U.S. 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 June 30, 1998.
[ ] 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 01912
VACU-DRY COMPANY
(Exact name of registrant as specified in its charter)
California 94-1069729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7765 Healdsburg Ave., Sebastopol, California 95472
(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 829-4600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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. [ ]
On September 21, 1998 non-affiliates of the Registrant held voting stock
with an aggregate market value of $7,055,139 upon the average of the high and
low prices of such stock on such date.
As of September 25, 1998 there were 1,511,079 shares of common stock,
no par value, outstanding.
Portions of the following document are incorporated by reference:
Proxy Statement for the 1998 Annual Meeting of Shareholders schedule to be
held October 22, 1998 is incorporated by reference into Part III of this report.
Part I
Special Note Regarding Forward-looking Statements
The Company is including the following cautionary statement in this Annual
Report on Form 10-K to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform Act of 1995 for any
forward looking statements made by, or on behalf of, the Company. Forward
looking statements include statements concerning plans, objectives, goals
strategies, future events or performance and underlying assumptions and other
statements which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward looking statements. In
addition to other factors and matters discussed elsewhere herein, these risk and
uncertainties include, but are not limited to, uncertainties affecting the food
processing industry, risks associated with fluctuations in the price and
availability of raw materials, management of growth, adverse publicity affecting
organic foods or the Company's products, and product recalls. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. The Company disclaims
any obligation to update any forward looking statements to reflect events or
circumstances after the date hereof.
Item 1. Description of Business
General
Vacu-dry Company (the "Company" or "Vacu-dry") was incorporated in
California on December 27, 1946 and has been engaged in the production of low
moisture fruits since 1933. The Company's business is the development,
production and marketing of fruit products. The Company's products include low
moisture and evaporated fruits, bulk apple juice, apple juice concentrate,
private label drink mixes and low moisture food for the food storage market. The
Company also markets a broad line of packaged organic dried fruits and organic
chilled, pasteurized fruit juices and drinks under the Made In Nature(R) brand.
On June 11, 1998, the Company acquired (through a subsidiary, Made In
Nature Company, Inc. ("MINCO") the business, assets and certain of the
liabilities of Made In Nature, Inc., a natural foods marketer. Made In Nature,
Inc. was founded in 1989 and was the first company to introduce a line of
certified organic fresh produce. Made In Nature, Inc. was sold to Dole Food
Company in August 1994. In April of 1996, Made In Nature, Inc.'s co-founder
purchased all of its stock from Dole and redirected its marketing focus from
fresh produce to packaged foods. In conjunction with the Company's acquisition
of Made In Nature, Inc., Takanashi Milk Products Company of Japan (its largest
ingredients customer) became a minority shareholder of MINCO.
The purchase of the Made In Nature brand and certain related assets was
intended to further the Company's strategic objective of diversifying its fruit
products. The Company believes that the acquisition of MINCO will give the
Company access to the fast growing natural and organic foods categories. The
Company's goal is to build a premier natural foods brand. It intends to
accomplish this through marketing efforts and rapid growth achieved through the
expansion of distribution as well as the introduction of new products.
Effective October 13, 1992, the Company entered into a representation
agreement with Confoco, Inc. for the sale of low moisture banana and pumpkin
flakes. For the year ended June 30, 1996, Vacu-dry recorded sales of $2,478,000
of Confoco products. The representation agreement was terminated effective July
1, 1996. The Company has representation agreements with Zoria Farms (assorted
dried fruits), Meduri Farms (dried and infused fruits) and Apple Valley Juice
(apple fiber). These agreements expire, November 3, 1999, January 15, 2001 and
March 30, 2001, respectively.
Industry Segment Information
The Company competes in a single industry segment within the food
industry: all assets held are supportive of efforts to compete in that segment.
Selective financial information relating to the industry segment is as follows:
1998 1997 1996
Net Sales 26,094,000 $23,798,000 $26,553,000
Earnings before
income taxes $1,429,000 $749,000 $651,000
Identifiable Assets $20,776,000 $14,576,000 $13,587,000
The Company's export sales are dependent on foreign crop conditions and
exchange rates. The Company's export sales were $1,883,000, $2,536,000 and
$2,498,000 for fiscal year 1998, 1997 and 1996, respectively.
Dried Fruit Ingredients
Business. Through drying processes, the moisture in apples is reduced from
original levels of 85%-90% to as low as 2%. In addition, the Company purchases
other fruits such as apricots, dates, peaches and prunes, which have been
partially dried, and further reduces the moisture in these fruits to levels of
approximately 3%. The resultant low moisture products are much lighter in weight
and less bulky than their raw, canned or frozen counterparts. Because of their
extreme dryness, low moisture fruit products require no refrigeration or other
special storage conditions. Other advantages include consistent product quality,
economical packaging and convenience in handling and use.
Industry and Competition. The low moisture food industry in the United
States is comparatively small with only a few processors engaged in the
dehydration of fruits to low moisture levels (2% to 5% moisture). The Company
has one major domestic competitor and several smaller foreign competitors in the
low moisture and evaporated businesses. Numerous processors compete in the
business of producing bulk apple juice and concentrate.
Sales and Marketing. The Company's sales are worldwide but principally to
manufacturers in the United States and Canada. The Company's products are
primarily sold through brokers to major food processors, bakeries, food storage
and food service operators and to federal and state institutions.
Approximately 80% of the Company's sales are generated from annual
contracts that are normally written between August and November of each year.
Most of these contracts are for one year. The sales price is normally fixed.
During the fiscal year, the customer will order against these contracts, and the
Company will invoice the customer based upon the price and other terms and
conditions of the contract. The Company incurs risk under these contracts
because the total quantity of raw materials required to fulfill these contracts
has normally not been procured at the time the contracts are written. More than
half of the Company's raw material requirements are not purchased under
contract. If the price of raw materials increases or decreases, the Company will
either benefit from or will absorb these variances from what was budgeted. The
Company's raw material costs and the related yield in processing can vary from
year to year. This process has existed for many years, and the Company has
experience in dealing with this risk.
The Company's three largest customers accounted for approximately 17% of
gross sales in 1998. The loss of any one or more of these customers could have a
material adverse effect on the Company.
Sources of Supply. In terms of volume, apples represent the major fruit
handled by the Company. The Company's production facility is designed to process
fresh fruit in addition to partially dehydrated fruits or vegetables. The
sources of apple raw material supply are individual apple growers, apple fresh
packing operators and, in emergencies, other dried apple processors. The
majority of the Company's raw apple supply comes from California. In some years,
due to crop conditions, the percentage of fruit purchased from out-of-state
sources may increase. In those years, the Company incurs increased costs due to
additional freight. The Company strives to reflect such cost increases in
selling price adjustments, but, if unsuccessful, it will absorb such costs.
Other important fruits, including peaches, apricots and prunes, are
obtained principally from dried fruit packing houses in California. Supplies of
these fruits are expected to be sufficient to meet the needs of our regular
customers. For other supplies, including cans and packaging materials, the
Company draws from a number of vendors and expects that adequate supplies will
be available.
Seasonal Nature of Business. The business of producing evaporated
apples, bulk apple juice and concentrate is seasonal, beginning in August and
usually ending in March or April. In fiscal 1998, the Company changed its
production plan and, as a result, production will be compressed into a shorter
period of months. Inventories of fresh and dried apples, packaging materials and
finished goods as of June 30, 1998, were approximately 21% of annual net sales.
The Company experiences a normal seasonal increase in inventories and related
short-term borrowings during the second and third quarters of the fiscal year.
Organic Packaged Products and Ingredients
Business. Through its subsidiary, Made In Nature Company, Inc. ("MINCO"),
the Company markets a broad line of packaged organic dried fruits and organic
chilled and pasteurized fruit juices and drinks under the Made In Nature(R)
brand. The products are principally sold through brokers to natural food
distributors and supermarkets in the United States and Canada. In addition,
MINCO supplies leading food manufacturers, mostly in Japan, with organic fruit
juice concentrates. The Company's objective is to build a premiere natural foods
brand. The Company believes that this objective can be achieved, in part,
through rapid growth. There is no assurance that such growth can be achieved or,
if it can, that the resulting demands that will be placed on the Company's
management, working capital, financial and management and control systems, and
its supply, production and distributions systems can be adequately managed.
Competition In the organic food categories in which MINCO competes, the
competition is relatively small. In the organic chilled beverage category (on a
national basis), MINCO has two direct competitors. In the organic dried fruit
and vegetable category (on a national basis), MINCO has two direct competitors.
In the mass-market sector, MINCO has many large competitors, but none of these
competitors are currently marketing an organic product. MINCO's growth will
depend on its ability to continue to expand distribution in conventional
supermarkets and in natural food specialty markets. Distribution through both
channels presents significant marketing challenges, risks and distribution
costs. There is no assurance that MINCO can achieve trade or consumer expansion
in either channel. MINCO's products are generally premium-priced and may be
sensitive to national and regional economic conditions.
Sources of Supply. MINCO contracts with growers and grower-packers for the
purchase of its organic raw material. Packaging is done under contract. MINCO is
a marketing company and has no production facilities. Although MINCO has
contractual obligations to purchase certain raw materials, it does not take
possession of the inventory until packaged and invoiced by the contract packer.
Although organic farming has increased over the last five years, as with all
agricultural products, shortages can occur. A significant shortage of raw
materials may have a material adverse effect on MINCO.
Licensing Agreements. Made In Nature(R) brand fresh produce is sold under a
licensing agreement with MINCO through Made In Nature Fresh, Inc., which is a
subsidiary of Albert's Organics, the largest distributor of fresh organic
produce in North America. In 1996, Made In Nature, Inc. licensed the use of its
brand in Japan to Takanashi, which intends to market Made In Nature(R) brand
products throughout Japan.
Organic Certification. The value of the Made In Nature(R) brand is
dependent on the organic certification. The loss of this certification would
have a material adverse effect on MINCO. MINCO is dependent upon consumers'
perception of the safety, quality, and possible dietary benefits of its
products. As a result, substantial negative publicity concerning organic
products, MINCO's products or the products of its licensees could have a
material adverse effect on MINCO's business, financial condition or results of
operations.
The USDA has been developing the rules for the National Organic Program for
eight years, as mandated in the Organic Food Production Act of 1990. The
proposed rules were released in early 1998 and were met with significant
opposition. Due to this opposition the USDA is re-evaluating the proposed rules
If the USDA rules do not provide the restrictions emphasized in the opposition
to initial proposal, the image of "organic" by the consumer may be impaired
and as a result negatively affect MINCO's sales.
Inventories. MINCO's inventories of raw materials and finished goods on
hand as of June 30, 1998 were $2,319,000. It is anticipated that building the
Made In Nature(R) brand will increase working capital requirements. Based upon
Made In Nature Inc.'s prior operating losses, there is no assurance that MINCO
can achieve profitable operations.
Backlog
The dollar amount of order and contract backlog believed to be firm as of
September 1, 1998, September 1, 1997 and September 1, 1996 is $12,478,000,
$10,186,000 and $8,558,000, respectively. This backlog does not include MINCO.
The backlog as of September 1, 1996 excludes the Confoco orders. It is expected
that the order backlog will be filled and shipped within the related fiscal
year. The dollar value of backlog varies during the year, with the peak usually
occurring during the September through December period.
Trademarks
The Company holds the following registered trademarks: Vacu-dry, Made In
Nature, Apple Munchies, Noah's Ark, Fruit Galaxy, Perma-Pak and Pantri Reserve.
Sales of trademarked goods account for the majority of the Company's total
sales. Vacu-dry, Made In Nature and Perma-Pak are the predominant trademarks of
those listed above. The Made In Nature brand is important to the Company in
connection with the sale of its branded organic products.
Research and Development
For information on research and development expenditures, see Note 14 to
the Financial Statements.
Environmental Matters
The Company has complied with all governmental regulations regarding
protection of the environment. No material capital expenditures are anticipated
for environmental control facilities during the next fiscal year.
Employees
The Company employs an average of approximately 265 persons. This number
varies throughout each year and increases during periods of high production. Of
the 265 employees, approximately 200 are represented by the General Truck
Drivers, Warehousemen and Helpers Union, Local #624. The union employees are
presently covered by a signed contract.
Insurance
The Company maintains product, property and general liability insurance
plus umbrella liability coverage. The Company does not carry any product recall
coverage. Management feels the limits and coverage are adequate relative to the
related risk. There is no assurance that this insurance will be adequate to
protect the Company from product liability claims. A product recall could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Item 2. Properties
The principal administrative offices are located in Sebastopol, California.
Approximately 4,130 square feet of office space is leased through February 1999.
At the end of the term, the lease reverts to month-to-month.
The Company owns 15 acres of land and approximately 95,000 square feet
under roof at 1365 Gravenstein Hwy So., Sebastopol, California. This facility
(formerly described as Plant #1) was used for the dehydration of fruits to low
moisture prior to the consolidation of this operation into the main processing
plant (formerly described as Plant #2), located at 2064 Gravenstein Hwy No.,
Sebastopol, California. As of June 30, 1998, the Company has leased
approximately 71,400 square feet of this facility, which comprises 90% of the
leaseable square footage. The Company's research and development department is
located at this facility. The Company has no debt associated with this facility.
The Company owns 66 acres of land and approximately 298,000 square feet
under roof at 2064 Gravenstein Hwy. No., Sebastopol, California. As of June 30,
1998, this facility is the Company's only active processing plant. The buildings
include facilities to process fresh apples into dried products, bulk apple juice
and concentrate. In addition to the facilities for the dehydration of apples and
other fruits, there is also warehouse space, cold storage, and office
accommodations. During fiscal 1998, the production operations functioned at
approximately 115% of the single shift capacity. The Company has leased
approximately 54,500 square feet of excess warehouse space to various tenants.
The primary tenant, occupying 51,200 square feet extended their lease through
April 2006. The Company has no debt associated with this facility.
MINCO's office is located in San Rafael, California. Approximately 2,400
square feet of office space is leased on a month-to-month basis. This office and
the Company's corporate office will be consolidated and relocated during the
1999 fiscal year.
Item 3. Legal Proceedings
The Company has no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the last
quarter of the year ended June 30, 1998.
Part II
Item 5. Market for the Registrant's Common Stock and Related Security-Holder
Matters
The Company's shares are traded on the NASDAQ National Market.
The Company's NASDAQ symbol is VDRY.
The quarterly high and low prices for the last two fiscal years were as
follows:
Quarter Ending Low Bid High Bid
09/30/96 4-7/8 5-1/4
12/31/96 4-7/8 5-1/2
03/31/97 5 5-1/2
06/30/97 4-3/8 5
09/30/97 4-1/2 5-1/2
12/31/97 4-7/8 7-1/4
03/31/98 5-5/8 8-1/2
06/30/98 6-3/4 11
The above quotations were obtained from the NASDAQ monthly statistical
reports.
On September 8, 1998, the approximate number of holders of common stock
was 661. On that date, the average of the high and low price per share of the
Company's stock was $7.88. This price does not include dealer mark-ups,
markdowns or commissions.
In the fourth quarter of fiscal 1994 and in the first three quarters of
fiscal 1995, the Company declared a $.05 per share dividend. On April 27, 1995,
as a result of the decline in sales and earnings, the Board of Directors
suspended the quarterly dividends. The Company's loan agreement with its bank
includes a negative covenant regarding the declaring or paying of a dividend in
cash, stock or any other property. This covenant would need to be waived prior
to the declaration of a dividend. At this time, the Company does not intend to
reinstate a cash dividend plan.
Item 6. Selected Financial Data
YEAR ENDED
<TABLE>
<S> <C> <C> <C> <C> <C>
June 30, 1998 June 30, 1997 June 30, 1996 June 30, 1995 June 30, 1994
(In thousands except per share amounts)
Net sales $26,094 $23,798 $26,533 $21,438 $27,773
Earnings before income taxes
$1,421 $749 $651 $287 $1,887
Net earnings $899 $517 $434 $195 $1,174
Earnings per common share
Basic $.57 $.31 $.25 $.11 $.70
Diluted $.56 -- -- -- --
Weighted average common
shares and equivalents
outstanding
Basic 1,581 1,648 1,704 1,701 1,669
Diluted 1,600 -- -- -- --
Total Assets $20,776 $14,576 $13,587 $15,335 $14,929
Long-term debt $ 4,500 $ 1,808 $ 1,628 $ 2,105 $ 2,585
Cash dividends per common
share $ -- $ -- $ -- $ .15 $ .05
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition continued to improve during fiscal year
1998. Some of this improvement is reflected in the Company's increase in
shareholder equity per share. Equity per share increased from $5.37 as of fiscal
1997 to $6.21 as of fiscal 1998. This significant increase was a result of the
Company's repurchase of 139,100 shares of stock at a total cost of $835,000 and
net earnings of $899,000 for fiscal 1998. As a result of the acquisition of
MINCO, the debt to equity ratio increased from 0.65 in fiscal 1997 to 1.16 in
fiscal 1998 with a corresponding decrease in the current ratio from 2.36 to 1.0
in fiscal 1997 to 1.0 in fiscal 1998. The increase in accounts payable
and inventories was a direct result of the MINCO acquisition.
