Default
described in Section 9.1(k):
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(1) the Commitments to make Advances and to
issue Letters of Credit and all other obligations of Creditors
and all rights of Borrower and any other Party under the Loan
Documents shall terminate without notice to or demand upon
Borrower, which are expressly waived by Borrower, EXCEPT that
all the Lenders may waive the Event of Default or, without
waiving, determine, upon terms and conditions satisfactory to
all the Lenders, to make further Advances, which determination
shall apply equally to, and shall be binding upon, all the
Lenders;
(2) an amount equal to the aggregate
effective face amount of all outstanding Letters of Credit
issued to Borrower shall be forthwith due and payable by
Borrower to the Issuing Lender to be held by the Issuing
Lender as cash collateral for the reimbursement obligations of
Borrower to the Issuing Lender with respect to Letters of
Credit issued by the Issuing Lender, without protest,
presentment, notice of dishonor, demand or further notice of
any kind, all of which are waived by Borrower; and
(3) the unpaid principal amount of all
Loans, all interest accrued and unpaid thereon and all other
amounts payable under the Loan Documents shall be forthwith
due and payable, without protest, presentment, notice of
dishonor, demand or further notice of any kind, all of which
are expressly waived by Borrower.
(c) Without limiting the other remedies set
forth in this Agreement, in the event that the Revolving Usage
at any time exceeds the Borrowing Base by an amount which is
in excess of $250,000, the Administrative Agent shall at the
request of the Requisite Lenders make demand upon Landec for
payment of Landec Capital Calls under the Landec Keep Well in
an amount which will result, after application the Landec
Capital Calls, in current Revolving Availability being not
less than $500,000.
(d) Upon the occurrence of any Event of
Default, the Lenders and the Administrative Agent, or any of
them, without notice to or demand upon Borrower, which are
expressly waived by Borrower, may proceed (but only with the
consent of the Requisite Lenders) to protect, exercise and
enforce their rights and remedies under the Loan Documents
against Borrower and such other rights and remedies as are
provided by Law or equity.
(e) The order and manner in which the
Lenders' rights and remedies are to be exercised shall be
determined by the Requisite Lenders in their sole discretion,
and all payments received by the Creditors, or any of them,
shall be applied first to the costs and expenses (including
attorneys' fees and disbursements) of the Administrative
Agent, acting in such capacity, second, to the principal
amount of the Obligations and interest and credit fees
thereon, and thereafter paid pro rata to the Lenders in the
same proportions that the aggregate Obligations owed to each
Lender under the Loan Documents bear to the aggregate
Obligations owed under the Loan Documents to all the Lenders,
without priority or preference among the Lenders for
application to Obligations. Regardless of how each Lender may
treat payments for the purpose of its own accounting, for the
purpose of computing Borrower's Obligations hereunder,
payments shall be applied FIRST, to the costs and expenses of
the Creditors, as set forth above, SECOND, to the payment of
accrued and unpaid interest due under any Loan Documents to
and including the date of such application (ratably, and
without duplication, according to the accrued and unpaid
interest due under each of the Loan Documents), and THIRD, to
the payment of all other amounts (including principal and
credit fees) then owing to the Creditors under the Loan
Documents. No such application of payments will cure any Event
of
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Default, or prevent acceleration, or continued acceleration,
of amounts payable under the Loan Documents, or prevent the
exercise, or continued exercise, of rights or remedies of the
Lenders hereunder or thereunder or at law or in equity.
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ARTICLE 10
THE ADMINISTRATIVE AGENT
10.1 APPOINTMENT AND AUTHORIZATION. Each Lender hereby
irrevocably appoints, designates and authorizes the Administrative Agent to take
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth herein, nor
shall the Administrative Agent have or be deemed to have any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
10.2 DELEGATION OF DUTIES. The Administrative Agent may
execute any of its duties under this Agreement or any other Loan Document by or
through agents, employees or attorneys-in-fact and shall be entitled to advice
of counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that they select with reasonable care.
10.3 LIABILITY OF THE ADMINISTRATIVE AGENT. None of the Agent
Related Persons shall (i) be liable for any action taken or omitted to be taken
by any of them under or in connection with this Agreement or any other Loan
Document (except for its own gross negligence or willful misconduct), or (ii) be
responsible in any manner to any of the Creditors for any recital, statement,
representation or warranty made by Borrower or any Subsidiary or Affiliate of
Borrower, or any officer thereof, contained in this Agreement or in any other
Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Loan Document, or for the value
of any Collateral or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure of
Borrower or any other Party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent Related Person shall be under any obligation
to the Creditors to ascertain or to inquire as to the observance or performance
of any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the Properties, books or records of Borrower
or any of Borrower's Subsidiaries or Affiliates.
10.4 RELIANCE BY ADMINISTRATIVE AGENT.
(a) The Administrative Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by them to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons, and upon
advice and statements of legal counsel (including counsel to Borrower),
independent accountants and other experts selected by them. The
Administrative Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Loan Document unless
they shall first receive such advice or concurrence of the Requisite
Lenders (and, in a case covered by Section 11.2, of all the Lenders) as
they deem appropriate and, if they so request, they shall first be
indemnified to their satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of
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taking or continuing to take any such action. The Administrative Agent
shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance
with a request or consent of the Requisite Lenders (or, in a case
covered by Section 11.2, of all the Lenders) and such request and any
action taken or failure to act pursuant thereto shall be binding upon
all of the Lenders.
(b) For purposes of determining compliance with the
conditions specified in Section 8.1, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted or
to be satisfied with each document or other matter either sent by the
Administrative Agent to such Lender for consent, approval, acceptance
or satisfaction, or required thereunder to be consented to or approved
by or acceptable or satisfactory to the Lender.
10.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Administrative Agent for the account of the
Lenders, unless the Administrative Agent shall have received written notice from
a Lender or Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
requested by the Requisite Lenders in accordance with Article 9; PROVIDED,
HOWEVER, that unless and until the Administrative Agent shall have received any
such request, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as each shall deem advisable or in the best interest of the
Lenders.
10.6 CREDIT DECISION. Each other Creditor expressly
acknowledges that none of the Agent Related Persons has made any representation
or warranty to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of Borrower and its Subsidiaries shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any other Creditor. Each other Creditor represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, Property, financial and other condition and creditworthiness of
Borrower and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated thereby, and made its own decision to enter
into this Agreement and extend credit to Borrower hereunder. Each other Creditor
also represents that it will, independently and without reliance upon the
Administrative Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, Property, financial
and other condition and creditworthiness of Borrower. Except for notices,
reports and other documents expressly herein required to be furnished to the
other Creditors by the Administrative Agent, the Administrative Agent shall not
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, Property, financial
and other condition or creditworthiness of Borrower or any of its Subsidiaries
which may come into the possession of any of the Agent Related Persons.
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10.7 INDEMNIFICATION. Whether or not the transactions
contemplated hereby shall be consummated, the Lenders shall indemnify upon
demand the Agent Related Persons (to the extent not reimbursed by or on behalf
of Borrower and without limiting the obligation of Borrower to do so), ratably
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind whatsoever which may at any time (including at any time following the
repayment of the Loans and the termination or resignation of the Administrative
Agent) be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein or therein or the transactions contemplated hereby or thereby
or any action taken or omitted by any such Person under or in connection with
any of the foregoing; PROVIDED, HOWEVER, that no Lender shall be liable for the
payment to the Agent Related Persons of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from such Person's gross negligence
or willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse the Administrative Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including attorneys fees and expenses and the
allocated fees and expenses of any internal counsel to the Administrative Agent)
incurred by the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein to the
extent that the Administrative Agent is not reimbursed for such expenses by or
on behalf of Borrower. Without limiting the generality of the foregoing, if the
Internal Revenue Service or any other Governmental Agency asserts a claim that
the Administrative Agent did not properly withhold tax from amounts paid to or
for the account of any Lender (because the appropriate form was not delivered,
was not properly executed, or because such Lender failed to notify the
Administrative Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Administrative Agent fully for all amounts paid,
directly or indirectly, by the Administrative Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Administrative Agent under this
Section, together with all costs and expenses (including attorneys fees and
expenses and the allocated fees and expenses of any internal counsel to the
Administrative Agent). The obligation of the Lenders in this Section shall
survive the payment of all Obligations hereunder.
10.8 BANK OF AMERICA IN ITS INDIVIDUAL CAPACITY. Bank of
America and its Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory or other business with
Borrower and its Subsidiaries and Affiliates as though Bank of America were not
the Administrative Agent hereunder and without notice to or consent of the
Lenders. With respect to its Advances and its risk participation in Letters of
Credit, Bank of America shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Administrative Agent, and the terms "Lender" and "Lenders" shall include
Bank of America in its individual capacity.
10.9 SUCCESSOR AGENTS. The Administrative Agent may, and at
the request of the Requisite Lenders shall, resign upon 30 days' notice to the
Lenders. If the Administrative Agent so resigns, the Requisite Lenders shall
appoint from among the Lenders a successor Administrative Agent for the Lenders.
If no successor is appointed prior to the effective date of the resignation, the
Administrative Agent may appoint, after consulting with the Lenders and
Borrower, a successor Administrative Agent from among the Lenders. Upon the
acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring
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agent and the term "Administrative Agent" shall mean such successor agent and
the retiring agent's appointment, powers and duties as Administrative Agent
shall be terminated. After any retiring agent's resignation under this Section,
the provisions of this Article 10 and Sections 11.3, 11.12 and 11.22 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement. If no successor agent has accepted
appointment as Administrative Agent by the date which is 30 days following a
retiring agent's notice of resignation, the retiring agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the retiring agent hereunder until such time, if any, as the Requisite
Lenders appoint a successor agent as provided for above.
10.10 ACTION BY THE ADMINISTRATIVE AGENT; COLLATERAL MATTERS.
(a) The Administrative Agent is authorized on behalf
of all the Lenders, without the necessity of any notice to or further
'consent from the Lenders, from time to time to take any action with
respect to any Collateral or the Collateral Documents which may be
necessary to perfect and maintain perfected the security interest in
and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) The Lenders irrevocably authorize the
Administrative Agent, at its option and in its discretion, to release
any Lien granted to or held by the Administrative Agent upon any
Collateral (i) upon termination of the Commitments and payment in full
of all Loans and all other Obligations payable under this Agreement and
under any other Loan Document; (ii) constituting Property sold or to be
sold or disposed of as part of or in connection with any disposition
permitted hereunder; (iii) constituting Property in which Borrower or
any Subsidiary of Borrower owned no interest at the time the Lien was
granted or at any time thereafter; (iv) constituting Property leased to
Borrower or any Subsidiary of Borrower under a lease which has expired
or been terminated in a transaction permitted under this Agreement or
is about to expire and which has not been, and is not intended by
Borrower or such Subsidiary to be, renewed or extended; (v) consisting
of an instrument evidencing Indebtedness or other debt instrument, if
the Indebtedness evidenced thereby has been paid in full; or (vi) if
approved, authorized or ratified in writing by the Requisite Lenders or
all the Lenders, as the case may be, as provided in Section 11.2. Upon
request by the Administrative Agent at any time, the Lenders will
confirm in writing the Administrative Agent's authority to release
particular types or items of Collateral pursuant to this Section
10.10(b).
(c) Each Lender agrees with and in favor of each
other (which agreement shall not be for the benefit of Borrower or any
of its Subsidiaries) that Borrower's obligations to such Lender under
this Agreement and the other Loan Documents is not and shall not be
secured by any real property collateral now or hereafter acquired by
such Lender unless all of the Lenders otherwise agree.