Because the Company's operations are subject to seasonality, the Company's
liquid resources fluctuate during the year. The Company experiences a normal
seasonal decrease in production in April. Inventories and related short-term
borrowings are usually at their peak at this time. The slowdown in production
normally extends through July and corresponds to the availability of raw fruit
on an affordable basis. The Company's inventory ordinarily decreases during the
period beginning in May and ending in September which creates a corresponding
increase in liquidity. In fiscal 1999, the Company continues to operate under a
change in its production cycle which was instituted in fiscal 1998. This change
is expected to increase inventories in the first six months of the fiscal year.
The Company's operating capital is obtained from internal and external
sources. The Company's largest external source is a revolving line of credit
provided by a bank at the bank's prime rate. The Company increased the total
limit of its revolving line of credit to $4,500,000 in anticipation of higher
short-term borrowing requirements as a direct result of a condensed production
period and the related increase in inventory levels. The line expires November
1, 1999. As of June 30, 1998, the Company had $2,203,000 of available funds on
this revolving line of credit. This compares with $2,146,000 of available funds
on the $3,500,000 revolving line of credit as of June 30, 1997. The Company
utilized the revolving line of credit as a source of interim financing to fund
the acquisition of MINCO. In the first half of fiscal 1999, the Company intends
to convert these borrowings to longer-term debt. As of June 30, 1998, the
Company was in compliance with all covenants and restrictions related to its
outstanding debt. The Company's loan agreement with its bank includes a negative
covenant regarding the declaring or paying of dividends in cash, stock or any
other property without the prior approval by the bank. The Company received
approval from its bank prior to the repurchase of the 139,100 shares of common
stock. The Company's long-term debt increased $835,000 as a result of this stock
repurchase.
Excluding the Year 2000 expenditures, which are expected to be financed
through leasing arrangements, the Company has established a capital expenditure
budget of approximately $998,000 for the 1999 fiscal year. These funds will
primarily be used to purchase new and recondition existing equipment related to
the manufacturing operation. The Company anticipates financing these
expenditures through internally generated funds.
The Company has reviewed its information technology (IT) systems and
determined that its is not Year 2000 compliant. The Company has chosen to
purchase new software, which is warranted to be Year 2000 compliant. In
addition, the Company is purchasing new hardware on which to operate the new
software. The Company has not completed its assessment of its non-IT systems.
The initial assessment is that there are very few embedded microprocessors that
will need to be replaced. This assessment will be completed by September 30,
1998. The conversion to the new software is just beginning. The Company has
hired a consulting firm to manage the implementation of the software. The
conversion for Vacu-dry and MINCO to this new system is expected to be completed
by no later than May 31, 1999. Phase I for just Vacu-dry is expected to be
completed by December 31, 1998. The final phase is expected to be completed by
February 28, 1999. MINCO will begin its implementation on January 1, 1999 and is
expected to complete all phases by April 30, 1999. The Company has allocated one
month at the end of the conversion to make sure it has addressed all of the
issues related to the conversion. A group of ten managers has formed an
"Implementation Team" which is strongly supported by upper management. Both the
Implementation Team and upper management are confident that the implementation
can be completed by May 31, 1999. Management estimates that the total cost of
the system will be approximately $800,000. The expenditures for the new system
will primarily occur in fiscal 1999. The Company anticipates financing these
costs through a lease agreement. The Company has assessed its risk relative to
the Year 2000 issue and is confident that it can accomplish the conversion prior
to December 31, 1999. If this conversion does not happen, the Company would have
to rely on PC-based software to accomplish its normal business activities until
the conversion can be completed.
The Company has been successful in leasing all of its idle production
facility other than a portion occupied by Product Development. The Company
signed a long-term lease for approximately one-half of the previously vacated
portion of this facility. The Company has secured a new short-term lease for the
balance of the available space. This lease expires January 31, 1999. The Company
is working to obtain a replacement tenant without a loss of income but has been
unsuccessful to date. In addition, the Company continues to lease a portion of
its current operating facility and has entered into a long-term lease with the
primary tenant.
The Company may require additional capital to expand the current business
and to acquire additional companies. The Company will utilize future private or
public financing to satisfy this need for additional funds.
After the Company obtains longer-term financing for the MINCO acquisition,
it believes the existing line of credit limit of $4,500,000 will be sufficient
for its own and MINCO's working capital requirements.
RESULTS OF OPERATIONS
The results of operations include the accounts of the Company for the year
ended June 30, 1998 and the accounts of MINCO for the period from acquisition
(June 11, 1998) to June 30, 1998. The results of operations for MINCO are
included in the following discussions but are not significant to the
consolidated results of the Company for fiscal 1998.
Net Sales. The Company's sales are dictated by the competitive environment,
customer demands and sales preferences. Sales volume between the years can be
affected by one or more of these factors. Net sales for fiscal 1998 increased
$2,296,000 or 10%. This increase was primarily the result of higher volume sales
(+17%) offset by an average unit price decrease (-7%). The unit price decreases
were a direct result of lower raw material costs. Net sales for fiscal 1997
decreased $2,735,000 or 10%. This decrease was primarily a result of the loss of
the Confoco banana and pumpkin sales, which accounted for $2,478,000 of fiscal
1996 sales.
Other Revenue. In fiscal 1998, other revenue decreased $49,000 or 8%. This
decrease was primarily the result of lower rental income.
Cost of Sales. As a percentage of net sales, cost of sales decreased in
fiscal 1998 to 83% as compared to 89% in 1997 and 91% in 1996. These decreases
in both 1998 and 1997 are a result of lower raw material prices, increased
production volume, yield improvements and production efficiencies.
Selling, General and Administrative Expenses. In fiscal 1998, these
expenses increased $1,230,000 or 57%. The increase was due to the following
items: costs incurred as the result of the exploration of new strategic
initiatives; bonus and profit sharing expenses which did not occur in either
fiscal 1997 or 1996; MINCO expenses; an increase in the Stock Appreciation
Rights liability (as a result of the higher stock price); and greater expenses
for salaries, benefits and marketing expenses.
Interest Expense. The increase in fiscal 1998 interest expense of $38,000
or 14% is the result of increased average borrowings on the line of credit.
Interest rates remained relatively constant between years. In fiscal 1997,
interest expense decreased $26,000 or 9% from 1996 due to the decline in the
weighted average interest rate on the line of credit which more than offset the
increase in interest expense as a result of the increase in long-term debt.
Income Taxes. The effective tax rate increased from 31 percent to 37
percent due to decreased tax credits and increased income.
Item 8. Consolidated Financial Statements and Supplementary Data
See Index at Item 14 for information required by this item.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this item is contained in the Registrant's 1998
Proxy Statement under the heading "Election of Directors," which information is
incorporated herein by reference.
Executive Officers of the Registrant
The following table sets forth certain information concerning the
executive officers of the Company as of September 25, 1998:
Name Age Position
Gary L. Hess 46 President and Chief Executive Officer
Esther K. Castain 60 Secretary and Manager of Employee Relations
Thomas R. Eakin 44 Vice President Finance and Chief Financial
Officer
Mr. Hess joined the Company as of May 1, 1996 as President and Chief
Executive Officer. Prior thereto he was a Senior Vice President of Dole Food
Company, Inc. (fresh and processed fruit) (1993-1996); President of Cadace
Enterprises, Inc. (water conservation products) and The Marketing Partnership
(1992-1993); and Director of Marketing, E & J Gallo Winery (wine and distilled
spirits) (1987-1992).
Ms. Castain joined the Company in 1976. She has been Secretary of the
Company since 1990. Prior thereto she was Manager of Employee Relations.
Mr. Eakin joined the Company in 1983. For the past eleven years, he has
been Vice President, Finance and Chief Financial Officer.
Items 11, 12 and 13
The information required in Items 11, 12 and 13 will be included in the
definitive Proxy Statement for Registrant's 1998 Annual Meeting of Shareholders
or in an amendment to the Form 10-K under cover of Form 8. The information
required in this Part III will be filed with the Securities and Exchange
Commission no later than 120 days after the end of the fiscal year.
Part IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Report:
1. Financial Statements: Page No.
Report of Independent Public Accountants. 12
Statement of Earnings for the Years Ended
June 30, 1998, June 30, 1997 and June 30, 1996. 14
Balance Sheets -- June 30, 1998 and June 30,1997. 13
Statements of Changes in Shareholders' Equity for
the Years Ended June 30, 1998, June 30, 1997 and
June 30, 1996. 15
Statements of Cash Flows for the Years Ended
June 30, 1998, June 30, 1997 and June 30, 1996. 16
Notes to Financial Statements. 17-25
2. Financial statements and schedules not included herein have been omitted
because of the absence of conditions under which they are required or because
the required information, where material, is shown in the financial statements
or notes thereto.
3. Exhibits: Page No.
See Exhibit Index 27
(b) Reports on Form 8-K. A report on Form 8-K was filed on June 22, 1998
relating to the Company's acquisition (through a subsidiary, Made In Nature
Company, Inc., the business, assets and certain of the liabilities of Made In
Nature, Inc., a natural foods marketer.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VACU-DRY COMPANY
(Registrant)
Date: September 25, 1998 By: /s/ Gary L. Hess
------------------------------------
Gary L. Hess, President & CEO
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
SIGNATURES TITLE DATE
/s/ Gary L. Hess President & Chief Executive Officer September 25,1998
- ----------------------------------------- Director
Gary L. Hess
/s/ Kenneth P. Gill Director September 25, 1998
- -----------------------------------------
Kenneth P. Gill
Director
- -----------------------------------------
Edward Koplovsky
/s/ Roger S. Mertz Director September 25, 1998
- -----------------------------------------
Roger S. Mertz
/s/ Craig Stapleton Director September 25, 1998
- -----------------------------------------
Craig Stapleton
/s/ Donal Sugrue Director September 25, 1998
- -----------------------------------------
Donal Sugrue
/s/ Thomas R. Eakin Vice President Finance & Chief Financial September 25, 1998
- ----------------------------------------- Officer
Thomas R. Eakin
</TABLE>
<PAGE>
VACU-DRY COMPANY
COMMISSION FILE NUMBER 01912
EXHIBIT INDEX
For the year ended June 30, 1998
<TABLE>
<S> <C> <C>
Exhibit No. Document Description Page No. or Reference
- ----------- -------------------- ----------------------
3.1 Articles of Incorporation (2)
3.2 By-laws of Vacu-dry Company (4)
10.1 Employment Agreement between Vacu-dry Company and Gary L. Hess
dated March 14, 1996 (5)
10.2 Stock Appreciation Rights Plan (4)
10.3 1996 Stock Option Plan (6)
10.4 1993 Employee Stock Purchase Plan (7)
10.5 Agreement dated June 11, 1998 between MIN Acquisition Corp.,
Vacu-dry Company and Global Walk, Inc.
10.6 Co-Sale Agreement dated June 11, 1998 between Vacu-dry Company
and Global Walk, Inc.
10.7 Asset Purchase Agreement dated June 11, 1998 between Vacu-dry
Company, MIN Acquisition Corp., Made In Nature, Inc and Gerald E.
Prolman
10.8 Warrant to Purchase Common Stock dated June 11, 1998 issued by
Vacu-dry Company to Made In Nature, Inc.
10.9 Warrant to Purchase Common Stock dated June 11, 1998 issued by
Vacu-dry Company to Gerald E. Prolman
11. Computation of Per Share Earnings
23. 1 Consent of Independent Public Accountants
27. 1 Financial Data Schedule (EDGAR Filing Only)
</TABLE>
Incorporated by reference to the Company's:
(2) Form 10-K for the year ended June 30, 1988 (4) Form 10-K for the year ended
June 30, 1992 (5) Form 10-K for the year ended June 30, 1996 (6) Form 10-K/A for
the year ended June 30, 1996 (7) Form S-8 Registration Statement No. 33-70870
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Vacu-dry Company:
We have audited the accompanying consolidated balance sheets of Vacu-dry Company
(a California corporation) and Subsidiary as of June 30, 1998 and 1997, and the
related consolidated statements of earnings, changes in shareholders' equity,
and cash flows for each of the three years in the period ended June 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vacu-dry Company and Subsidiary
as of June 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles.
San Francisco, California,
August 21, 1998
<PAGE>
<TABLE>
<CAPTION>
VACU-DRY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--JUNE 30, 1998 AND 1997
<S> <C> <C>
1998 1997
---------------- ---------------
ASSETS
CURRENT ASSETS:
Cash $ 385,000 $ 283,000
Accounts receivable, less allowances for uncollectible accounts of $58,000 and
$63,000 in 1998 and 1997, respectively 2,298,000 1,567,000
Income tax receivable 127,000 70,000
Inventories, less LIFO reserves of $1,114,000 and $2,180,000 in 1998 and 1997,
respectively 7,926,000 5,055,000
Prepaid expenses 334,000 131,000
Current deferred income taxes, net 360,000 239,000
---------------- ---------------
Total current assets 11,430,000 7,345,000
---------------- ---------------
PROPERTY, PLANT, AND EQUIPMENT:
Land 231,000 231,000
Buildings and improvements 6,604,000 6,570,000
Machinery and equipment 11,362,000 11,059,000
Construction in progress 390,000 77,000
---------------- ---------------
Total property, plant, and equipment 18,587,000 17,937,000
Accumulated depreciation (11,803,000) (10,706,000)
---------------- ---------------
Net property, plant, and equipment 6,784,000 7,231,000
---------------- ---------------
GOODWILL, net of accumulated amortization of $5,000 in 1998 2,562,000 0
---------------- ---------------
Total assets $ 20,776,000 $ 14,576,000
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit $ 0 $ 1,354,000
Current maturities of long-term debt 438,000 557,000
Accounts payable 3,789,000 490,000
Accrued payroll and related liabilities 936,000 539,000
Other accrued expenses 353,000 173,000
---------------- ---------------
Total current liabilities 5,516,000 3,113,000
---------------- ---------------
BORROWINGS UNDER LINE OF CREDIT 2,297,000 0
---------------- ---------------
LONG-TERM DEBT, net of current maturities 2,203,000 1,808,000
---------------- ---------------
DEFERRED INCOME TAXES, net 865,000 826,000
---------------- ---------------
MINORITY INTEREST 509,000 0
---------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock: 2,500,000 shares authorized; no shares outstanding 0 0
Common stock: 5,000,000 shares authorized, no par value; 1,511,079 and 1,642,757
shares outstanding in 1998 and 1997, respectively 2,837,000 3,635,000
Warrants for common stock 456,000 0
Retained earnings 6,093,000 5,194,000
---------------- ---------------
Total shareholders' equity 9,386,000 8,829,000
================ ===============
Total liabilities and shareholders' equity $ 20,776,000 $ 14,576,000
================ ===============
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VACU-DRY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<S> <C> <C> <C>
1998 1997 1996
---------------- ---------------- ---------------
REVENUE:
Net sales $26,094,000 $ 23,798,000 $ 26,533,000
Other 586,000 635,000 685,000
---------------- ---------------- ---------------
Total revenue 26,680,000 24,433,000 27,218,000
---------------- ---------------- ---------------
COSTS AND EXPENSES:
Cost of sales 21,565,000 21,258,000 24,142,000
Selling, general, and administrative 3,384,000 2,154,000 2,127,000
Interest 310,000 272,000 298,000
---------------- ---------------- ---------------
Total costs and expenses 25,259,000 23,684,000 26,567,000
---------------- ---------------- ---------------
Earnings before minority interest and provision
for income taxes 1,421,000 749,000 651,000
Minority interest 8,000 0 0
---------------- ---------------- ---------------
Earnings before provision for income taxes 1,429,000 749,000 651,000
PROVISION FOR INCOME TAXES 530,000 232,000 217,000
================ ================ ===============
Net earnings $ 899,000 $ 517,000 $ 434,000
================ ================ ===============
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS:
Basic 1,581,014 1,647,723 1,703,968
Diluted 1,600,327
EARNINGS PER COMMON SHARE:
Basic $0.57 $.31 $.25
Diluted 0.56
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VACU-DRY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<S> <C> <C> <C> <C> <C>
Common Stock Warrants for Total
Number Common Retained Shareholders'
of Shares Amount Stock Earnings Equity
------------- -------------- --------------- -------------- ---------------
BALANCE, JUNE 30, 1995 1,698,030 $ 3,936,000 $ 0 $ 4,243,000 $ 8,179,000
Net earnings 0 0 0 434,000 434,000
Issuance of common stock 15,324 65,000 0 0 65,000
------------- -------------- --------------- -------------- ---------------
BALANCE, JUNE 30, 1996 1,713,354 4,001,000 0 4,677,000 8,678,000
Net earnings 0 0 0 517,000 517,000
Repurchase of common stock (80,000) (407,000) 0 0 (407,000)
Issuance of common stock 9,403 41,000 0 0 41,000
------------- -------------- --------------- -------------- ---------------
BALANCE, JUNE 30, 1997 1,642,757 3,635,000 0 5,194,000 8,829,000
Net earnings 0 0 0 899,000 899,000
Repurchase of common stock (139,100) (835,000) 0 0 (835,000)
Issuance of common stock 7,422 37,000 0 0 37,000
Issuance of warrants 0 0 456,000 0 456,000
============= ============== =============== ============== ===============
BALANCE, JUNE 30, 1998 1,511,079 $ 2,837,000 $ 456,000 $ 6,093,000 $ 9,386,000
============= ============== =============== ============== ===============
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VACU-DRY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997, AND 1996
<S> <C> <C> <C>
1998 1997 1996
----------------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 899,000 $ 517,000 $ 434,000
----------------- ---------------- -----------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization expense 1,102,000 1,025,000 947,000
Loss on sale of assets 0 0 20,000
Deferred income tax provision 27,000 64,000 (86,000)
Minority interest (8,000) 0 0
Changes in assets and liabilities:
Accounts receivable, net (569,000) 1,117,000 (1,005,000)
Income tax receivable (57,000) (70,000) 155,000
Inventories, net (648,000) (1,625,000) 1,984,000
Prepaid expenses (136,000) (15,000) 60,000
Accounts payable 117,000 (188,000) 285,000
Accrued payroll and related liabilities 383,000 63,000 (50,000)
Accrued expenses (37,000) 35,000 (253,000)
----------------- ---------------- -----------------
174,000 406,000 2,057,000
----------------- ---------------- -----------------
Net cash provided by operating activities
1,073,000 923,000 2,491,000
----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (595,000) (1,338,000) (470,000)
Proceeds from sale of assets 0 0 8,000
Acquisition of Made In Nature, net of cash acquired (297,000) 0 0
----------------- ---------------- -----------------
Net cash used for investing activities (892,000) (1,338,000) (462,000)
----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the line of credit 11,245,000 8,030,000 11,002,000
Payments on line of credit (10,302,000) (7,502,000) (12,527,000)
Proceeds from issuance of long-term debt 0 805,000 0
Principal payments of long-term debt (1,059,000) (483,000) (542,000)
Repurchase of common stock 0 (407,000) 0
Issuance of common stock 37,000 41,000 65,000
----------------- ---------------- -----------------
Net cash provided by (used for) financing
activities (79,000) 484,000 (2,002,000)
----------------- ---------------- -----------------
NET INCREASE IN CASH 102,000 69,000 27,000
CASH AT BEGINNING OF YEAR 283,000 214,000 187,000
================= ================ =================
CASH AT END OF YEAR $ 385,000 $ 283,000 $ 214,000
================= ================ =================
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
VACU-DRY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Vacu-dry Company (Vacu-dry) is engaged in the business of the development,
production, and marketing of fruit-related products. Vacu-dry's products include
low-moisture fruits, bulk apple juice, apple juice concentrate, private label
drink mixes, and low-moisture food products, which are sold to manufacturers
principally in the United States and Canada. On June 11, 1998, Vacu-dry formed
Made In Nature Company, Inc. (MINCO) upon the acquisition of certain assets and
liabilities of Made In Nature, Inc. (see Note 2). MINCO is engaged in the
business of marketing certified organic, packaged foods and chilled pasteurized
beverages. The consolidated company is referred to as the Company.