10.11 NO OBLIGATIONS OF BORROWER. Nothing contained in this
Article 10 shall be deemed to impose upon Borrower any obligation in respect of
the due and punctual performance by the Administrative Agent of its obligations
to the Lenders under any provision of this Agreement, and Borrower shall have no
liability to any Creditor in respect of any failure by any other Creditor to
perform any of its obligations to any other Creditor under this Agreement.
Without limiting the generality of the foregoing, where any provision of this
Agreement relating to the payment of any amounts due and owing under the Loan
Documents provides that such payments shall be made by Borrower to the
Administrative Agent for the account of the Lenders, Borrower's obligations to
the
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Lenders in respect of such payments shall be deemed to be satisfied upon the
making of such payments to such Person in the manner provided by this Agreement.
10.12 PROPORTIONATE INTEREST OF THE LENDERS IN COLLATERAL. The
Administrative Agent, on behalf of all the Lenders, shall hold in accordance
with the Loan Documents all items of any collateral or interests therein
received or held by the Administrative Agent. Subject to the Administrative
Agent's rights to reimbursement for its costs and expenses hereunder (INCLUDING
attorneys' fees and disbursements and other professional services and the
allocated costs of attorneys employed by the Administrative Agent) and subject
to the application of payments in accordance with Section 9.2(e), each Lender
shall have an interest in any collateral or interests therein in the same
proportions that the aggregate Obligations owed such Lender under the Loan
Documents (other than the Approved Swap Agreement) bear to the aggregate
Obligations owed under the Loan Documents to all the Lenders, without priority
or preference among the Lenders. Any obligation owed to a Lender under the
Approved Swap Agreement shall rank PARI PASSU with the Obligations under the
Loan Documents.
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ARTICLE 11
MISCELLANEOUS
11.1 CUMULATIVE REMEDIES; NO WAIVER. The rights, powers,
privileges and remedies of the Creditors provided herein or in any Loan Document
are cumulative and not exclusive of any right, power, privilege or remedy
provided by Law or equity. No failure or delay on the part of the Administrative
Agent or any Lender in exercising any right, power, privilege or remedy may be,
or may be deemed to be, a waiver thereof; nor may any single or partial exercise
of any right, power, privilege or remedy preclude any other or further exercise
of the same or any other right, power, privilege or remedy. The terms and
conditions of Article 8 hereof are inserted for the sole benefit of the
Administrative Agent the Lenders; the same may be waived in whole or in part,
with or without terms or conditions, in respect of any Loan without prejudicing
the Administrative Agent's or any Lender's rights to assert them in whole or in
part in respect of any other Loan.
11.2 AMENDMENTS; CONSENTS. No amendment, modification,
supplement, extension, termination or waiver of any provision of this Agreement
or any other Loan Document, no approval or consent thereunder, and no consent to
any departure by any Party therefrom, may in any event be effective unless in
writing signed by the Requisite Lenders (and, in the case of amendments,
modifications, supplements, extensions or terminations of or to any Loan
Document to which Borrower is a Party, the approval in writing of Borrower) and
then only in the specific instance and for the specific purpose given; and,
without the approval in writing of all the Lenders, no amendment, modification,
supplement, termination, waiver or consent may be effective:
(i) To amend or modify the principal of, or
the amount of principal, principal prepayments or the rate of
interest payable on, any Loan, or the amount of the
Commitments or of any commitment fee or any letter of credit
fee payable to any Lender, or any other fee or amount payable
to any Lender under the Loan Documents or to waive an Event of
Default consisting of the failure of Borrower to pay when due
principal, interest, any commitment fee or any letter of
credit fee;
(ii) To postpone any date fixed for any
payment of principal of, prepayment of principal of or any
installment of interest on, any Loan or any installment of any
commitment fee or letter of credit fee, or to extend the term
of the Commitments, or release any Collateral Document except
to the extent expressly contemplated thereby or by Section
11.24;
(iii) To amend the provisions of the
definition of "REQUISITE LENDERS" or this Section 11.2; or
(iv) To amend any provision of this
Agreement that expressly requires the consent or approval of
all the Lenders.
Any amendment, modification, supplement, termination, waiver or consent pursuant
to this Section 11.2 shall apply equally to, and shall be binding upon, all the
Lenders and the Administrative Agent. Without implying that the Lenders are
obligated to agree to any amendment, modification, supplement, extension,
termination or waiver requested by Borrower, the Lenders may impose such
additional
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conditions and such other fees and expenses (INCLUDING pursuant to Section 11.3)
as the Lenders may deem appropriate in connection with the Lenders' approval
thereof.
11.3 COSTS, EXPENSES AND TAXES. Borrower shall pay the
reasonable costs and expenses (including any sales, use, value-added, goods,
services or other taxes) of (a) the Administrative Agent in connection with the
negotiation, preparation, execution and delivery of the Loan Documents
(INCLUDING fees and out-of-pocket expenses of legal counsel to the
Administrative Agent and the allocated costs of internal counsel to the
Administrative Agent), (b) of each Creditor in connection with any amendment,
modification, supplement, extension or waiver of the Loan Documents in
connection with any refinancing, restructuring, reorganization (INCLUDING a
bankruptcy reorganization) and enforcement or attempted enforcement of the Loan
Documents, and any matter related thereto, in each case INCLUDING filing fees,
recording fees, title insurance fees, appraisal fees, search fees and other
out-of-pocket expenses and the reasonable fees (including any sales, use,
value-added, goods services or other taxes) and out-of-pocket expenses of any
legal counsel (INCLUDING the allocated cost of in-house counsel), independent
public accountants and other outside experts retained by the Administrative
Agent, and INCLUDING any costs, expenses or fees incurred or suffered by each
Creditor in connection with or during the course of any bankruptcy or insolvency
proceedings of Borrower or any Subsidiary thereof, and (c) out-of-pocket costs
and expenses of the Administrative Agent incurred in connection with the
administration of the Loan Documents. Borrower shall pay any and all documentary
and other taxes (other than income or gross receipts taxes generally applicable
to banks) and all costs, expenses, fees and charges payable or determined to be
payable in connection with the filing or recording of any Loan Document or any
other instrument or writing to be delivered hereunder or thereunder, or in
connection with any transaction pursuant hereto or thereto, and shall reimburse,
hold harmless and indemnify each Creditor' from and against any and all loss,
liability or legal or other expense with respect to or resulting from any delay
in paying or failure to pay any such tax, cost, expense, fee or charge that the
Creditors may suffer or incur by reason of the failure of any Party to perform
any of its Obligations. Any amount payable to the Creditors under this Section
shall bear interest from the fifth Business Day following the date of demand for
payment at the Default Rate.
11.4 NATURE OF LENDERS' OBLIGATIONS. The obligations of the
Lenders hereunder are several and not joint or joint and several. Nothing
contained in this Agreement or any other Loan Document and no action taken by
the Creditors or any of them pursuant hereto or thereto may, or may be deemed
to, make the Creditors a partnership, an association, a joint venture or other
entity, either among themselves or with Borrower or any Affiliate of Borrower.
Each Lender's obligation to make any Advance pursuant hereto is several and not
joint or joint and several, and is conditioned upon the performance by all other
Lenders of their obligations to make Advances. A default by any Lender will not
increase the Pro Rata Share of any other Lender. Any Lender not in default may,
if it desires, assume in such proportion as the nondefaulting Lenders agree the
obligations of any Lender in default, but is not obligated to do so.
11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of any one or
more of the Parties to any Loan Document, will survive the making of the Loans
hereunder (EXCEPT to the extent the same relate solely to a specified earlier
date), and have been or will be relied upon by the Administrative Agent and each
Lender, notwithstanding any investigation made by the Administrative Agent or by
any Lender or on their behalf.
11.6 NOTICES. EXCEPT as otherwise expressly provided in
the Loan Documents: (a) All notices, requests, demands, directions and other
communications provided for hereunder or under
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any other Loan Document must be in writing and must be mailed, telecopied,
delivered by recognized overnight delivery service or hand delivered to the
appropriate party at the address set forth on the signature pages of this
Agreement or other applicable Loan Document or, as to any party to any Loan
Document, at any other address as may be designated by it in a written notice
sent to all other parties to such Loan Document in accordance with this Section;
and (b) Any notice, request, demand, direction or other communication given by
telecopier must be confirmed within two Business Days by letter mailed or
delivered to the appropriate party at its respective address. EXCEPT as
otherwise expressly provided in any Loan Document, if any notice, request,
demand, direction or other communication required or permitted by any Loan
Document is given by mail it will be effective on the earlier of receipt or the
third Business Day after deposit in the United States mail with first class or
airmail postage prepaid; if given by telecopier, when sent; or if given by
recognized overnight delivery service or personal delivery, when delivered.
11.7 EXECUTION OF LOAN DOCUMENTS. This Agreement and any other
Loan Document may be executed in any number of counterparts and any party hereto
or thereto may execute any counterpart, each of which when executed and
delivered will be deemed to be an original and all of which counterparts of this
Agreement or any other Loan Document, as the case may be, when taken together
will be deemed to be but one and the same instrument.
11.8 BINDING EFFECT; ASSIGNMENT.
(a) This Agreement and the other Loan Documents to
which Borrower is a Party will be binding upon and inure to the benefit
of Borrower, the Creditors, and their respective successors and
assigns, EXCEPT that Borrower may not assign its rights hereunder or
thereunder or any interest herein or therein without the prior written
consent of all the Lenders. Each Lender represents that it is not
acquiring its interest in the Loans with a view to the distribution
thereof within the meaning of the Securities Act of 1933, as amended
(subject to any requirement that disposition of such interest must be
within the control of such Lenders). Any Lender may at any time pledge
its interest in the Loans to a Federal Reserve Bank, but no such pledge
shall release that Lender from its obligations hereunder or grant to
such Federal Reserve Bank the rights of a Lender hereunder absent
foreclosure of such pledge.
(b) From time to time, each Lender may assign all or
any portion of its Pro Rata Share to any Eligible Assignee; PROVIDED
that (i) the assignee, if not then a Lender or an Affiliate of the
assigning Lender, shall be approved by Borrower (which approval shall
not be unreasonably withheld or delayed), (ii) such assignment shall be
evidenced by an Assignment Agreement, a copy of which shall be
furnished to the Administrative Agent as hereinbelow provided, (iii)
such assignment shall be of the same Pro Rata Share of each
Commitments, (iv) EXCEPT in the case of an assignment to an Affiliate
of the assigning Lender, to another Lender or of the entire remaining
portion of the Pro Rata Share of the assigning Lender, the assignment
shall not assign a Pro Rata Share equivalent to less than $5,000,000
and (vi) the effective date of any such assignment shall be as
specified in the Assignment Agreement, but not earlier than the date
which is five Business Days after the date the Administrative Agent has
received the Assignment Agreement. Upon the effective date of such
Assignment Agreement, the assignee named therein shall be a Lender for
all purposes of this Agreement, with the Pro Rata Share therein set
forth and, to the extent of such Pro Rata Share, the assigning Lender
shall be released from its obligations under this Agreement.