The low-moisture food industry in the United States is comparatively small, with
only a few organizations engaged in the dehydration of fruits to low moisture
levels. Vacu-dry has one major direct competitor in the low-moisture and
evaporated business. Numerous processors compete in the business of bulk apple
juice and concentrate. The organic food industry in the United States is also
comparatively small, with only a few organizations engaged in the marketing of
organic dried fruits and juices.
Effective July 1, 1996, a representation agreement with Confoco, Inc. (Confoco)
for the sale of low-moisture banana and pumpkin flakes terminated. For the year
ended June 30, 1996, Vacu-dry recorded gross profit on Confoco products of
$368,000. Under the agreement with Confoco, for two years from the date of
termination, Vacu-dry is prohibited from distributing banana products to those
customers in the United States, Canada, and Mexico that currently purchase
Confoco's products from the Company.
Vacu-dry's three largest customers accounted for approximately 17 percent and 22
percent of net sales in 1998 and 1997, respectively.
Basis of Presentation
The accompanying financial statements include the accounts of Vacu-dry and its
85 percent-owned subsidiary, MINCO. The accompanying consolidated statements of
earnings for the year ended June 30, 1998, include the accounts of MINCO for the
period from June 11, 1998, to June 30, 1998. All significant intercompany
transactions have been eliminated in consolidation.
<PAGE>
<TABLE>
<CAPTION>
Supplemental Statements of Cash Flows Information
<S> <C> <C> <C>
1998 1997 1996
---------------- ------------- -------------
Cash paid for:
Interest $ 309,000 $ 264,000 $ 309,000
================ ============= =============
Income taxes $ 657,000 $ 381,000 $ 316,000
================ ============= =============
Supplemental disclosure of noncash transactions:
Repurchase of common stock through issuance of notes payable
$ 835,000 $ 0 $ 0
================ ============= =============
Details of acquisition of Made In Nature:
Fair value of assets acquired $ 5,223,000 $ 0 $ 0
Liabilities assumed (3,813,000) 0 0
Creditor debt subsequently converted to equity (517,000) 0 0
Warrants issued (456,000) 0 0
Accrued acquisition costs (101,000) 0 0
---------------- ------------- -------------
Cash paid 336,000 0 0
Less: Cash acquired (39,000) 0 0
================ ============= =============
Net cash paid for acquisition $ 297,000 $ 0 $ 0
================ ============= =============
</TABLE>
Inventories
Vacu-dry's inventories are stated at the lower of cost, using the last-in,
first-out (LIFO) method, or market. MINCO's inventories are valued at the lower
of cost (first-in, first-out method) or market (Note 3).
Property, Plant, and Equipment
Property and equipment acquired in connection with the acquisition of Made In
Nature were recorded at estimated fair value on the acquisition date. All other
property, plant, and equipment are stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives of the
assets as follows:
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 15 years
Improvements that extend the life of the asset are capitalized; other
maintenance and repairs are expensed. The cost of maintenance and repairs was
$1,142,000 in 1998, $936,000 in 1997, and $856,000 in 1996.
Income Taxes
The Company records income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109
requires the Company to compute deferred taxes based upon the amount of taxes
payable in future years after considering changes in tax rates and other
statutory provisions that will be in effect in those years.
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards.
Revenue
The Company recognizes revenue upon shipment of the product.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock
Based Compensation."
Earnings per Common Share
Basic earnings per common share are computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share include the dilutive effects of stock options
using the treasury stock method.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." In February 1998, the Financial
Accounting Standards Board issued SFAS No. 132, "Employer's Disclosures about
Pension Plans and Other Postretirement Benefits." SFAS Nos. 130 and 132 are not
expected to impact the Company's financial reporting. The disclosure
requirements of SFAS No. 131 will be required in fiscal year 1999. Management
anticipates disclosing the Company's results as three business segments.
2. ACQUISITION OF MADE IN NATURE:
On April 22, 1998, MINCO was formed for the purpose of acquiring Made In Nature,
Inc. On June 11, 1998, Vacu-dry acquired the assets and certain liabilities of
Made In Nature, Inc. In addition to the assumption of liabilities, Vacu-dry paid
$336,000 in cash and issued to Made In Nature, Inc. and its primary shareholder
a total of 112,000 warrants to purchase Vacu-dry's common stock at $8.00 per
share, expiring through June 2003. The warrant price was equal to the market
price of the Company's stock on June 11, 1998. The value assigned to the
warrants at acquisition date was $456,000 and is included in equity as warrants
for common stock. Subsequent to the purchase, Vacu-dry entered into an agreement
with a creditor of Made In Nature, Inc. whereby this creditor converted its debt
into a 15 percent equity in MINCO. The acquisition was accounted for using the
purchase method of accounting. The excess of purchase price over the estimated
fair values of assets acquired and liabilities assumed of $2,567,000 has been
recorded as goodwill and is being amortized on a straight-line basis over 20
years. The estimated fair value of assets acquired and liabilities assumed is
summarized as follows:
Assets:
Current assets $ 2,601,000
Property and equipment 55,000
-------------
Total assets 2,656,000
-------------
Liabilities:
Other current liabilities 1,218,000
Creditor debt subsequently converted to equity 517,000
Short-term notes payable 2,095,000
Other long-term debt 500,000
-------------
Total liabilities 4,330,000
=============
Net liabilities acquired $ 1,674,000
=============
Goodwill is calculated as follows:
Cash purchase price $ 336,000
Acquisition costs 101,000
Value of warrants issued 456,000
Excess of liabilities assumed over assets acquired 1,674,000
=============
Goodwill $ 2,567,000
=============
The following unaudited pro forma consolidated results of operations for the
years ended June 30, 1998 and 1997, are presented as if the Made In Nature
acquisition had been made at the beginning of each period presented. The
unaudited pro forma information is not necessarily indicative of either the
results of operations that would have occurred had the purchase been made during
the periods presented or the future results of the combined operations.
1998 1997
---------------- ---------------
(unaudited)
Net sales $ 30,861,000 $ 28,697,000
Net loss (125,000) (767,000)
Basic loss per common share $(.08) $(.47)
<PAGE>
3. INVENTORIES:
Inventories at June 30 consist of the following (LIFO cost for Vacu-dry; FIFO
cost for MINCO):
1998 1997
-------------- ---------------
Finished good $ 7,014,000 $ 4,208,000
Work in process 470,000 291,000
Raw material and containers 442,000 556,000
-------------- ---------------
Total $ 7,926,000 $ 5,055,000
============== ===============
4. BORROWINGS UNDER LINE OF CREDIT:
Borrowings under the line of credit are secured by Vacu-dry's inventory and
accounts receivable. Interest accrues monthly at the bank's prime lending rate.
1998 1997
------------------------- -------------------------
Balance at June 30 $2,297,000 $ 1,354,000
Maximum amount available
under the line of credit $4,500,000 $ 3,500,000
Average borrowings $1,078,000 $ 982,000
Maximum borrowings $2,316,000 $ 3,160,000
Interest at Prime Prime
Interest rate at June 30 8.50% 8.50%
Weighted average interest rate 8.62% 8.32%
Expiration date November 1, 1999 November 1, 1997
In accordance with the covenants of the revolving line of credit note with
the Company's bank, the Company will not, without prior written consent of the
bank, declare or pay any dividend or distribution either in cash, stock, or any
other property on the Company's stock now or hereafter outstanding. No dividends
were declared in fiscal 1998, 1997, or 1996. Among the restrictions under the
line of credit are provisions that require the Company to maintain certain
financial ratios. The Company obtained a waiver for the repurchase of stock (see
Note 7) and amended a financial covenant during the year to remain in compliance
with the agreement.
<TABLE>
<CAPTION>
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<S> <C> <C>
1998 1997
--------------- ---------------
Note payable: five-year consolidation note, interest fixed at 7.83 percent,
interest and principal due monthly, maturing in September 1998, secured by
accounts receivable, inventory, equipment, and fixtures
$ 67,000 $ 267,000
Note payable: seven-year consolidation note, interest fixed at 8.5 percent,
interest and principal due monthly, principal due in annual installments of
$215,000 in 1999 and 2000, with a final payment of $717,000 due at maturity,
maturing in September 2000, secured by accounts receivable, inventory,
equipment, and fixtures
1,147,000 1,361,000
Note payable: five-year note, interest at the yield of 30-day commercial paper
(5.55 percent at June 30, 1998) plus 2.1 percent, interest and principal due
monthly, maturing December 2001, secured by equipment
592,000 737,000
Notes payable: unsecured five-year notes resulting from repurchase of stock,
interest at 8.5 percent, interest due monthly, principal due on
January 20, 2003 835,000 0
--------------- ---------------
Total 2,641,000 2,365,000
Less: Current maturities (438,000) (557,000)
--------------- ---------------
Long-term debt $ 2,203,000 $ 1,808,000
=============== ===============
</TABLE>
<PAGE>
Maturities of long-term debt are as follows:
Year Ending
June 30
----------------------
1999 $ 438,000
2000 383,000
2001 898,000
2002 87,000
2003 835,000
--------------
Total $ 2,641,000
==============
6. INCOME TAXES:
The following is a summary of the Company's provision for income taxes:
1998 1997 1996
------------- ------------- --------------
Current:
Federal $ 486,000 $ 257,000 $ 259,000
State 71,000 39,000 44,000
Deferred:
Federal 49,000 (50,000) 101,000
State (76,000) (14,000) (187,000)
============= ============= ==============
Provision $ 530,000 $ 232,000 $ 217,000
============= ============= ==============
A reconciliation of the income tax provision to the expected provision at the
federal statutory income tax rate is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1998 % 1997 % 1996 %
------------- ------- ------------- ------- ------------- -------
Provision at federal statutory rate $ 486,000 34% $ 253,000 34% $ 221,000 34%
State taxes, less federal tax benefit 88,000 6 47,000 6 41,000 6
Tax credits and other (44,000) (3) (68,000) (9) (45,000) (7)
============= ======= ============= ======= ============= =======
Total provision $ 530,000 37% $ 232,000 31% $ 217,000 33%
============= ======= ============= ======= ============= =======
Temporary differences that gave rise to deferred tax assets and liabilities for
1998 and 1997 were as follows:
1998 1997
-------------- -------------
Deferred tax assets:
Employee benefit accruals $ 140,000 $ 145,000
Unicap and inventory reserves 246,000 119,000
Tax credit carryforwards 22,000 65,000
State income taxes 13,000 1,000
Other 2,000 25,000
-------------- -------------
Total deferred tax assets 423,000 355,000
-------------- -------------
Deferred tax liabilities:
Depreciation (879,000) (892,000)
Property taxes (49,000) (50,000)
-------------- -------------
Total deferred tax liabilities (928,000) (942,000)
-------------- -------------
$ (505,000) $ (587,000)
============== =============
</TABLE>
<PAGE>
At June 30, 1998, the Company has state alternative minimum tax credit
carryforwards of $22,000 to offset future state taxable income.
7. STOCK REPURCHASE:
During the year, the Company repurchased 139,100 shares from three existing
shareholders in exchange for notes payable in the amount of $835,000. The
purchase price was determined based upon the market price at or about the time
of the negotiated transaction.
8. STOCK APPRECIATION RIGHTS PLAN:
The Company has a stock appreciation rights (SAR) plan as an incentive for key
employees. Under the SAR plan, key employees are granted rights entitling them
to market price increases in the Company's stock. At June 30, 1998 and 1997,
100,000 SARs were authorized. A summary of the outstanding SARs is as follows:
Rights Outstanding
at June 30
-------------------------
Price per Right 1998 1997
- --------------------- ------------ ------------
$2.69 4,550 4,950
3.75 1,600 1,600
4.31 1,500 1,500
4.63 6,500 9,900
5.63 200 200
8.88 2,000 4,500
9.63 3,000 3,000
-------------------------
19,350 25,650
============ ============
All rights are granted at fair market value at the date of grant. Rights
generally vest ratably over a period from the second to the sixth anniversary
date of the grant. The SAR liability and expense or credit recorded quarterly is
based on the market price of the Company's stock as of the balance sheet date.
In 1998, 1997, and 1996, the Company increased (decreased) selling, general, and
administrative expenses by $43,000, ($4,000), and ($1,000), respectively, in
order to reflect the current SAR liability.
<PAGE>
9. EMPLOYEE STOCK PURCHASE PLAN:
The Employee Stock Purchase Plan enables substantially all employees to
purchase shares of the Company's common stock at 85 percent of the market value
on the first or last business day of the quarterly offering period, whichever is
lower. A maximum of 100,000 shares is authorized for issuance over the ten-year
term of the plan that began on January 1, 1994. The following shares were issued
under the terms of the plan:
Shares Average Price
Issued per Share
---------- ------------------
1998 7,422 $4.98
1997 9,403 4.26
1996 15,324 4.25
10. EMPLOYEE STOCK OPTION PLAN:
During 1996, the Board of Directors (the Board) approved a stock option plan
(the Plan) for employees and nonemployee consultants covering 90,000 shares of
common stock. In 1998, the Plan was amended to cover 150,000 shares of common
stock. The Plan includes incentive stock options (ISOs) and nonqualified stock
options (NSOs). Some of the terms and conditions of the Plan are different for
ISOs and NSOs. The purchase price of each ISO granted will not be less than the
fair market value of the Company's common shares at the date of grant. The
purchase price of each NSO granted shall be determined by the Board in its
absolute discretion, but in no event shall such price be less than 85 percent of
the fair market value at the time of grant. NSO and ISO options granted are
exercisable for ten years from the date of grant.
The number of shares available for granting future options was 60,526 as of June
30, 1998, and 526 as of June 30, 1997 and 1996. Options for 89,474 shares were
granted in 1996 and remain outstanding. These options have an exercise price of
$5.00 per share and a remaining life of eight years and vest 25 percent in year
one, 50 percent in year two, and 25 percent in year three. At June 30, 1998 and
1997, 67,107 and 22,369 options were exercisable, respectively.
The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for the Plan been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the following pro forma amounts:
1998 1997 1996
-------------- ------------- -------------
Net income:
As reported $ 899,000 $ 517,000 $ 434,000
Pro forma 854,000 472,000 389,000
Basic earnings per share:
As reported 0.57 0.31 0.25
Pro forma 0.54 0.29 0.23
Diluted earnings per share:
As reported 0.56
Pro forma 0.53
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model, with the following weighted-average
assumptions used for the 1996 grant: weighted average risk-free interest rate of
6.61 percent; expected dividend yield of 0 percent; expected life of five years
for the Plan options; expected volatility of 37.44 percent.
11. EARNINGS PER SHARE CALCULATION:
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share." The following table provides the detail of the basic and
diluted earnings per share computations:
Year Ended
June 30, 1998
-----------------------------
Diluted Basic
-------------- --------------
Net income $899,000 $899,000
============== ==============
Weighted average shares outstanding 1,581,014 1,581,014
==============
Effect of dilutive stock options 19,313
-----------
Weighted average shares outstanding 1,600,327
===========
Earnings per common share and common share
equivalent $0.56 $0.57
============== ==============
12. COMMITMENTS:
MINCO has purchase agreements with certain growers and processors to provide the
Company with products and services to be used in the normal course of
operations. The aggregate purchase commitment as of June 30, 1998, under these
agreements was approximately $2,165,000. Most of the agreements provide for
multiple-year future purchases at fixed prices.
The Company leases office space and equipment under leases that expire in 1999.
At June 30, 1998, future minimum rental payments are $213,000.
Rental expense under these leases was $259,000 in 1998, $244,000 in 1997, and
$249,000 in 1996.
The Company has been leasing excess warehouse space, generating revenues of
$518,000 in 1998, $537,000 in 1997, and $441,000 in 1996. These amounts are
classified as other revenue in the statements of earnings. The leases have
varying terms, which range from month-to-month to expiration dates through 2007.
Future minimum lease income as of June 30, 1998, is as follows:
Year Ending
June 30
------------
1999 $ 701,000
2000 586,000
2001 515,000
2002 515,000
2003 515,000
Thereafter 630,000
-------------
Total $ 3,462,000
==============
In order to resolve Year 2000 issues and to improve system efficiencies and
capabilities, the Company is in the process of acquiring and developing a new
computer system, including hardware and software packages. Management estimates
that the total cost of the system will be approximately $800,000. The
expenditures for the new system will primarily occur in fiscal year 1999.
13. RETIREMENT PLANS:
The Company has a contributory retirement savings and profit-sharing plan
covering nonunion employees. The Company contributes one and one-half times the
first 3 percent of employee contributions to the retirement savings plan.
Profit-sharing contributions are derived using a specific formula based upon the
Company's earnings. Company contributions to the retirement savings and profit
sharing plan are funded currently and were approximately $148,000 in 1998 and
$79,000 in 1997 and 1996. The employer's contributions for any fiscal year may
not exceed the amount lawfully deductible by the Company under the provisions of
the Internal Revenue Code.
The Company contributes to a defined contribution plan for employees covered by
collective bargaining agreements. These contributions, funded currently, were
$477,000 in 1998, $335,000 in 1997, and $256,000 in 1996.
14. RESEARCH AND DEVELOPMENT:
The Company sponsors research activities relating to the development of new
products and the improvement of existing products. The cost of such activities
charged to expense was $370,000 in 1998, $321,000 in 1997, and $269,000 in 1996.
<PAGE>
15. RELATED-PARTY TRANSACTIONS:
A member of the Company's Board is a member of the law firm that serves as the
Company's general counsel. During 1998, 1997, and 1996, the Company incurred
$168,000, $28,000, and $21,000, respectively, for legal services from this firm.
Amounts payable to this firm as of June 30, 1998, totaled $33,000.
The Company entered into an agreement with a member of the Board to provide
consulting services to the Company during the 1997 fiscal year. The Company
recorded an expense of $30,000 in fiscal 1997 related to this agreement.
<TABLE>
<CAPTION>
16. QUARTERLY RESULTS (UNAUDITED):
<S> <C> <C> <C> <C> <C>
For the Year Ended June 30, 1998
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-----------------------------------------------------------------------
Net sales $6,208,000 $7,481,000 $6,208,000 $6,197,000 $ 26,094,000
Earnings before income taxes 142,000 945,000 202,000 140,000 1,429,000
Net earnings 95,000 622,000 134,000 48,000 899,000
Earnings per common share:
Basic $0.06 $0.38 $0.09 $0.03 $0.57
Diluted $0.06 $0.38 $0.09 $0.03 $0.56
For the Year Ended June 30, 1997
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-----------------------------------------------------------------------
Net sales $6,043,000 $6,296,000 $5,894,000 $5,565,000 $23,798,000
Earnings (loss) before income taxes 69,000 636,000 51,000 (7,000) 749,000
Net earnings 42,000 382,000 27,000 66,000 517,000
Earnings per common share:
Basic $0.03 $0.23 $0.02 $0.03 $0.31
Diluted $0.03 $0.23 $0.02 $0.03 $0.31
</TABLE>
Form 10-K
Copies of the Company's Form 10-K on file with the Securities and Exchange
Commission may be obtained by writing to:
Esther K. Castain
Vacu-dry Company
P.O. Box 2418
Sebastopol, California 95473-2418
AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of June 11, 1998 by and between
Global Walk, Inc., a Japanese corporation ("Global"); MIN Acquisition Corp., a
California corporation (the "Company"); and Vacu-dry Company, a California
corporation ("Vacu-dry").
R E C I T A L S:
WHEREAS, Global and Made In Nature Inc. ("Made In Nature") entered into an
Amended and Restated Purchase and Prepayment Agreement dated October 17, 1996
(the "Purchase Agreement") pursuant to which Global made certain prepayments to
Made In Nature against the future delivery by Made In Nature to Global of frozen
organic apple juice and other products; and
WHEREAS, as of the date hereof, there is due from Made in Nature to Global
pursuant the Purchase Agreement approximately $1,050,000, including principal,
interest, and costs; and
WHEREAS, to secure its obligations pursuant to the Purchase Agreement, Made
In Nature granted to Global a security interest in certain of its assets
pursuant to an Amended and Restated Security Agreement dated October 17, 1996
(the "Security Agreement"); and
WHEREAS, to further secure Made In Nature's obligations pursuant to the
Purchase Agreement, Gerald E. Prolman pledged certain shares of Made In Nature's
issued and outstanding common stock pursuant to a Pledge Agreement dated October
17, 1996 (the "Pledge Agreement"); and
WHEREAS, pursuant to a Subscription Agreement dated November 17, 1997 (the
"Subscription Agreement"), Global purchased $250,000 face value of Made In
Nature's 8% Senior Secured Convertible Promissory Note (the "Secured Note"); and
WHEREAS, to secure its obligations pursuant to the Secured Note, Made In
Nature granted to Global a security interest in certain of its assets pursuant
to a Security Agreement dated November 17, 1997 (the "Secured Note Security
Agreement") (the Purchase Agreement, the Security Agreement, the Pledge
Agreement, the Subscription Agreement, the Secured Note and the Secured Note
Security Agreement are hereinafter referred to as the "Loan Agreements"); and
WHEREAS, the Company has been organized by Vacu-dry to acquire
substantially all of the assets of Made In Nature pursuant to an Asset Purchase
Agreement dated as of June 11, 1998 (the "Asset Purchase Agreement"); and
WHEREAS, Global desires to acquire certain shares of the Company's common
stock on the terms and conditions provided for in this Agreement; and
WHEREAS, Vacu-dry is a party to this Agreement for purposes of certain
representations, warranties and covenants.
NOW, THEREFORE, in consideration of these premises and the mutual covenants
and agreements herein contained and other valuable consideration, the receipt
and adequacy of which the parties hereto acknowledge, the parties agree as
follows:
1. Purchase and Sale of the Shares. Subject to the terms and conditions of
this Agreement, Global agrees to purchase at the Closing, and the Company agrees
to sell and issue to Global at the Closing, against payment of the purchase
price set forth below, 15,000 shares of the Company's common stock (the
"Shares").
2. Purchase Price. The purchase price to be paid by Global for the Shares
shall be $1.00.
3. Closing Date; Delivery. The purchase and sale of the Shares shall be
held at the offices of Severson & Werson, A Professional Corporation, One
Embarcadero Center, 26th Floor, San Francisco, California 94111 immediately
prior to the closing of the purchase and sale provided for in the Asset Purchase
Agreement or at such other times and places as the parties may agree upon
(collectively, the "Closing"). At the Closing, subject to the terms of this
Agreement, the Company will deliver to Global a certificate representing the
Shares against delivery of the Purchase Price.
4. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, Global that:
(a) Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has the
requisite corporate power to own and operate its properties and assets and to
carry on its business as presently conducted and as proposed to be conducted.
The Company is qualified, licensed or domesticated as a foreign corporation in
all jurisdictions where the nature of its activities or of its properties owned
or leased makes such qualification, licensing or domestication necessary at this
time.
(b) Corporate Power. The Company has now, or will have as of the
Closing, all requisite legal and corporate power to enter into this Agreement,
to sell the Shares hereunder, and to carry out and perform its obligations under
the terms of this Agreement.
(c) Capitalization. The authorized capital stock of the Company
consists of 1,000,000 shares of Common Stock, no par value, of which 85,000
shares are issued and outstanding and owned by Vacu-dry (the "Vacu-dry shares").
The issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, and were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. There are no outstanding rights, options, warrants, conversion
rights, or agreements for the purchase or acquisition from the Company of any
shares of its capital stock.
(d) Authorization.
(i) All corporate action on the part of the Company, its officers,
directors, and stockholders necessary for the sale and issuance of the Shares
pursuant hereto and the performance of the Company's obligations hereunder, has
been taken or will be taken prior to the Closing. This Agreement is a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application affecting
enforcement of creditors' rights, and except as limited by application of legal
principles affecting the availability of equitable remedies.
(ii) The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that such Shares may be
subject to restrictions on transfer under state and/or federal securities laws
as set forth herein and as may be required by future changes in such laws.
(iii) No shareholder of the Company has any right of first refusal or
any preemptive rights in connection with the issuance of the Shares or of Common
Stock by the Company.
(e) Financial Statements. The Company's balance sheet as of June 5, 1998
which has been supplied to Global is true and correct, has been prepared in
accordance with generally accepted accounting principles (except that the
balance sheet does not contain the footnotes required by generally accepted
accounting principles), and fairly presents the financial condition of the
Company as of the date thereof. As of the date hereof there are no liabilities
of the Company other than liabilities provided for in the balance sheet and
other than liabilities pursuant to the Asset Purchase Agreement.
(f) Compliance with Other Instruments, None Burdensome, etc. The Company is
not in violation of any term of its Articles of Incorporation or Bylaws, or in
any material respect of any mortgage, indenture, contract, agreement,
instrument, or to the best knowledge of the Company, any judgment, decree,
order, statute, rule, or regulation applicable to it. The execution, delivery,
and performance by the Company of this Agreement, and the issuance and sale of
the Shares pursuant hereto, will not result in any such violation or be in
conflict with or constitute a default under any such term, or cause the
acceleration of maturity of any loan or material obligation to which the Company
is a party or by which it is bound or with respect to which any of them is an
obligor or guarantor, or result in the creation or imposition of any material
lien, claim, charge, restriction, equity or encumbrance of any kind whatsoever
upon, or to the best knowledge of the Company after due inquiry, give to any
other person any interest or right (including any right of termination or
cancellation) in or with respect to any of the material properties, assets,
business or agreements of the Company.
(g) Litigation, etc. There are no actions, proceedings or investigations
pending (or to the best of the Company's knowledge, any basis therefor), which,
either in any case or in the aggregate, might result in any adverse change in
the business, prospects, conditions, affairs, or operations of the Company or in
any of its properties or assets, or in any impairment of the right or ability of
the Company to carry on its business as proposed to be conducted, or in any
material liability on the part of the Company, or which question the validity of
this Agreement or any action taken or to be taken in connection herewith.
(h) Governmental Consent, etc. No consent, approval, or authorization of,
or designation, declaration, or filing with, any governmental unit is required
on the part of the Company in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated hereby (except exemption
notice filings under the Blue Sky securities laws which filings have been or
will be timely made so as to comply with such laws).
(i) Offering. The offer, sale and issuance of the Shares in conformity with
the terms of this Agreement will not violate the Securities Act of 1933 (the
"Securities Act") or any applicable state Blue Sky law.
(j) Insurance. The Company has in full force and effect fire, casualty and
other insurance policies, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
(k) The Shares:
(i) are free and clear of any security interests, liens, claims, or
other encumbrances;
(ii) have been duly and validly authorized and issued and are, and as
of the Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued or sold
in violation of any pre-emptive or other similar rights of the holders of any
securities of the Company;
(iv) will not subject the holders thereof to personal liability by
reason of being such holders.
5. Representations and Warranties of Global. Global represents and warrants
to, and agrees with, the Company as follows:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over Global is
required for execution of this Agreement, including, without limitation, the
purchase of the Shares, or the performance of Global's obligations hereunder.
(b) Global understands that no federal or state agency has passed on or
made any recommendation or endorsement of the Shares.
(c) The Company has given Global the opportunity to have answered all of
Global's questions concerning the Company and its business and has made
available to Global all information requested by Global which is reasonably
necessary to verify the accuracy of other information furnished by the Company.
Global has received and evaluated all information about the Company and its
business which Global deems necessary to formulate an investment decision and
does not desire any further information.
(d) Global understands that the Shares are being offered and sold to it
in reliance on specific exemptions from or non-application of the registration
requirements of federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments, and understandings of Global set forth herein in
order to determine the applicability of such exemptions or non-applications and
the suitability of Global to acquire the Shares.
(e) Global is aware that the Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) and Regulation D thereof, and that they must be held by Global
for an indeterminate period, and Global must therefore bear the economic risk of
such investment indefinitely, unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from registration.
(f) Each instrument representing the Shares may be endorsed with the
following legends:
(i) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(ii) Any other legend required by California or other state
securities laws.
The Company need not register a transfer of legended Shares and may
instruct its transfer agent not to register the transfer of the Shares unless
one of the conditions specified in the foregoing legends is satisfied.
(g) Any legend endorsed on an instrument pursuant to Section 4(f) hereof
and the stop transfer instructions with respect to such Shares shall be removed,
and the Company shall issue an instrument without such legend to the holder of
such Shares if such Shares are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder provides the Company with an opinion of counsel for
such holder of the Shares, reasonably satisfactory to the Company, to the effect
that a sale, transfer or assignment of such Shares may be made without
registration.
(h) Global is acquiring the Shares for Global's own account, for
investment, and without any present intention to engage in a distribution
thereof.
(i) Global has the knowledge and experience in financial and business
matters to evaluate the merits and risks of the proposed investment.
(j) Global is an "Accredited Investor" as that term is defined under Rule
501 adopted pursuant to the Securities Act. "Accredited Investors" are defined
in Rule 501 to include among others: (i) various specified institutional
investors (such as banks, savings and loan associations, licensed brokers or
dealers, insurance companies, investment companies, small business investment
companies, employee benefit plans having assets in excess of $5,000,000, and
self-directed plans having investment decisions made solely by persons that are
Accredited Investors); (ii) any entity with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered; (iii) any person who had individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (iv) any person whose individual net
worth (or joint net worth with the person's spouse) at the time of purchase
exceeds $1,000,000; (v) directors and executive officers of the Company; (vi)
trusts with total assets in excess of $5,000,000 not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed by a
sophisticated person prescribed in Rule 506(b)(2)(ii); and (vii) any entity in
which all the equity owners are deemed accredited.
6. Conditions Precedent to Global's Obligations. The obligations of Global
hereunder are subject to the performance by the Company of its obligations
hereunder and to the satisfaction of the following additional conditions
precedent on or before the Closing Date:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by Global, be true and correct as of the date
hereof and as of the Closing, with the same force and effect as if they had been
made on and as of the Closing;
(b) After the date hereof and until the Closing Date, there shall not
have occurred:
(i) any change, or any development involving a prospective change,
in either the condition, financial or otherwise, or in the earnings, business or
operations, or in or affecting the properties of the Company [or the financial
or market conditions or circumstances in the United States, in either case
which, in Global's judgment, is material and adverse and makes it impractical or
inadvisable to proceed with the offering, sale, or delivery of the Shares];
(ii) an imposition of a new legal or regulatory restriction notin
effect on the date hereof, or any change in the interpretation of existing legal
or regulatory restrictions, that materially and adversely affects the offering,
sale, or delivery of the Shares;
(c) Vacu-dry shall have entered into a Co-Sale Agreement with Global
in the form of Exhibit A hereto.