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(c) By executing and delivering a Assignment
Agreement, the assignee Lender thereunder acknowledges and agrees that:
(i) other than the representation and warranty that it is the legal and
beneficial owner of the Pro Rata Share being assigned thereby free and
clear of any adverse claim, the assigning Lender has made no
representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness or sufficiency of this Agreement or any
other Loan Document; (ii) the assigning Lender has made no
representation or warranty and assumes no responsibility with respect
to the financial condition of Borrower or the performance by Borrower
of the Obligations; (iii) it has received a copy of this Agreement,
together with copies of the most recent financial statements delivered
pursuant to Section 7.1 and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment Agreement; (iv) it will, independently and
without reliance upon the Administrative Agent or any Lender and based
on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) it appoints and authorizes the
Administrative Agent to take such action and to exercise such powers
under this Agreement as are delegated to the Administrative Agent by
this Agreement; and (vi) it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at the
Administrative Agent's Office a copy of each Assignment Agreement
delivered to it. After receipt of a completed Assignment Agreement
executed by any Lender and an assignee, and receipt of an assignment
fee of $3,500 from such assignee, Administrative Agent shall, promptly
following the effective date thereof notify Borrower and each Lender of
the identity of the new Lender.
(e) Each Lender may from time to time grant
participations to one or more banks or other financial institutions in
a portion of its Pro Rata Share; PROVIDED, HOWEVER, that (i) such
Lender's obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) the participating banks
or other financial institutions shall not be a Lender hereunder for any
purpose EXCEPT, if the participation agreement so provides, for the
purposes of Sections 3.5, 3.6, and 11.12 but only to the extent that
the cost of such benefits to Borrower does not exceed the cost which
Borrower would have incurred in respect of such Lender absent the
participation, (iv) Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement, (v) the participation shall be of the same Pro Rata Share,
(vi) the participation interest shall be expressed as a percentage of
the assigning Lender's Pro Rata Share as it then exists and shall not
restrict an increase in the Commitments, or in the assigning Lender's
Pro Rata Share, so long as the amount of the participation interest is
not affected thereby and (vii) the consent of the holder of such
participation interest shall not be required for amendments or waivers
of provisions of the Loan Documents OTHER THAN those which (A) extend
the Revolver Termination Date, the Term Maturity Date or any other date
upon which any payment of money is due to the Lenders or (B) reduce the
rate of interest on the Loans, any fee or any other monetary amount
payable to the Lenders.
11.9 FOREIGN LENDERS AND PARTICIPANTS. Each Lender, and each
holder of a participation interest in the Loans that is incorporated under the
Laws of a jurisdiction other than the United States of America or any state
thereof shall deliver to Borrower (with a copy to the
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Administrative Agent), within twenty days after accepting an assignment or
receiving a participation interest herein pursuant to Section 11.8, if
applicable, two duly completed copies, signed by a Responsible Official, of
either Form 1001 (relating to such Person and entitling it to a complete
exemption from withholding on all payments to be made to such Person by Borrower
pursuant to this Agreement) or Form 4224 (relating to all payments to be made to
such Person by Borrower pursuant to this Agreement) of the United States
Internal Revenue Service or such other evidence satisfactory to Borrower and the
Administrative Agent that no withholding under the federal income tax laws is
required with respect to such Person. Thereafter and from time to time, each
such Person shall (a) promptly submit to Borrower (with a copy to the
Administrative Agent), such additional duly completed and signed copies of one
of such forms (or such successor forms as shall be adopted from time to time by
the relevant United States taxing authorities) as may then be available under
then current United States laws and regulations to avoid, or such evidence as is
satisfactory to Borrower and the Administrative Agent of any available exemption
from, United States withholding taxes in respect of all payments to be made to
such Person by Borrower pursuant to this Agreement and (b) take such steps as
shall not be disadvantageous to it, in the judgment of such Lender, and as may
be reasonably necessary (including the re-designation of its Eurodollar Lending
Office, if any) to avoid any requirement of applicable laws that Borrower make
any deduction or withholding for taxes from amounts payable to such Person.
11.10 RIGHT OF SETOFF. If an Event of Default has occurred and
is continuing, the Administrative Agent or any Lender (but only with the consent
of the Requisite Lenders) may exercise its rights under Article 9 of the Uniform
Commercial Code and other applicable Laws and, to the extent permitted by
applicable Laws, apply any funds in any deposit account maintained with it by
Borrower and/or any Property of Borrower in its possession against the
Obligations.
11.11 SHARING OF SETOFF. Each Lender severally agrees that if
it, through the exercise of any right of setoff, banker's lien or counterclaim
against Borrower, or otherwise, receives payment of the Obligations held by it
that is ratably more than any other Lender, through any means, receives in
payment of the Obligations held by that Lender, then, subject to applicable
Laws: (a) The Lender exercising the right of setoff, banker's lien or
counterclaim or otherwise receiving such payment shall purchase, and shall be
deemed to have simultaneously purchased, from the other Lender a participation
in the Obligations held by the other Lender and shall pay to the other Lender a
purchase price in an amount so that the share of the Obligations held by each
Lender after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) Such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of the Lenders
share any payment obtained in respect of the Obligations ratably in accordance
with each Lender's share of the Obligations immediately prior to, and without
taking into account, the payment; PROVIDED that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lender by Borrower or any Person claiming through or succeeding
to the rights of Borrower, the purchase of a participation shall be rescinded
and the purchase price thereof shall be restored to the extent of the recovery,
but without interest. Each Lender that purchases a participation in the
Obligations pursuant to this Section shall from and after the purchase have the
right to give all notices, requests, demands, directions and other
communications under this Agreement with respect to the portion of the
Obligations purchased to the same extent as though the purchasing Lender were
the original owner of the Obligations purchased. Borrower expressly consents to
the foregoing arrangements and agrees that any Lender holding a participation in
an Obligation so purchased may
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exercise any and all rights of setoff, banker's lien or counterclaim with
respect to the participation as fully as if that Lender were the original owner
of the Obligation purchased.
11.12 INDEMNITY BY BORROWER. Borrower agrees to indemnify,
save and hold harmless each Creditor and their respective parent corporations,
Subsidiaries, directors, officers, agents, attorneys and employees (collectively
the "INDEMNITEES") from and against: (a) Any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee by any Person (OTHER
THAN any Indemnitee or any Party) if the claim, demand, action or cause of
action directly or indirectly relates to a claim, demand, action or cause of
action that such Person asserts or may assert against Borrower, any Affiliate of
Borrower or any officer, director or shareholder of Borrower, PROVIDED that the
same relates to or arises from this Agreement, any other Loan Document, or any
transaction contemplated hereunder or thereunder; (b) Any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any Person (OTHER THAN any Indemnitee or any Party) if the claim, demand, action
or cause of action arises out of or relates to the Commitments, the use or
contemplated use of proceeds of any Loan or Letter of Credit, or the
relationship of Borrower and the Creditors under this Agreement; (c) Any
administrative or investigative proceeding by any Governmental Agency arising
out of or related to a claim, demand, action or cause of action described in
clauses (a) or (b) above; and (d) Any and all liabilities, losses, costs or
expenses (INCLUDING reasonable attorneys' fees (including the allocated cost of
in-house counsel) and disbursements and other reasonable professional services)
that any Indemnitee suffers or incurs as a result of the assertion of any
foregoing claim, demand, action or cause of action; PROVIDED that no Indemnitee
shall be entitled to indemnification for any loss caused by its own gross
negligence or willful misconduct. If any such claim, demand, action or cause of
action is asserted against any Indemnitee, such Indemnitee shall promptly notify
Borrower in writing, but the failure to so promptly notify Borrower shall not
affect Borrower's obligations under this Section. Any obligation or liability of
Borrower to any Indemnitee under this Section shall survive the expiration or
termination of this Agreement and the repayment of all Loans and the payment and
performance of all other Obligations.
11.13 NONLIABILITY OF THE CREDITORS. Borrower acknowledges and
agrees that:
(a) Any inspections or audits of any Property of
Borrower made by or through the Creditors are for purposes of
administration of the Loan Documents only and Borrower is not
entitled to rely upon the same, nor is any Creditor obligated
to release to Borrower any information obtained as a result of
such inspection or audit;
(b) By accepting or approving anything required to be
observed, performed, fulfilled or given to any Creditor pursuant to the
Loan Documents, the Creditors shall not be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of
the same, or of any term, provision or condition thereof, and such
acceptance or approval thereof shall not constitute a warranty or
representation to anyone with respect thereto by any Creditor; and
(c) The relationship among Borrower its Subsidiaries
and the Creditors is, and shall at all times remain, solely that of
borrower, guarantors and lenders; no Creditor shall under any
circumstance be construed to be a partner or joint venturer of Borrower
or its Affiliates; no Creditor shall under any circumstance be deemed
to be in a relationship of confidence or trust or a fiduciary
relationship with Borrower or its Affiliates, or to owe any fiduciary
duty to Borrower or its Affiliates under this Agreement; the Creditors
do not undertake or assume any responsibility or duty to Borrower or
its Affiliates to select, review,
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inspect, supervise, pass judgment upon or inform Borrower or its
Affiliates of any matter in connection with their Property or the
operations of Borrower or its Affiliates; Borrower and its Affiliates
shall rely entirely upon its own judgment with respect to such matters;
and any review, inspection, supervision, exercise of judgment or supply
of information undertaken or assumed by the Creditors in connection
with such matters is solely for the protection of the Creditors and
neither Borrower nor any other Person is entitled to rely thereon.
11.14 NO THIRD PARTIES BENEFITTED. This Agreement is made for
the purpose of defining and setting forth certain obligations, rights and duties
of Borrower and the Creditors in connection with the Loans and Letters of
Credit, and is made for the sole benefit of Borrower and the Creditors and the
successors and assigns of the Creditors. EXCEPT as provided in Section 11.8, no
other Person shall have any rights of any nature hereunder or by reason hereof.
11.15 FURTHER ASSURANCES. Borrower shall, and shall cause its
Subsidiaries to, at their expense and without expense to the Creditors, do,
execute and deliver such further acts and documents as the Administrative Agent
or the Requisite Lenders from time to time reasonably require for the assuring
and confirming unto the Creditors of the rights hereby created or intended now
or hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document.
11.16 CONFIDENTIALITY. Each Lender agrees to hold any
confidential information that it may receive from Borrower pursuant to this
Agreement in confidence, EXCEPT for disclosure: (a) To other Lenders; (b) To
legal counsel and accountants for Borrower, the Administrative Agent or any
Lender; (c) To other professional advisors to Borrower, the Administrative Agent
or any Lender; (d) To regulatory officials having jurisdiction over that Lender;
(e) As required by Law or legal process or in connection with any legal
proceeding to which that Lender is a party; and (g) To another financial
institution in connection with a disposition or proposed disposition to that
financial institution of all or part of that Lender's interests hereunder or a
participation interest in its Loans, PROVIDED that the recipient has accepted
such information subject to a confidentiality agreement substantially similar to
this Section. For purposes of the foregoing, "confidential information" shall
mean any information respecting Borrower or its Subsidiaries reasonably
considered by Borrower to be confidential, OTHER THAN (i) information previously
filed with any Governmental Agency and available to the public, (ii) information
previously published in any public medium from a source other than, directly or
indirectly, that Lender, and (iii) information previously disclosed by Borrower
to any Person not an Affiliate, agent or employee of Borrower without a
confidentiality agreement substantially similar to this Section. Nothing in this
Section shall be construed to create or give rise to any fiduciary duty on the
part of any Creditor to Borrower or its Affiliates.
11.17 INTEGRATION. This Agreement, together with the other
Loan Documents, comprises the complete and integrated agreement of the parties
on the subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof. In the event of any conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control and govern; PROVIDED that the
inclusion of supplemental rights or remedies in favor of the Creditors in any
other Loan Document shall not be deemed a conflict with this Agreement. Each
Loan Document was &ailed with the joint participation of the respective parties
thereto and shall be construed neither against nor in favor of any party, but
rather in accordance with the fair meaning thereof.