(d) Vacu-dry shall have agreed to contribute as capital to the Company
without additional consider cash up to approximately $2,700,000 (depending upon
the final outcome of negotiations with Made In Nature's creditors) and common
stock warrants necessary to consummate the transactions provided for in the
Asset Purchase Agreement.
7. Conditions Precedent to the Company's Obligations. The obligations of
the Company under this Agreement are subject to the performance by Global of its
obligations hereunder and to the satisfaction of the following additional
conditions precedent on or before the Closing:
(a) The representations and warranties made by Global in this Agreement
shall, unless waived by the Company, be true and correct at the Closing, with
the same force and effect as if they had been made on, and as of, the Closing;
(b) Global shall have canceled all obligations of Made in Nature and
Gerald E. Prolman pursuant to the Loan Agreements and shall have released all
security interests granted and held pursuant thereto in form and substance
satisfactory to the Company.
8. Affirmative Covenants. The Company covenants and agrees as follows:
(a) Books of Account. The Company will keep books of record and account
in which full, true and correct entries are made of all of its and their
respective dealings, business and affairs in accordance with generally accepted
accounting principles. The Company will employ certified public accountants
selected by the Board of Directors of the Company who are "independent" within
the meaning of the accounting regulations of the Securities and Exchange
Commission and have annual audits made by such independent public accountants in
the course of which such accountants shall make such examinations, in accordance
with generally accepted auditing standards.
(b) Furnishing of Financial Statements and Information. The Company will
deliver to Global:
(i) as soon as practicable, but in any event within
90 days after the end of each fiscal year, a consolidated
balance sheet of the Company and its Subsidiaries, as of the
end of such fiscal year, together with the related
consolidated statements of operations, shareholders' equity
and cash flow for such fiscal year, setting forth in
comparative form figures for the previous fiscal year, all in
reasonable detail and duly certified by the Company's
independent public accountants, which accountants shall have
given the Company an opinion, unqualified as to the scope of
the audit, regarding such statements;
(ii) with reasonable promptness, such other
financial data relating to the business, affairs and financial
condition of the Company and any Subsidiaries as is available
to the Company and as from time to time Global may reasonably
request; and
(iii) at least 20 days prior to the earlier of (i)
the execution of any agreement relating to any merger or
consolidation of the Company with another corporation, or a
plan of exchange involving the outstanding capital stock of
the Company, or the sale, transfer or other disposition of all
or substantially all of the property, assets or business of
the Company to another corporation, or (ii) the holding of any
meeting of the shareholders of the Company for the purpose of
approving such action, written notice of the terms and
conditions of such proposed merger, consolidation, plan of
exchange, sale, transfer or other disposition.
(c) Inspection. The Company will permit Global and any of its officers or
employees, or any outside representatives designated by Global and reasonably
satisfactory to the Company, to visit and inspect at Global's expense any of the
properties of the Company, including its books and records (and to make
photocopies thereof or make extracts therefrom), and to discuss its affairs,
finances, and accounts with their officers, lawyers and accountants, except with
respect to trade secrets and similar confidential information, all to such
reasonable extent and at such reasonable times and intervals as Global may
reasonably request. Except as otherwise required by laws or regulations
applicable to Global, Global shall maintain, and shall require its
representatives to maintain, all information obtained pursuant to Section 8
hereof on a confidential basis.
(d) Election of Director. Vacu-dry and the Company covenant, so long as
Global and its affiliates shall own at least 10,000 shares of Common Stock, to
cause Mr. Nobuyoshi Takanashi to be elected a director of the Company.
(e) Right of Participation. The Company hereby grants to Global the right
of participation to purchase, pro rata, all or any part of New Securities (as
defined in Section 8(e)(i) which the Company may, from time to time, propose to
sell and issue. A pro rata share, for purposes of this right of participation,
is the quotient obtained by dividing the aggregate number of shares of Common
Stock held by the Global by the sum of (x) the total number of outstanding
shares of Common Stock plus (y) the total number of shares of Common Stock
issuable upon conversion of all outstanding capital stock convertible into
Common Stock or upon the exercise of all options and warrants to purchase the
Company's Common Stock.
(i) Except as set forth below, "New Securities"
shall mean any shares of capital stock of the Company,
including Common Stock and preferred stock, whether now
authorized or not, and rights, options or warrants to purchase
said shares of capital stock and securities of any type
whatsoever that are, or may become, convertible into said
shares of capital stock. Notwithstanding the foregoing, "New
Securities" does not include (i) securities offered to the
public generally pursuant to an underwritten registration
statement under the Securities Act, (ii) securities issued
pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the
assets, or other reorganization whereby the Company or its
shareholders own not less than fifty-one percent (51%) of the
voting power of the surviving or successor corporation, (iii)
shares of the Company's Common Stock or options exercisable
for the purchase of Common Stock issued to employees, officers
and directors of, and consultants and franchisees to the
Company pursuant to any incentive program approved by the
Board of Directors of the Company, or (iv) stock issued in
connection with any stock split, stock dividend or
recapitalization by the Company.
(ii) In the event that the Company proposes to
undertake an issuance of New Securities, it shall first make
an offering of such new securities to Global by giving Global
written notice of its intention, describing the type of New
Securities, and the price and terms upon which the Company
proposes to issue the same. The Global shall have fifteen (15)
business days from the date of receipt of any such notice to
agree to purchase up to its pro rata share of such New
Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. If
Global does not elect to purchase the New Securities as
provided herein, the Company shall have sixty (60) days
thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be
closed, if at all, within thirty (30) days from the date of
said agreement) to sell the New Securities not elected to be
purchased by Global at the price and upon terms no more
favorable than specified in the Company's notice. In the event
the Company has not sold the New Securities or entered into an
agreement to sell the New Securities within said sixty (60)
day period (or sold and issued New Securities in accordance
with the foregoing within thirty (30) days from the date of
said agreement), the Company shall not thereafter issue or
sell any New Securities without first offering such securities
in the manner provided above.
(iii) The right of participation hereunder is not
assignable, in whole or in part, except (A) from Global to an
entity controlling, controlled by, or under common control
with Global and (B) from Global to a transferee of the Shares
so long as such transferee acquires not less than 10,000
shares of Common Stock (appropriately adjusted for any stock
split, stock dividend or similar capital reorganization).
(f) Termination. The obligations of the Company and Vacu-dry pursuant to
this Section 8 shall terminate on the earlier of (i) the date of closing of an
initial underwritten public offering by the Company of its Common Stock pursuant
to an effective registration statement, (ii) a sale of all or substantially all
of the assets of the Company, (iii) a sale of all or substantially all of the
outstanding common stock of the Company, or (iv) a merger of the Company
following which the shareholders of the Company own together with their
affiliates less than 50% of the voting stock of the survivor.
9. Put and Call Rights.
(a) Grant of Put. Subject to the terms hereof, the Company hereby
irrevocably grants and issues to Global the right and option to sell to the
Company (hereinafter referred to as the "Put") all or any portion of the Shares
at a purchase price equal to the fair market value of such shares as hereinafter
determined (the "Purchase Price"). Subject to the provisions of Sections 9(e)
below, Global may exercise the Put and sell to the Company, and the Company
agrees to purchase from Global, all or any portion of the Shares. Global's right
to exercise the Put shall commence on July 1, 2001. Global shall have thirty
(30) days from commencement of the exercise period in which to exercise the Put
by notice to the Company specifying the number of Shares as to which the Put is
exercised.
(b) Grant of Call. Subject to the terms hereof, Global irrevocably
grants and issues to Global the right and option to purchase from Global
(hereinafter referred to as the "Call") all or any portion of the Shares at a
purchase price equal to the fair market value of such shares as hereinafter
determined (the "Purchase Price"). Subject to the provisions of Section 9(e)
below, the Company may exercise the Call and purchase from Global, and Global
agrees to sell to the Company, all or any portion of the Shares. The Company's
right to exercise the Call shall commence on July 1, 2001. The Company shall
have thirty (30) days from the commencement of the exercise period in which to
exercise the Call by notice to Global specifying the number of Shares as to
which the Call is exercised.
(c) Determination of Fair Market Value. The fair market value of the
Shares shall be determined by appraisal pursuant to the process described
herein. Upon the providing of a notice of Put or a notice of Call, the Shares
shall be appraised by a mutually agreed upon appraiser. If the parties cannot
agree upon a single appraiser within seven (7) days following the date of
delivery of a notice of Put or a notice of Call, the Shares shall be appraised
by two appraisers, one appointed by each party. Each party shall have twenty-one
(21) days following the date of the delivery of the notice of Put or notice of
Call to select its appraiser. Each appraiser shall be fully qualified to
appraise the ownership interests in privately held companies and shall be
independent of the appointing party. Each appraiser shall be instructed: (i) to
appraise the Shares as if they were to be sold to a single purchaser for their
fair market value in a transaction where a willing seller sells and a willing
buyer purchases, each acting without duress or urgency; (ii) not to apply a
discount for lack of marketability; and (iii) to complete such appraisal no
later than thirty (30) days following such appraiser's appointment. If the
difference between the values of the two appraisals does not exceed fifteen
percent (15%) of the value determined by the higher appraisal, the average of
the two appraisals shall establish the fair market value of the Shares. If the
difference between the values of the two appraisals exceeds fifteen percent
(15%) of the value determined by the higher appraisal, a third appraiser shall
be selected by the two appraisers within fourteen (14) days following completion
of the last of the two appraisals, and such third appraiser shall review and
enhance the work and conclusions of the initial two appraisers, and based on
such review and enhancement, issue a determination as to the fair market value
of the Shares within thirty (30) days thereafter, which determination shall
state a value neither higher than the higher nor lower than the lower of the two
previously issued values of the Shares and shall establish the fair market value
for the Shares. Copies of all final appraisals of all appraisers shall be
delivered to each party immediately after their completion. The cost of each
party's appraiser shall be borne by such party and the cost of the third
appraiser, if any, shall be borne by the parties equally.
(d) Payment and Delivery of Shares.
(i) Subject to Section 9(c)(ii) below, the Company
shall, within twenty days of the determination of the Purchase Price as
provided in Section 9(c) above, pay to Global the Purchase Price as
follows: (A) if the Purchase Price is to be paid pursuant to an
exercise of the Call provided in Section 9(b), in a single lump sum
payment in cash; or (B) if the Purchase Price is to be paid pursuant to
an exercise of the Put provided for in Section 9(a), at the Company's
sole option, in either of the following ways: (z) a single lump sum
payment in cash; or (y) an initial payment of twenty percent (20%) of
the Purchase Price, with the principal balance to be paid, at the
Company's option, in four (4) equal installments on the four succeeding
anniversary dates of the Exercise Date. If the Company selects the
installment form of payment, the unpaid balance shall bear simple
interest on the balance at the rate equal to the Prime Rate as
published in The Wall Street Journal. Such rate, at the option of the
Company exercisable at the time the Company elects the installment form
of payment, shall be fixed as of such date or shall change from time to
time. The Company may prepay any portion of the unpaid balance without
penalty. Such payments shall be made in exchange for the delivery, upon
payment of the initial payment, to the Company of a stock certificate
or certificates representing the total number of Shares being put and
purchased duly endorsed in blank by Global or having attached thereto a
stock power duly executed by Global in proper form for transfer. Any
unpaid amounts shall become immediately due and payable on the earlier
of (i) the date of closing of an initial underwritten public offering
by the Company of its Common Stock pursuant to an effective
registration statement, (ii) a sale of all or substantially all of the
assets of the Company, (iii) a sale of all or substantially all of the
outstanding common stock of the Company, or (iv) a merger of the
Company following which the shareholders of the Company together with
their affiliates own less than 50% of the voting stock of the survivor
(ii) In the event that any payment to be made by the
Company is prohibited by applicable provisions of California
Corporations Code Section 500 et seq. or by any other applicable law,
then such payment shall be immediately made by the Company at the next
earliest time together with simple interest on the balance at the rate
equal to the Prime Rate as published in The Wall Street Journal plus
2%, and to the extent possible, when compliance with said law may be
effected, and the Company agrees that it will execute all such
documents and take all such other steps as may be necessary to expedite
and effectuate to the extent possible such compliance.
(e) Termination. The Put and Call shall terminate, whether or not either
has then become exercisable, on the earlier of (i) the date of closing of an
initial underwritten public offering by the Company of its Common Stock pursuant
to an effective registration statement, (ii) a sale of all or substantially all
of the assets of the Company, (iii) a sale of all or substantially all of the
outstanding common stock of the Company, or (iv) a merger of the Company
following which the shareholders of the Company together with their affiliates
own less than 50% of the voting stock of the survivor.
10. Right of First Refusal. Each time Global proposes to transfer, assign,
convey, sell, encumber or in any way alienate all or any part of its Shares (or
is required by operation of law or other involuntary transfer to do so) Global
shall first offer such Shares to the Company. Global shall deliver a written
notice to the Company stating (i) Global's bona fide intention to transfer such
Shares, (ii) the name and address of the proposed transferee, (iii) the Shares
to be transferred, and (iv) the purchase price and terms of payment for which
Global proposes to transfer such Shares. Within thirty (30) days after receipt
of the notice, the Company shall have the first right to purchase or obtain such
Shares upon the price and terms of payment designated in such notice. If such
notice provides for the payment of non-cash consideration, the Company may elect
to pay the consideration in cash equal to the good faith estimate of the present
fair market value of the noncash consideration offered as determined by the
Company. If the Company elects not to purchase or obtain all of the Shares
designated in such notice, then Global may transfer the remainder of the Shares
described in the notice to the proposed transferee, providing such transfer (i)
is completed within thirty (30) days after the expiration of the Company's right
to purchase such Shares, and (ii) is made on terms no less favorable to Global
than as designated in the notice. If such Shares are not so transferred, Global
must give notice in accordance with this Section prior to any other or
subsequent transfer of such Shares. The right of first refusal provided herein
shall terminate, whether or not it has then become exercisable, on the earlier
of (i) the date of closing of an initial underwritten public offering by the
Company of its Common Stock pursuant to an effective registration statement,
(ii) a sale of all or substantially all of the assets of the Company, (iii) a
sale of all or substantially all of the outstanding common stock of the Company,
or (iv) a merger of the Company following which the shareholders of the Company
together with their affiliates own less than 50% of the voting stock of the
survivor. Notwithstanding the foregoing, Global may transfer some or all of its
Shares to its affiliates or to members of the Takanashi family without such
transfers being subject to the right of first refusal provided herein, provided
that such transferees agree in writing to be bound by the provision of this
Agreement.
11. Fees and Expenses. Other than as stated in this Agreement, Global and
the Company agrees to pay their own expenses incident to the performance of
their obligations hereunder.
12. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements made
by or on behalf of the Company and Global pursuant to this Agreement shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the other party to this Agreement or any officer, director, or
employee of, or person controlling or under common control with, such party, and
will survive delivery of any payment of the Shares.
13. Dispute Resolution.
(a) Arbitration. All disputes between the parties arising in connection
with this Agreement shall be finally settled under the Commercial Arbitration
Rules of the American Arbitration Association then in effect (as modified by
this section). The arbitration panel shall be composed of three arbitrators
appointed in accordance with this section. The arbitration shall be held in San
Francisco, California, and it shall be conducted in the English language. The
law governing the procedures and substance of the arbitration will be that of
the State of California. The arbitration proceedings and all documents and
testimony, written or oral, produced in connection therewith shall be kept
confidential. The arbitration panel may determine all questions of law and
jurisdiction (including questions as to whether the dispute is arbitrable) and
has the right to grant legal and equitable relief (including injunctive and
other interim relief and the right to grant permanent and interim injunctive
relief), and shall apportion all costs between Licensee and Licensor taking into
consideration, among other factors, the percentage of the total amount in
dispute that is represented by the amount of claims asserted by a party but
rejected by the arbitrators, including reasonable legal fees, interest and costs
of the arbitration, provided that nothing herein shall prevent the parties
hereto from seeking interim injunctive relief in a court of competent
jurisdiction pending resolution of the dispute in accordance with this section.
The arbitrators may not amend or otherwise alter the terms and conditions of
this Agreement.
(b) Selection of Arbitrators. The parties shall have fifteen (15) days
to agree upon the qualifications of the arbitrators (the "Qualifications")
commencing on the day on which notice is given by the party initiating the
arbitration. Upon the expiration of the fifteen day period and regardless of an
agreement being reached as to the Qualifications, either or both of the parties
shall apply to any court having jurisdiction over the parties or their assets in
accordance with Section 15(c) to appoint the three arbitrators. The court shall
appoint the arbitrators within 30 days after such request (on the basis of the
Qualifications if agreed but otherwise in its discretion) and shall notify the
parties of the appointment.