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11.18 SEVERABILITY OF PROVISIONS. Any provision in any Loan
Document that is held to be inoperative, unenforceable or invalid as to any
party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining provisions
or the operation, enforceability or validity of that provision as to any other
party or in any other jurisdiction, and to this end the provisions of all Loan
Documents are declared to be severable.
11.19 INDEPENDENT COVENANTS. Each covenant in Articles 5, 6
and 7 is independent of the other covenants in those Articles; the breach of any
such covenant shall not be excused by the fact that the circumstances underlying
such breach would be permitted by another such covenant.
11.20 HEADINGS. Article and Section headings in this Agreement
and the other Loan Documents are included for convenience of reference only and
are not part of this Agreement or the other Loan Documents for any other
purpose.
11.21 ARBITRATION REFERENCE.
(a) MANDATORY ARBITRATION. Any controversy or claim
between or among the parties, including but not limited to those
arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith and any
claim based on or arising from an alleged tort, shall at the request of
any party be determined by arbitration. The arbitration shall be
conducted in accordance with the United States Arbitration Act (Title
9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the Commercial Rules of the American Arbitration
Association ("AAA"). The arbitrators shall give effect to statutes of
limitation in determining any claim. Any controversy concerning whether
an issue is arbitrable shall be determined by the arbitrators. Judgment
upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.
(b) REAL PROPERTY COLLATERAL. Notwithstanding the
provisions of subparagraph (a), no controversy or claim shall be
submitted to arbitration without the consent of all parties if, at the
time of the proposed submission, such controversy or claim arises from
or relates to an obligation to any Creditor which is secured by real
property collateral. If all parties do not consent to submission of
such a controversy or claim to arbitration, the controversy or claim
shall be determined as provided in subparagraph (c).
(c) JUDICIAL REFERENCE. A controversy or claim which
is not submitted to arbitration as provided and limited in
subparagraphs (a) and (b) shall, at the request of any party, be
determined by a reference in accordance with California Code of Civil
Procedure Sections 638 ET SEQ. If such an election is made, the parties
shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the
referee if there is a single referee, shall be an active attorney or
retired judge. Judgment upon the award rendered by such referee or
referees shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure
Sections 644 and 645.
(d) PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE.
No provision of this section shall limit the right of any party to this
Agreement to exercise self-help remedies
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such as setoff, to foreclose against or sell any real or personal
property collateral or security or to obtain provisional or ancillary
remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration or other proceeding. The
exercise of a remedy does not waive the right of either party to resort
to arbitration or reference. At the Requisite Lenders' option,
foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage
or by judicial foreclosure.
11.22 ENVIRONMENTAL INDEMNITY. Borrower hereby agrees to
indemnify, defend and hold harmless each Creditor and each of their respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person"), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
or disbursements (INCLUDING fees and out-of-pocket expenses of legal counsel to
the Administrative Agent and the allocated costs of internal counsel to the
Administrative Agent and the allocated cost of internal environmental audit or
review services), which may be incurred by or asserted against such Indemnified
Person in connection with or arising, directly or indirectly out of any pending
or threatened investigation, litigation or proceeding, or any action taken by
any Person, with respect to: (a) any Environmental Claim arising out of or
related to any Property subject to a Lien in favor of the Administrative Agent
or any Lender. No action taken by legal counsel chosen by the Administrative
Agent or any Lender in defending against any such investigation, litigation or
proceeding or requested remedial, removal or response action shall vitiate or
any way impair Borrower's obligation and duty hereunder to indemnify and hold
harmless each Creditor.
(a) In no event shall any site visit, observation, or
testing by the Administrative Agent or any Lender (or any contractee of
the Administrative Agent or any Lender) be deemed a representation or
warranty that Hazardous Materials are or are not present in, on, or
under, the site, or that there has been or shall be compliance with any
Environmental Law. Neither Borrower nor any other Person is entitled to
rely on any site visit, observation, or testing by the Administrative
Agent or any Lender. Neither the Administrative Agent nor any Lender
owes any duty of care to protect Borrower or any other Person against,
or to inform Borrower or any other party of, any Hazardous Materials or
any other adverse condition affecting any site or Property. Neither the
Administrative Agent nor any Lender shall be obligated to disclose to
Borrower or any other Person any report or findings made as a result
of, or in connection with, any site visit, observation, or testing by
the Administrative Agent or any Lender.
(b) The obligations in this Section shall survive
payment of all other Obligations. At the election of any Indemnified
Person, Borrower shall defend such Indemnified Person using legal
counsel satisfactory to such Indemnified Person in such Person's sole
discretion, at the sole cost and expense of Borrower. All amounts owing
under this Section shall be paid within 30 days after demand.
(c) Borrower acknowledges that the Administrative
Agent's and Lenders' appraisal of the Real Property is such that
Administrative Agent and Lenders are not willing to accept the
consequences under any applicable anti-deficiency roles, of inclusion
of the obligations under this Section among the obligations secured by
the Real Property, and that Administrative Agent and Lenders would not
enter into the Loan Agreement with Borrower but for the personal
liability undertaken by Borrower for such obligations.