(c) Award Binding. The arbitral award shall state the reasons for the
award, and the relief granted shall be final and binding on the parties to the
arbitration. Any award rendered may be confirmed; judgment upon any award
rendered may be entered; such award or the judgment thereon may be enforced; and
any interim or supplemental relief may be sought in any court having
jurisdiction over the parties or their assets in accordance with Section 15(a)
hereof. Any monetary award shall be payable in U.S. dollars, free of any tax or
any other deduction, other than taxes in the nature of income taxes imposed by
the country, province or political subdivision in which the recipient is
organized or is otherwise subject to such taxes. Such award shall bear interest
from the date of the award at a variable rate equal to the rate publicly
announced from time to time by Wells Fargo Bank, N.A. at its principal office in
San Francisco, California as its "prime rate".
(d) Discovery. The parties shall make available to the arbitrators all
information requested by them in accordance with the applicable rules of
arbitration, including production of all relevant records and documents. All
notices and other communications required to be delivered pursuant to the
applicable rules of arbitration shall be delivered to the address specified in
this Agreement.
(e) Certain Disputes. In the event that the parties disagree as to
whether any issue or issues are to be submitted to arbitration under the terms
of this Agreement or either party asserts that the other is refusing to
arbitrate either overtly or by delay, the parties agree that any such action,
lawsuit or proceeding over such dispute or assertion shall be brought in
accordance within the provisions of Section 15(a) hereof.
(f) Attorneys' Fees. If any party hereto must institute arbitration to
collect any payments due hereunder, the party liable therefor shall reimburse
the other party for reasonable attorneys' fees and other costs incurred in
connection with such arbitration.
14. Notices. Any notice to any party hereto given pursuant to this
Agreement shall be in writing addressed as follows:
if to Global Walk, Inc. Global Walk, Inc.
c/o Takanashi Milk Products Co., Ltd.
Nisseki Yokahama Bl.8F
1-1-8 Sakuragi-cho Naka-ku
Yokohama-shi 281, Japan
Attention: Nobuyoshi Takanashi
Telecopier: (011)(81) 4 5633-5254
with a copy to: Farella, Braun & Martel LLP
235 Montgomery Street, 30th Floor
San Francisco, California 940104
Attention: Daniel E. Cohn, Esq.
Telecopier: (415) 954-4480
if to the Company or Vacu-dry: Vacu-dry Company
7765 Healdsburg Avenue
Sebastopol, California 95437
Attn: Gary L. Hess, President
Telecopier: (707) 829-4610
with a copy to: Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, California 94111
Attn: Roger S. Mertz, Esq.
Telecopier: (415) 956-0439
Any such address may be changed by any party by written notice to the other
party. Any notice shall be deemed delivered (i) if transmitted by electronic
facsimile transmission, when the appropriate number and answerback are
transmitted, (ii) if delivered personally, when received, or (iii) if mailed by
registered or certified mail, postage prepaid, return receipt requested, when
received.
15. Miscellaneous
(a) This Agreement may be executed in one or more
counterparts and it is not necessary that signature of all parties appear on
the same counterpart, but such counterparts together shall constitute one and
the same agreement.
(b) This Agreement shall inure to the benefit of and be
binding upon the parties hereto, their respective successors, and no other
person shall have any right or obligation hereunder.
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California. The parties hereby
irrevocably attorn to the exclusive jurisdiction of the courts of the State of
California in respect of the subject matter of this Agreement and irrevocably
agree to be bound by any judgment rendered thereby in connection with this
Agreement, subject in each case to all rights to appeal such decisions to the
extent available to such parties. Each party waives personal service of process
and consents that service of process upon it may be made by delivery in
accordance with the provisions of this Agreement. Nothing shall affect the right
to serve process in any other manner permitted by applicable law.
(d) The headings of the sections of this document have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
IN WITNESS HEREOF, the parties have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
MIN ACQUISITION CORP.
By: /s/ Gary L. Hess
--------------------------------------------
Its: President
--------------------------------------------
By: /s/ Roger S. Mertz
--------------------------------------------
Its: Assistant Secretary
--------------------------------------------
GLOBAL WALK, INC.
By: /s/ Nobuyoshi Takanashi
-------------------------------------------
Its: President
-------------------------------------------
By:
-------------------------------------------
Its:
-------------------------------------------
VACU-DRY COMPANY
By: /s/ Gary L. Hess
--------------------------------------------
Its: President
--------------------------------------------
CO-SALE AGREEMENT
THIS CO-SALE AGREEMENT (this "Agreement") is made this 11th day of June,
1998, by and between Vacu-dry Company, a California corporation ("Vacu-dry") and
Global Walk, Inc., a Japanese corporation ("Global").
RECITALS:
WHEREAS, Global desires to acquire from MIN Acquisition Corp., a California
corporation (the "Company") shares of its common stock (the "Common Stock"); and
WHEREAS, Vacu-dry is presently the record and beneficial owner of 85,000
shares of the outstanding Common Stock; and
WHEREAS, Vacu-dry has agreed to grant Global the opportunity to
participate, upon the terms and conditions set forth in this Agreement, in
subsequent sales of the Common Stock of the Company made by Vacu-dry to induce
Global to make the proposed investment.
NOW, THEREFORE, in consideration of these premises and the mutual covenants
and agreements herein contained and other valuable consideration, the receipt
and adequacy of which the parties hereto acknowledge, the parties agree as
follows
1. Sales by Vacu-dry.
(a) Notice of Purchase Offers. Should Vacu-dry propose to accept one or
more bona fide offers (collectively the "Purchase Offer") from any persons to
purchase shares of Common Stock from Vacu-dry, then Vacu-dry shall promptly
notify Global of the terms and conditions of such Purchase Offer.
(b) Right to Participate. Global shall have the right, exercisable upon
written notice to Vacu-dry within 15 business days after receipt of the notice
of the Purchase Offer, to participate in Vacu-dry's sale of Common Stock on the
same terms and conditions. To the extent Global exercises such right of
participation, the number of shares of Common Stock which Vacu-dry may sell
pursuant to such Purchase Offer shall be correspondingly reduced. The right of
participation of Global shall be subject to the following terms and conditions:
(i) Global may sell all or any part of that number of shares of Common
Stock of the Company equal to the product obtained by multiplying (x) the
aggregate number of shares of Common Stock covered by the Purchase Offer by
(y) a fraction the numerator of which is the number of shares of Common
Stock the time owned by Global and the denominator of which is the combined
number of shares of Common Stock at the time owned by Vacu-dry and Global.
(ii) Global may participate in the sale by delivering to Vacu-dry for
transfer to the purchase offeror one or more certificates, properly
endorsed for transfer, which represent the number of shares of Common Stock
which Global elects to sell pursuant to this Section 1(b).
(c) Consummation of Sale. The stock certificate or certificates which
Global delivers to Vacu-dry pursuant to Section 1(b) shall be transferred by
Vacu-dry to the purchase offeror in consummation of the sale of the Common Stock
pursuant to the terms and conditions specified in the Section 1(b) notice to
Global, and Vacu-dry shall promptly thereafter remit to Global that portion of
the sale proceeds to which Global is entitled by reason of its participation in
the sale.
(d) Ongoing Rights. The exercise or non-exerciseof the rights of Global
to participate in one or more sales of Common Stock made by Vacu-dry shall not
adversely affect its rights to participate in subsequent Common Stock sales by
Vacu-dry pursuant to Section 1.
(e) Permitted Exemptions. The participation rights of Global shall not
apply to any pledge of Common Stock made by Vacu-dry pursuant to a bona fide
loan transaction which creates a mere security interest.
2. Legend.
(a) Each certificate representing shares of the Common Stock of the
Company now or hereafter owned by Vacu-dry or issued to any permitted transferee
pursuant to Section 1(e) shall be endorsed with the following legend: "THE SALE
OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE
SHARE-HOLDER, THE CORPORATION AND CERTAIN HOLDERS OF COMMON STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE CORPORATION."
(b) Legend Removal. The Section 2(a) legend shall be removed upon
termination of this Agreement in accordance with the provisions of Section 3(a).
3. Miscellaneous Provisions.
(a) Termination of Co-Sale Rights. The rights of Global under this
Agreement and the obligations of Vacu-dry with respect to Global shall terminate
at such time as Global shall no longer be the owners of any Common Stock. Unless
sooner terminated in accordance with the preceding sentence, this Agreement
shall terminate upon the consummation of an underwritten public offering of
Common Stock registered under the Securities Act of 1933
(b) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The participation rights of Global hereunder may not be assigned without the
prior written consent of Vacu-dry other than to Takanashi Milk Products Co.,
Ltd. or members of the Takanashi family and who shall agree to be bound by the
terms hereof.
(c) Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
(d) Amendments. Any amendment or modification of this Agreement shall be
effective only if evidenced by a written instrument executed by duly authorized
representatives of the parties hereto. Any waiver by a party of its rights under
this Agreement shall be effective only if evidenced by a written instrument
executed by a duly authorized representative of such party.
(e) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California. The parties
hereby irrevocably attorn to the exclusive jurisdiction of the courts of the
State of California in respect of the subject matter of this Agreement and
irrevocably agree to be bound by any judgment rendered thereby in connection
with this Agreement, subject to each case to all rights to appeal such decisions
to the extent available to such parties. Each party waives personal service of
process and consents that service of process upon it may be made by delivery in
accordance with the provisions of this Agreement. Nothing shall affect the right
to serve process in any other manner permitted by applicable law.
(f) Notices. Any notice to any party hereto given pursuant to this
Agreement shall be in writing addressed as follows:
if to Global Walk, Inc.: Global Walk, Inc.
c/o Takanashi Milk Products Co., Ltd.
Nisseki Yokahama Bl.8F
1-1-8 Sakuragi-cho Naka-ku
Yokohama-shi 281, Japan
Attention: Nobuyoshi Takanashi
Telecopier: (011)(81) 4 5633-5254
with a copy to: Farella, Braun & Martel LLP
235 Montgomery Street, 30th Floor
San Francisco, California 940104
Attention: Daniel E. Cohn, Esq.
Telecopier: (415) 954-4480
if to Vacu-dry: Vacu-dry Company
7765 Healdsburg Avenue
Sebastopol, California 95437
Attn: Gary L. Hess, President
Telecopier: (707) 829-4610
with a copy to: Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, California 94111
Attn: Roger S. Mertz, Esq.
Telecopier: (415) 956-0439
Any such address may be changed by any party by written notice to the other
party. Any notice shall be deemed delivered (i) if transmitted by electronic
facsimile transmission, when the appropriate number and answerback are
transmitted, (ii) if delivered personally, when received, or (iii) if mailed by
registered or certified mail, postage prepaid, return receipt requested, when
received.
4. Dispute Resolution.
(a) Arbitration. All disputes between the parties arising in connection
with this Agreement shall be finally settled under the Commercial Arbitration
Rules of the American Arbitration Association then in effect (as modified by
this section). The arbitration panel shall be composed of three arbitrators
appointed in accordance with this section. The arbitration shall be held in San
Francisco, California, and it shall be conducted in the English language. The
law governing the procedures and substance of the arbitration will be that of
the State of California. The arbitration proceedings and all documents and
testimony, written or oral, produced in connection therewith shall be kept
confidential. The arbitration panel may determine all questions of law and
jurisdiction (including questions as to whether the dispute is arbitrable) and
has the right to grant legal and equitable relief (including injunctive and
other interim relief and the right to grant permanent and interim injunctive
relief), and shall apportion all costs between Licensee and Licensor taking into
consideration, among other factors, the percentage of the total amount in
dispute that is represented by the amount of claims asserted by a party but
rejected by the arbitrators, including reasonable legal fees, interest and costs
of the arbitration, provided that nothing herein shall prevent the parties
hereto from seeking interim injunctive relief in a court of competent
jurisdiction pending resolution of the dispute in accordance with this section.
The arbitrators may not amend or otherwise alter the terms and conditions of
this Agreement.
(b) Selection of Arbitrators. The parties shall have fifteen (15) days
to agree upon the qualifications of the arbitrators (the "Qualifications")
commencing on the day on which notice is given by the party initiating the
arbitration. Upon the expiration of the fifteen day period and regardless of an
agreement being reached as to the Qualifications, either or both of the parties
shall apply to any court having jurisdiction over the parties or their assets in
accordance with Section 3(e) to appoint the three arbitrators. The court shall
appoint the arbitrators within 30 days after such request (on the basis of the
Qualifications if agreed but otherwise in its discretion) and shall notify the
parties of the appointment.
(c) Award Binding. The arbitral award shall state the reasons for the
award, and the relief granted shall be final and binding on the parties to the
arbitration. Any award rendered may be confirmed; judgment upon any award
rendered may be entered; such award or the judgment thereon may be enforced; and
any interim or supplemental relief may be sought in any court having
jurisdiction over the parties or their assets in accordance with Section 3(e)
hereof. Any monetary award shall be payable in U.S. dollars, free of any tax or
any other deduction, other than taxes in the nature of income taxes imposed by
the country, province or political subdivision in which the recipient is
organized or is otherwise subject to such taxes. Such award shall bear interest
from the date of the award at a variable rate equal to the rate publicly
announced from time to time by Wells Fargo Bank, N.A. at its principal office in
San Francisco, California as its "prime rate".
(d) Discovery. The parties shall make available to the arbitrators all
information requested by them in accordance with the applicable rules of
arbitration, including production of all relevant records and documents. All
notices and other communications required to be delivered pursuant to the
applicable rules of arbitration shall be delivered to the address specified in
this Agreement.
(e) Certain Disputes. In the event that the parties disagree as to
whether any issue or issues are to be submitted to arbitration under the terms
of this Agreement or either party asserts that the other is refusing to
arbitrate either overtly or by delay, the parties agree that any such action,
lawsuit or proceeding over such dispute or assertion shall be brought in
accordance within the provisions of Section 3(e) hereof.
(f) Attorneys' Fees. If any party hereto must institute arbitration to
collect any payments due hereunder, the party liable therefor shall reimburse
the other party for reasonable attorneys' fees and other costs incurred in
connection with such arbitration.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year indicated above.
VACU-DRY COMPANY
By: /s/ Gary L. Hess
-------------------------------------
Its: President
-------------------------------------
By: /s/ Tom Eakin
-------------------------------------
Its: VP Finance
-------------------------------------
GLOBAL WALK, INC.
By: /s/ Nobuyoshi Takanashi
-------------------------------------
Its: President
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
ASSET PURCHASE AGREEMENT
between
VACU-DRY COMPANY,
MIN ACQUISITION CORP.,
MADE IN NATURE, INC. and
GERALD E. PROLMAN
June 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE AND SALE OF ASSETS........................................1
1.1 Transferred Assets.....................................................1
1.2 Retained Assets........................................................2
1.3 Title..................................................................3
ARTICLE 2 PURCHASE PRICE.....................................................3
2.1 Purchase Price.........................................................3
2.2 Cash Purchase Price....................................................3
2.3 Limited Assumption of Liabilities......................................3
2.4 Common Stock Purchase Warrants.........................................4
2.5 Liabilities Not Assumed................................................4
2.6 Allocation of Purchase Price...........................................5
2.7 Transfer Taxes.........................................................5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER.......................5
3.1 Organization; Books and Records........................................5
3.2 Qualifications, etc....................................................5
3.3 Non-Contravention......................................................6
3.4 Regulatory Approvals...................................................6
3.5 Capitalization of the Seller...........................................6
3.6 Subsidiaries and Equity Interests; Transactions with Affiliates........7
3.7 Financial Statements...................................................7
3.8 Absence of Certain Changes or Events...................................7
3.9 Assets Other than Real Property Interests..............................8
3.10 Real Property Owned and Leased........................................8
3.11 Patents, Trademarks, etc..............................................9
3.12 Insurance............................................................10
3.13 Commitments..........................................................10
3.14 Legal Proceedings....................................................12
3.15 Taxes................................................................13
3.16 Compliance with Laws.................................................14
3.17 Environment..........................................................14
3.18 Employee Benefit Plans: Termination and Severance Agreements.........16
3.19 Employee and Labor Matters...........................................18
3.20 Capital Expenditures.................................................19
3.21 Powers of Attorney...................................................19
3.22 Customer Accounts Receivable; Inventories............................19
3.23 No Material Misstatement or Omission.................................20
3.24 No Undisclosed Material Liabilities..................................20
3.25 Authorization........................................................20
3.26 Title to Assets......................................................21
3.27 Condition of Assets..................................................21
3.28 Investment Representations..........................................22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................23
4.1 Corporate Organization................................................23
4.2 Authorization.........................................................23
4.3 Brokers...............................................................23
4.4 Litigation............................................................23
4.5 Conflicts With Other Agreements.......................................23
4.6 Consents..............................................................24
ARTICLE 5 SELLER'S AND PURCHASER'S OBLIGATIONS PRIOR TO THE CLOSING.........24
5.1 Conduct of Business...................................................24
5.2 Breach of Representations and Warranties..............................25
5.3 Exclusive Dealing.....................................................25
5.4 Access................................................................25
5.5 Violations of Law.....................................................26
5.6 Public Announcements..................................................26
ARTICLE 6 CONDITIONS PRECEDENT TO CLOSING BY THE PURCHASER..................26
6.1 Accuracy of Representations and Warranties............................26
6.2 Performance Agreements................................................26
6.3 Authorization.........................................................27
6.4 No Material Adverse Change............................................27
6.5 Restructuring of Debt.................................................27
6.6 Bill of Sale..........................................................27
6.7 Employment Agreement..................................................27
6.8 Pledge and Security Agreement.........................................27
6.9 Opinion of Counsel....................................................27
6.10 Third Party Consents and Governmental Authorizations.................28
6.11 Compliance with Bulk Sales Law.......................................28
6.12 Release of Lien......................................................28
6.13 Certificates; Assignments............................................28
6.14 Other Matters........................................................28
ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING BY THE SELLER.....................28
7.1 Accuracy of Representations and Warranties............................29
7.2 Performance of Agreements.............................................29
7.3 Employment Agreement..................................................29
7.4 Opinion of Counsel....................................................29
7.5 Authorization.........................................................29
7.6 Other Matters.........................................................29
ARTICLE 8 FURTHER ASSURANCES................................................30
8.1 Execution of Other Instruments........................................30
8.2 Assignment of Contracts...............................................30
8.3 Power of Attorney.....................................................30
ARTICLE 9 EMPLOYEE RELATIONS AND BENEFITS...................................31
9.1 Offer of Employment...................................................31
9.2 Benefits..............................................................31
ARTICLE 10 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION......31
10.1 Survival of Representations and Warranties...........................31
10.2 Obligation of the Seller to Indemnify................................32
10.3 Obligation of the Purchaser to Indemnify.............................32
10.4 Procedure for Indemnification........................................33
10.5 Other Rights.........................................................33
ARTICLE 11 TERMINATION......................................................33
ARTICLE 12 CLOSING..........................................................34
12.1 Closing Date.........................................................34
12.2 Possession...........................................................34
ARTICLE 13 REMEDIES.........................................................34
13.1 Remedies.............................................................34
ARTICLE 14 COVENANTS OF THE SELLER AND THE PURCHASER AFTER THE CLOSING......35
14.1 Payment of Obligations...............................................35
14.2 Non-Competition......................................................35
14.3 Change of Name.......................................................35
14.4 Payment by the Purchaser of Current Liabilities......................36
14.5 Uniform Tax Treatment................................................36
ARTICLE 15 RIGHT OF SET-OFF.................................................36
15.1 Right of Set-Off.....................................................36
ARTICLE 16 EXPENSES OF THE PARTIES..........................................36
16.1 Expenses of the Parties..............................................36
ARTICLE 17 NOTICES..........................................................37
17.1 Notices..............................................................37
ARTICLE 18 DISPUTE RESOLUTION...............................................38
18.1 Mandatory Arbitration................................................38
18.2 Provisional Remedies and Self Help...................................38
ARTICLE 19 MISCELLANEOUS....................................................39
19.1 Entire Agreement; Waivers............................................39
19.2 Attorneys Fees.......................................................39
19.3 Governing Law........................................................39
19.4 Successors and Assigns...............................................39
19.5 Captions.............................................................39
19.6 Counterparts.........................................................39
19.7 Severability.........................................................39
SIGNATURE PAGE...............................................................40
LIST OF SCHEDULES AND EXHIBITS...............................................41
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of June 11,
1998 by and between Vacu-dry Company, a California corporation ("Parent"), MIN
Acquisition Corp., a California corporation (the "Purchaser"); Made In Nature,
Inc., a California corporation (the "Seller"); and Gerald E. Prolman
("Shareholder").
R E C I T A L S:
WHEREAS, Seller is engaged in the business of developing and marketing of
organic foods and beverages; and
WHEREAS, Seller desires to sell, and the Purchaser, a wholly-owned
subsidiary of Parent, desires to buy, on the terms and conditions set forth in
this Agreement, certain of Seller's assets as set forth herein; and
WHEREAS, Seller desires to assign, and the Purchaser is willing to assume,
on the terms and conditions set forth in this Agreement, certain of the
liabilities of the Seller as set forth herein; and
WHEREAS, Parent is a party to this Agreement for the purpose of certain
covenants; and
WHEREAS, Shareholder is a party to this Agreement for the purpose of making
certain representations, warranties and covenants.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter contained, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Transferred Assets.
Subject to and upon the terms and conditions of this Agreement, the Seller
agrees to sell, assign, transfer, convey and deliver to the Purchaser free and
clear of all liabilities and encumbrances except as hereinafter set forth, and
the Purchaser agrees to purchase from the Seller on the Closing Date (as defined
in Section 12.1) those certain assets, properties, and business of Seller
described below (all of which are sometimes collectively referred to as the
"Transferred Assets"), including, without limitation, all assets and property of
Seller reflected on its balance sheet as of April 17, 1998 (the Balance Sheet")
referred to in Section 3.7, and all assets and property thereafter acquired by
Seller before the Closing Date and not disposed of in the ordinary course of
business consistent with prior practice, including without limitation to, the
following:
(a) All cash on hand and in bank as of the Closing Date;
(b) All tangible personal property and assets (except as hereinafter
expressly provided otherwise), including, but not limited to, the inventory,
accounts receivable and other assets set forth on Schedule 1.1(b) hereto;
(c) All United States and foreign patents, registered and common law
trademarks and service marks, tradenames, copyrights, logos, slogans, and
permissions for the use of copyrighted materials owned by others owned by the
Seller (and all licenses with respect thereto), including but not limited to,
those which are listed on Schedule 1.1(c) hereto;
(d) All of Seller's claims and rights against third parties relating
to the Transferred Assets including, without limitation, insurance claims,
rights under vendors' warranties, rights of recovery, set-offs and credits;
(e) All contracts, including without limitation, manufacturing,
licensing, distribution, purchase or sale orders, leases and other executory
agreements, whether oral or written, of the Seller related to or useful in the
Seller's business, including but not limited to, those which are listed on
Schedule 1.1(e) hereto;
(f) All customer lists, supplier lists, mailing lists, advertising
promotional materials, catalogs, price and product lists, sales record and
files, papers, software, correspondence and computerized reports;
(g) All trade secrets, know-how, procedures, software files, market
surveys and marketing know-how;
(h) All accounts receivable, prepayments, deferred expenses, notes
receivable, rights to advances and deposits;
(i) Seller's goodwill;
(j) All of the insurance policies set forth in Schedule 1.2(e) hereto
to the extent such policies relate to liabilities assumed by Purchaser pursuant
to this Agreement; and
(k) All other tangible and intangible assets.
1.2 Retained Assets.
Notwithstanding anything to the contrary herein, the Seller shall retain
and not sell, assign, transfer, convey or deliver to the Purchaser any of the
following (hereinafter referred to as the "Retained Assets"):
(a) Seller's corporate books and records containing the minutes of
meetings of directors and stockholders;
(b) All federal, state, county and local income, excise, franchise,
property and other tax returns, reports and declarations of the Seller;
(c) All tax refunds due and owing to the Seller in respect of all
periods up to the Closing Date other than tax refunds reflected on the Effective
Date Balance Sheet;
(d) All amounts due or to become due under any insurance policies
covering the Seller or any of its business, properties or assets other than
pertaining to damage or loss to the Transferred Assets or pertaining to a
liability being assumed by the Purchaser hereunder; and
(e) All of the insurance policies set forth in Schedule 1.2(e) hereto
other than those policies covering liabilities assumed by Purchaser pursuant to
this Agreement.
1.3 Title.
Title and risk of loss to the Transferred Assets shall pass to the
Purchaser at the Closing and the Transferred Assets shall be deemed delivered to
the Purchaser at their respective locations.
ARTICLE 2
PURCHASE PRICE
2.1 Purchase Price.
The purchase price to be paid by Purchaser to Seller for the Transferred
Assets shall consist of (i) cash as set forth in Section 2.2 below, (ii) the
assumption of certain liabilities as provided in Section 2.3 below, and (iii)
the issuance and delivery of Parent's Common Stock Warrant as set forth in
Section 2.4 below.
2.2 Cash Purchase Price.
At the Closing, the Purchaser shall deliver to Seller's designated account
or accounts by wire transfer in immediately available funds Three Hundred
Thirty-six Thousand Dollars ($336,000.00)
2.3 Limited Assumption of Liabilities.
At the Closing, the Purchaser shall assume only the following obligations
and liabilities of the Seller and no others (the "Assumed Liabilities"):
(a) The liabilities of the Seller reflected on Schedule 2.3(a)hereto
that are outstanding on the Closing Date;
(b) The obligations and liabilities of the Seller under the contracts
and agreements listed on Schedule 1.1(e).
2.4 Common Stock Warrant.
At the Closing and subject to the provisions of Article 6, the Purchaser
shall deliver to Seller Parent's Common Stock Warrant (the "Warrants") in the
form of Exhibit A hereto entitling Seller to purchase 100,000 shares of Parent's
common stock ("Parent's Common Stock").
2.5 Liabilities Not Assumed.
(a) Notwithstanding the foregoing, neither the Purchaser nor any
Affiliate (as defined below) assumes any obligation or liability resulting from
or arising out of the existence of which constitutes (i) any breach by the
Seller of its obligations under any contract or agreement referred to in
Schedule 1.1(e), or (ii) any breach of any representation, warranty or agreement
of the Seller contained in this Agreement. As used in this Agreement, an
"Affiliate" shall mean with respect to any person (A) a person directly or
indirectly controlling, controlled by or under control with such person; (B) a
person owning or controlling 10% or more of the outstanding voting securities of
such person; or (C) an officer, director or partner of such person. When the
Affiliate is an officer, director or partner of such person, any other person
for which the Affiliate acts in that capacity shall also be considered an
Affiliate. For these purposes, control means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether by the ownership of voting securities, by contract or
otherwise.
(b) Neither the Purchaser nor any Affiliate undertakes any liability
of the Seller not expressly assumed including, without limitation, liability
with respect to environmental claims and suits; liability for the payment of the
Seller's outstanding loans and credit lines except as provided in this
Agreement; any liability for making payments of any kind (including, as a result
of the transactions contemplated hereby, for the termination of employment by
the Seller of employees, or as a result of union contracts, if any, grievances,
or other labor claims, or otherwise) to employees of the Seller; liability for
pensions or other benefits to employees of the Seller; liability for making
payments of any kind as a result of the termination of any agency; liability for
making payments of any kind pursuant to any agreements, arrangements or
understandings with employees or other persons out of the proceeds from the sale
of the Transferred Assets; liability for other accrued or deferred and unpaid
taxes, including income, sales, real estate and personal property taxes and any
interest and penalties with respect thereto; liabilities for all transfer,
income, franchise or similar taxes, sales and use taxes or fees resulting from
this agreement or the transactions contemplated hereby; for any fees or expenses
incurred by the Seller in connection with the transaction contemplated by the
Agreement, including but not limited to those referred to in Article 16; and any
obligations, charges or liabilities of the Seller, the existence of which
constitute a breach of any representation, warranty or agreement of the Seller
contained in this Agreement.
2.6 Allocation of Purchase Price.
The Purchase Price of the Transferred Assets shall be allocated as set
forth in Exhibit B hereto.
2.7 Transfer Taxes.
The Seller shall pay all income, franchise, or any similar tax resulting
from the transfer of the Transferred Assets or the transactions contemplated
hereby except any liability being (for so long as being) contested in good
faith. The Purchaser shall be responsible for all sales, use and transfer tax
resulting from the transfer of the Transferred Assets, provided, however, that
the Purchaser shall not be responsible for any business, occupation,
withholding, or similar tax, or any taxes of any kind related to any period
before the Closing Date except as disclosed in Schedule 2.3(c) and incurred in
the ordinary course of business between the Effective Date and the Closing Date.
The Seller agrees to furnish at the Closing any resale certificate or other
documents reasonably requested by the Purchaser to comply with the provisions of
the sales and use tax laws of the State of California.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller and the Shareholder hereby jointly and severally represent and
warrant to Purchaser as follows:
3.1 Organization; Books and Records.
The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, with full corporate power
and authority to carry on its business as presently conducted by it and to own,
lease and operate its properties in the places where it maintains offices and
where its properties are owned, leased or operated. Copies of the Articles of
Incorporation and Bylaws, corporate minute books, stock certificate books and
stock transfer books of the Seller have heretofore been delivered to Purchaser
and are true, correct and complete as of the date hereof.
3.2 Qualifications, etc.
Schedule 3.2 attached hereto sets forth (a) each jurisdiction in which the
Seller is duly qualified to do business and in good standing, and (b) each
jurisdiction in which the Seller is duly licensed, authorized or registered to
conduct such business or businesses as are conducted by it and the type of
business or businesses for which it is so licensed, authorized or registered.
Each such qualification, license, authorization and registration (collectively,
"Qualification") is validly issued and is in full force and effect and neither
the character of the properties owned or held under lease or license by the
Seller nor the nature of the business conducted by the Seller requires any
additional Qualification in any such jurisdiction or any Qualification in any
other jurisdiction, except any such jurisdiction wherein the failure to be so
qualified, licensed, authorized or registered would not result in a material
adverse change in the business or financial condition of the Seller ("Material
Adverse Change"). No approval, consent or notification in connection with any
Qualification is necessary in connection with the transactions contemplated by
this Agreement to prevent the termination or withdrawal of any such
Qualification as a result of such transactions.
3.3 Non-Contravention.
Except as set forth in Schedule 3.3 attached hereto, the execution,
delivery and performance of this Agreement by Sellers and the consummation of
the transactions contemplated do not and will not, with or without the giving of
notice or the lapse of time, or both, violate, conflict with, result in the
breach of or accelerate the performance required by any of the terms, conditions
or provisions of the charter documents or by-laws or other governing documents
of the Seller or any covenant, agreement or understanding to which the Seller is
a party or any order, ruling, decree, judgment, arbitration award, law, rule,
regulation or stipulation to which the Seller is subject or constitute a default
thereunder or result in the creation of any lien, charge or encumbrance upon any
of the properties or assets of the Seller.
3.4 Regulatory Approvals.
Except as set forth in Schedule 3.4 attached hereto, the Seller is not
required to file, seek or obtain any governmental notice, filing, authorization,
approval, order or consent, or any bond in Satisfaction of any governmental
regulation, in connection with the execution, delivery and performance of this
Agreement by Sellers or in order to prevent termination of any material right,
privilege, license or agreement of the Seller.
3.5 Capitalization of the Seller.
The Seller's authorized capital stock consists of 2,000,000 shares of
Preferred Stock of which no shares are issued and outstanding (the "Preferred
Stock") and 15,000,000 shares of common stock, without par value, of which 1,000
shares are issued and outstanding (the "Common Stock"). The Preferred Stock and
the Common Stock are referred to as the "Capital Stock". All the issued and
outstanding shares of Capital Stock are duly authorized, validly issued, fully
paid and nonassessable, and the issued and outstanding shares of Capital Stock
are held of record by the respective shareholders and in the amounts as set
forth in Schedule 3.5 hereto. Except as set forth in Schedule 3.5 hereto, there
are no outstanding options, warrants or other rights to purchase, obtain or
acquire, or any outstanding securities or obligations convertible into or
exchangeable for, or any voting agreements with respect to, any shares of
capital stock of the Seller or any other securities of the Seller and the Seller
is not obligated, now or in the future, continently or otherwise, to issue,
purchase or redeem capital stock of the Seller or any other securities of the
Seller to or from any person.
3.6 Subsidiaries and Equity Interests; Transactions with Affiliates.
(a) Except as set forth in Schedule 3.6, the Seller owns no capital
stock of or other equity interest in, or has any obligation to form or
participate in, any corporation, partnership or other person, or is a member of
or participant in any partnership, joint venture or similar person.
(b) Except as set forth in Schedule 3.6, there is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding, or other
arrangement of any kind entered into by the Seller with respect to the Seller
with any officer, director, or shareholder of the Seller or any "affiliate" or
"associate" of any of them (as those terms are defined in the Securities
Exchange Act of 1934, as amended), except, in each case, for management fees and
other compensation paid to officers consistent with previously established
policies (including normal merit increases in such compensation in the ordinary
course of business), reimbursements of ordinary and necessary expenses incurred
in connection with their employment, and amounts paid pursuant to existing
employee benefit plans listed on Schedule 3.18.