-86-
<PAGE>
11.23 RELEASES OF THE PLEDGE AGREEMENTS. The Administrative
Agent and the Lenders hereby agree that, upon the reduction following the
Closing Date of the outstanding principal balance of the Term Loans to
$5,250,000 and the written request of Borrower, they shall promptly release the
Liens of the Landec Pledge Agreement, the Borrower Pledge Agreement and any
pledge agreements which may hereafter be executed by Subsidiaries of Borrower
with respect to their own Subsidiaries, provided that te Administrative Agent
and the Lenders shall not be required to release their Liens with respect to the
general partnership interests of Apio Cooling. In addition thereto, it is
acknowledged that the Landec Pledge Agreement provides, inter alia, that from
time to time following the Closing Date the Administrative Agent shall release
its lien with respect to not more than 20% of the capital stock of Borrower in
connection and substantially concurrently with the issuance of such stock in
conjunction with a management incentive plan implemented by Borrower PROVIDED
that (a) no Default or Event of Default exists as of the date of such release,
and (b) each recipient of such capital stock shall have executed a "come-along"
agreement acceptable to the Administrative Agent providing for the sale by such
recipient of their capital stock in Borrower to a Person designated by the
Administrative Agent in the event of any foreclosure by the Administrative Agent
upon the remaining capital stock in Borrower (or any other sale arranged by the
Borrower or its representatives when an Event of Default exists).
11.24 JURISDICTION AND VENUE. Except as otherwise expressly
provided in any Loan Document, the parties hereto and thereto agree and intend
that the proper and exclusive forum for any litigation of any disputes or
controversies arising out of or related to the Loan Documents shall be the
Superior Court of the State of California for the County of Los Angeles.
Notwithstanding the foregoing, the parties agree that, with respect to any
Collateral given by Borrower or any Affiliate thereof to any of the Creditors
located in states or jurisdictions other than California, or in counties of
California other than Los Angeles County, the Administrative Agent shall be
entitled on behalf of such Creditors to commence actions in such states or
jurisdictions, or in such counties of California, against Borrower or any
Affiliate thereof or other Persons for the purpose of seeking provisional
remedies, INCLUDING actions for claim and delivery of Property, or for
injunctive relief or appointment of a receiver, or actions to foreclose upon
Liens granted to the Creditors. Each party to any Loan Document, to the extent
permitted by applicable laws, hereby expressly waives any defense or objection
to jurisdiction or venue based on the doctrine of FORUM NON CONVENIENS, and
stipulates that the Superior Court of the State of California for the County of
San Francisco shall have IN PERSONAM jurisdiction and venue over such party for
the purpose of litigating any dispute or controversy arising out of or related
to the Loan Documents. In the event Borrower or any Affiliate thereof should
commence or maintain any action or proceeding arising out of or related to the
Loan Documents in a forum other than the Superior Court of the State of
California for the County of San Francisco, the Creditors shall be entitled to
request the dismissal or stay of such action or proceeding, and Borrower and its
Affiliates stipulate that such action or proceeding shall be dismissed or
stayed.
11.25 JURY TRIAL WAIVER. AFTER REVIEWING THIS PROVISION
SPECIFICALLY WITH THEIR RESPECTIVE COUNSEL, BORROWER, THE ADMINISTRATIVE AGENT,
THE ISSUING LENDER AND EACH LENDER HEREBY KNOWINGLY, INTELLIGENTLY AND
INTENTIONALLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LEGAL PROCEEDING BASED ON OR ARISING OUT OF, UNDER, IN CONNECTION
WITH, OR RELATING TO THIS AGREEMENT, THE LETTERS OF CREDIT, ANY OF THE NOTES,
ANY OF THE OTHER LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTIONS OF BORROWER, THE ADMINISTRATIVE AGENT, OR ANY LENDER. THIS
-87-
<PAGE>
PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS TO MAKE THE LOANS TO AND
ISSUE LETTERS OF CREDIT FOR THE ACCOUNT OF BORROWER.
11.26 GOVERNING LAW. EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY
PROVIDED THEREIN, EACH LOAN DOCUMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF CALIFORNIA.
11.27 PURPORTED ORAL AMENDMENTS. THE PARTIES HERETO EXPRESSLY
ACKNOWLEDGE THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED
OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN
INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. THE PARTIES HERETO AGREE
THAT THEY WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL
OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE ADMINISTRATIVE AGENT OR ANY
LENDER THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT,
MODIFICATION, WAIVER OR SUPPLEMENT TO THE AGREEMENT OF THE OTHER LOAN DOCUMENTS.
-88-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the date first above written.
Borrower:
BUSH ACQUISITION CORPORATION,
a Delaware corporation
By:_________________________________
Name:
Title:
Address:
P.O. Box 267 Guadalupe, CA 93434
4595 West Main Street
Attn: Kirk Tunnel
Telephone: (805) 343 2835 x 5329
Telecopier: (805) 343 0745
BANK OF AMERICA, N.A.,
as Administrative Agent,
as Issuing Lender and as a Lender
By:_________________________________
Jeffrey Perkins
Senior Vice President
Address:
Bank of America, N.A.
MC CA3-103-01-03
101 Park Center Plaza, First Floor
San Jose, CA 95113
Attn: Jeffrey Perkins, Senior Vice President
Telephone: (408) 971-5009
Telecopier: (408) 277-7087
-89-
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 Nos. 333-06163 and 333-29103) pertaining to the 1995 Employee Stock Purchase
Plan, 1995 Directors' Stock Option Plan, 1996 Stock Option Plan and 1996
Non-Executive Stock Option Plan, of our report dated December 6, 1999, with
respect to the consolidated financial statements and schedules of Landec
Corporation included in this Annual Report (Form 10-K) for the year ended
October 31, 1999.
/s/ Ernst & Young LLP
San Francisco, California
January 25, 2000
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
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0
0
<COMMON> 77,289
<OTHER-SE> (45,528)
<TOTAL-LIABILITY-AND-EQUITY> 40,708
<SALES> 33,927
<TOTAL-REVENUES> 35,447
<CGS> 21,476
<TOTAL-COSTS> 27,234
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 99
<INCOME-PRETAX> (2,715)
<INCOME-TAX> 54
<INCOME-CONTINUING> (2,769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,769)
<EPS-BASIC> (.21)
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