3.7 Financial Statements.
The Seller has heretofore furnished to Purchaser unaudited financial
statements for the Seller consisting of (a) balance sheets at April 17, 1998 and
for years ended December 31, 1997, 1996 and 1995 and (b) statements of income,
retained earnings and cash flows for the period ended ___________1998 and for
fiscal years ended December 31, 1997 and 1996 (the foregoing consolidated
financial statements, reports and notes thereto are hereinafter collectively
referred to as the "Financial Statements"). The Financial Statements present
fairly the financial position of the Seller at the dates thereof and the results
of operations and cash flows of the Seller for the periods then ended. Except as
and to the extent reflected or reserved against in the unaudited consolidated
balance sheet of the Seller at April 17, 1998 (the "Balance Sheet") or otherwise
set forth on Schedule 3.7 attached hereto, the Seller had no material liability
or obligation (whether absolute or contingent, or accrued or unaccrued) required
to be disclosed in the Financial Statements, or in the notes thereto. The books
of account and financial records of the Seller have been prepared and are
maintained in accordance with good accounting practice.
3.8 Absence of Certain Changes or Events.
Except as set forth in Schedule 3.8 attached hereto, since April 17, 1998
there has not been, with respect to the Seller or its businesses or properties:
(a) any Material Adverse Change;
(b) any material obligations or liabilities incurred, except trade and
other obligations or liabilities in usual amounts and on terms consistent with
past practices incurred by the Seller in the ordinary course of business;
(c) any indebtedness for borrowed money incurred by the Seller, except
indebtedness under existing facilities incurred in the ordinary course of
business;
(d) any destruction, damage by fire, accident or other casualty or act
of God of or to any of the material properties or assets of the Seller, whether
or not covered by insurance; or
(e) any action that, if taken after the date hereof, would constitute
a breach of any of the covenants set forth in Section 5.1 of this Agreement.
3.9 Assets Other than Real Property Interests.
(a) The Seller has good and valid title to the Transferred Assets free
and clear of all mortgages, liens, security interests, pledges, encumbrances,
charges, agreements, claims, restrictions and defects of title of any kind
except (i) as are set forth in Schedule 3.9, (ii) mechanics, carriers',
workmen's, repairmen's or other like liens arising or incurred in the ordinary
course of business and liens for Taxes (as defined in Section 3.15) which are
not due and payable or being contested in good faith by appropriate proceedings,
or (iii) other imperfections of title or encumbrances, if any, which mortgages,
liens, security interests and encumbrances do not, individually or in the
aggregate, materially impair the continued use and operation of the assets to
which they relate in the business of the Seller as presently conducted.
(b) All the tangible personal property of the Seller has been
maintained in all material respects in accordance with the past practice of the
Seller and generally accepted industry practice. Each item of tangible personal
property of the Seller is in all material respects in good operating condition
and repair, ordinary wear and tear excepted. All leased personal property of the
Seller is in all material respects in the condition required of such property by
the terms of the lease applicable thereto during the term of the lease and upon
the expiration thereof.
(c) There are no developments affecting such property or assets
pending, or to the knowledge of the Seller, threatened, which might materially
detract from the value, materially interfere with any present or intended use,
or materially adversely affect the marketability of any such property or assets.
This Section 3.9 does not relate to real property or interests in real
property, such items being the subject of Section 3.10 below.
3.10 Real Property Owned and Leased.
Schedule 3.10 attached hereto contains a complete and accurate list and
full description of all real property (including without limitation plants,
warehouses, interests in real property, distribution centers, structures and
other buildings) owned or leased by the Seller (the "Real Property"). The Seller
has good and valid title to the leasehold estates in all real property and
interests in real property leased by it, in each case, free and clear of all
mortgages, liens, security interests, pledges, leases, subleases, encumbrances,
charges, assignments, easements, claims or other restrictions and defects of
title, except (i) as are set forth in Schedule 3.10, (ii) liens for Taxes not
yet due and payable or being contested in good faith by appropriate proceedings,
and (iii) which do not impair the current or intended use or diminish the value
of the property affected to any material extent. All plants, warehouses,
interests in real property, distribution centers, structures and other buildings
of the Seller are currently used in the operation of the business of the Seller
and are adequately maintained and are in good operating condition and repair for
the requirements of the business as presently conducted by the Seller.
3.11 Patents, Trademarks, etc.
(a) Schedule 3.11 attached hereto sets forth a complete and accurate
listing of all United States and foreign patents, trademarks, trade names,
service marks and copyrights (collectively, the "Intellectual Property") owned,
licensed, used or held for use in the conduct of the businesses of the Seller,
whether registered or unregistered, and any applications or registrations
therefor. Except as set forth in Schedule 3.11, the Seller solely owns and has
the exclusive right to use, free and clear of any payments or encumbrances which
in the aggregate are material to the conduct of the business of the Seller, all
such Intellectual Property. Except as set forth in Schedule 3.11, there is no
claim or demand of any person pertaining to, or any proceedings which are
pending or, to the knowledge of the Seller, threatened, which challenge the
exclusive rights of the Seller in respect of any Intellectual Property whether
registered or unregistered. Except as set forth in Schedule 3.11, no
Intellectual Property is subject to any agreement restricting the use thereof or
any outstanding order, ruling, decree, judgment or stipulation by or with any
court, arbitrator or administrative agency, and none of the Intellectual
Property infringes the intellectual property rights of others or, to the
knowledge of the Seller, is being infringed by others or is used by others
(whether or not such use constitutes infringement). There are no agreements or
licenses between the Seller and any other person or entity which may have been
terminated or expired prior to the date hereof and under which the Seller has
granted rights or licenses in the Intellectual Property to such other persons or
entities or granted an option to acquire such rights or licenses, which rights
or licenses or the option to acquire the same survived such termination or
expiration. Except as set forth in Schedule 3.11, no person or entity has any
licenses under any of the Intellectual Property. Notwithstanding the foregoing,
the Seller makes no representation or warranty as to the registrability or
enforceability of any Intellectual Property for which registration has not been
sought or for which registration has not been granted, or which is not presently
being used by the Seller in conducting its business. Moreover, the Seller makes
no representation or warranty with regard to the use of the Intellectual
Property with goods and services not presently provided by or not presently
proposed to be provided by the Seller in its business as it is now conducted.
(b) The Seller owns and has the unlimited right to use, execute,
reproduce, display, perform, modify, enhance, distribute, prepare derivative
works of or sublicense any of the Business know-how (as defined below) possessed
by Seller or its affiliates relating to goods and services presently provided by
or presently proposed to be provided by the Seller. The Seller has not granted
any licenses or otherwise disclosed nor has it agreed to disclose any of its
Business know-how except as set forth in Schedule 3.11. As used in this
paragraph, "Business know-how" shall mean all trade secrets and confidential
business and technical information, including ideas, skills, methods,
experience, research and development, know-how, formulas, manuscripts, artwork,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, engineering notebooks, industrial models, software and
specifications.
3.12 Insurance.
Schedule 3.12 attached hereto sets forth a complete and accurate list of
all casualty, directors and officers liability, general liability (including
product liability) and all other types of insurance maintained by the Seller,
together with the carriers and liability limits for each such policy. Each
policy is duly in force, and no notice has been received by the Seller from any
insurance carrier purporting to cancel or reduce coverage under any such policy.
The Seller is current in all premiums or other payments due thereunder. Schedule
3.12 identifies which insurance policies are "occurrence" or "claims made." All
insurance coverage held for the benefit of the Seller is in such amounts, with
such deductibles and against such risks and losses as are reasonable for the
business and assets of the Seller. The activities and operations of the Seller
have been conducted in a manner so as to conform in all material respects to all
applicable provisions of such insurance policies.
3.13 Commitments.
(a) Except as set forth in Schedule 3.13, the Seller is not a party to
or bound by any:
(i) employment agreement or employment contract;
(ii) employee collective bargaining agreement or other contract
with any labor union;
(iii) covenant of the Seller not to compete or other covenant of
the Seller restricting the development, manufacture, marketing or distribution
of the products and services of the Seller;
(iv) agreement, contract or other arrangement with (A) Seller or
any affiliate of Seller or (B) any current or former officer, director, employee
or independent contractor of the Seller (other than employment agreements
covered by clause (i) above);
(v) lease, sublease or similar agreement with any person under
which the Seller is a lessor or sublessor of, or makes available for use to any
person (other than the Seller), (A) any Real Property or (B) any portion of any
premises otherwise occupied by the Seller;
(vi) lease or similar agreement with any other person underwhich
(A) the Seller is lessee of, or holds or uses, any machinery, equipment, vehicle
or other tangible personal property owned by any person or (B) the Seller is a
lessor or sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by the Seller, in any such case which has an
aggregate future liability or receivable, as the case may be, in excess of
$5,000;
(vii) (A) continuing agreement or contract for the future
purchase of materials, supplies or equipment (other than purchase contracts and
orders for inventory in the ordinary course of business consistent with past
practice; provided that any such contract or order, when taken together with all
other purchase contracts and orders for inventory relating to the ordered item,
would not require the Seller to acquire a quantity of such item that could not
reasonably be expected to be used in the ordinary course of business of the
Seller within six months after the date of execution or entry of purchase
contract or order for inventory) or (B) service, consulting, management or other
similar type of agreement or contract, in either such case which has an
aggregate future liability in excess of $5,000;
(viii) continuing agreement or contract for the distribution of
any products manufactured by the Seller, including by franchise arrangement;
(ix) continuing agreement or contract for the purchase of any
products manufactured by parties other than the Seller;
(x) continuing agreement or contract for products manufactured by
the Seller on behalf of parties other than the Seller;
(xi) agreement, contract or arrangement for the placement of
advertising or other promotional activities which has an aggregate future
liability in excess of $25,000;
(xii) except as set forth in Schedule 3.11, any material license,
option or other agreement relating in whole or in part to the Intellectual
Property set forth in Schedule 3.11 (including any license or other agreement
under which the Seller is licensee or licensor of any such Intellectual
Property) or to trade secrets, confidential information or proprietary rights
and processes of the Seller or any other person;
(xiii) agreement, contract or other instrument under which the
Seller has borrowed any money from, or issued any note, bond, debenture or other
evidence of indebtedness to, any person or any other note, bond, debenture or
other evidence of indebtedness issued to any person;
(xiv) agreement, contract or other instrument (including
so-called take-or-pay or keepwell agreements) under which (A) any person has
directly or indirectly guaranteed indebtedness, liabilities or obligations of
the Seller or (B) the Seller has directly or indirectly guaranteed indebtedness,
liabilities or obligations of any person (in each case other than endorsements
for the purpose of collection in the ordinary course of business);
(xv) agreement, contract or other instrument under which the
Seller has, directly or indirectly, made any advance, loan, extension of credit
or capital contribution to, or other investment in, any person;
(xvi) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any Real Property,
which lien or other encumbrance is not set forth in Schedule 3.10;
(xvii) agreement, contract or instrument providing for
indemnification of any person with respect to liabilities relating to any
current or former business of the Seller, or any predecessor person; or
(xviii) other agreement, contract, lease, license, commitment or
instrument to which the Seller is a party or by or to which it or any of its
assets or business is bound or subject which has an aggregate future liability
to any person in excess of $5,000.
(b) Except as set forth in Schedule 3.13, all agreements, contracts,
leases, licenses, commitments or instruments of the Seller listed in the
Schedules hereto (collectively, the "Contracts") are valid and binding, in full
force and effect and are enforceable by the Seller in accordance with their
respective terms, other than such failures to be so valid and binding, in full
force and effect or enforceable which would not, either individually or in the
aggregate, result in a Material Adverse Change. Except as set forth in Schedule
3.13, the Seller has performed all material obligations required to be performed
by it to date under the Contracts and it is not (with or without the lapse of
time or the giving of notice, or both) in breach or default in any material
respect thereunder. The Seller has provided to Purchaser a true and correct copy
of each of the Contracts.
3.14 Legal Proceedings.
Except as set forth in Schedule 3.14, the Seller is not engaged in or a
party to, or, to the knowledge of the Seller, threatened with, any suit,
investigation, legal action or other proceeding before any court, administrative
agency, arbitration panel or other similar authority which (a) involves
(individually, or in the aggregate for cases arising out of the same or
substantially similar facts or circumstances) the possibility of liability of
the Seller (whether or not covered by insurance), (b) seeks injunctive relief or
(c) relates to the transactions contemplated by this Agreement, and the Seller
knows of no basis for any such suit, investigation, legal action or proceeding.
There are no outstanding orders, rulings, decrees, judgments or stipulations by
or with any court, administrative agency, arbitration panel or other similar
authority which are applicable to the properties, assets, operations or business
of the Seller or which challenge or otherwise relate to the transactions
contemplated by this Agreement. Except as set forth in Schedule 3.14, there is
no lawsuit or claim by the Seller pending, or which the Seller intends to
initiate, against any other person.
3.15 Taxes.
Except as set forth in Schedule 3.15, all federal, state and local and all
foreign tax Returns (as defined below), required to be filed by or with respect
to the Seller and any predecessor corporations in respect of Taxes (as defined
below) have been filed with the appropriate tax authorities and each such Return
is true, accurate and complete. The Seller has delivered to Purchaser correct
and complete copies of all material Returns of the Seller that have been filed
for taxable periods ending within the past five years. Except as and to the
extent reflected or reserved against in the Balance Sheet or as described in the
notes thereto, as of the date hereof, the Seller had no liability for Taxes. All
Taxes for periods after the date of the Balance Sheet that should be reserved on
the books of the Seller in accordance with the Seller's past practice have been
so reserved, and all estimated tax payments required to be made have been made.
Except as set forth in Schedule 3.15, there have been no audits or examinations
by any taxing authority relating to Taxes of the Seller during the past six
years, no taxing authority has given notice that it will commence any such audit
or examination and no taxing authority is asserting (either orally or in
writing) or, to the knowledge of the Seller, threatening to assert any
deficiency or claim relating to Taxes of the Seller, and no liens for Taxes have
been filed and are currently outstanding with respect to any of the assets or
properties of the Seller. There is no agreement or waiver currently in effect
extending the period for assessment or collection of any Taxes. The Seller is
not a party to any agreement which would require it to make any payment which
would constitute a "parachute payment" for purposes of Section 280G of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The Seller
has complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party. None of the assets of the Seller are treated as "tax exempt use
property" within the meaning of Section 168(h) of the Code. The Seller is not,
nor has it ever been, a party to a tax sharing, tax indemnity or tax allocation
agreement, and the Seller has not assumed the tax liability of any other person
under contract. The Seller is not, nor has it ever been, a member of an
affiliated group filing a consolidated federal income tax Return, and the Seller
has no any liability for the Taxes of any individual or entity under section
1.1502-6 of the Treasury regulations (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise. As
used herein, (A) "Taxes" shall mean all federal, state, county, local,
municipal, foreign and other taxes, assessments, duties or similar charges of
any kind whatsoever, including all corporate franchise, income, sales, use, ad
valorem, receipts, value added, profits, license, withholding, payroll,
employment, excise, premium, property, customs, net worth, capital gains,
transfer, stamp, documentary, social security, payroll, environmental,
alternative minimum, occupation, recapture and other taxes, and including any
interest, penalties and additions imposed with respect to such amounts, and (B)
"Return" or "Returns" shall mean all returns, declarations of estimated tax
payments, reports, estimates, information returns and statements, including any
related or supporting information with respect to any of the foregoing, filed or
to be filed with the United States or any state, county, local, foreign or other
governmental authority or subdivision or agency thereof in connection with the
determination, assessment, collection or administration of any Taxes.
3.16 Compliance with Laws.
Except as set forth in Schedule 3.16 attached hereto (a) the Seller has
complied, and is now in compliance, with all federal, state, local and foreign
laws, ordinances and regulations (including, without limitation, those relating
to employment and employment practices, and occupational safety and health)
applicable to the Seller, except where noncompliance would not have a material
adverse effect; (b) no claims or complaints from any governmental authorities or
other parties have been asserted or received by the Seller which are still
pending or outstanding and, to the knowledge of the Seller, none is threatened,
that the Seller is in material violation of any applicable building, zoning,
occupational safety and health, or similar law, ordinance or regulation in
relation to its plants, warehouses, distribution centers, structures or other
buildings or equipment, or the operation thereof, or of any applicable fair
employment, equal opportunity or similar law, ordinance or regulation; and (c)
the Seller has not received notice from any governmental authorities of any
pending proceedings to take all or any part of the properties of the Seller
(whether leased or owned) by condemnation or right of eminent domain and, to the
knowledge of the Seller, no such proceedings are threatened. Schedule 3.16 sets
forth all governmental permits, licenses and authorizations necessary or
desirable for the operation or occupancy of the properties and the conduct of
the business of the Seller as presently conducted. All such licenses, permits
and authorizations are validly held by the Seller, the Seller has complied in
all material respects with all terms and conditions thereof and the same will
not be subject to suspension, modification, revocation or nonrenewal as a result
of the execution and delivery of this Agreement or the consummation of the
transactions contemplated thereby. All such licenses, permits and authorizations
which are held in the name of any employee, officer, director, stockholder,
agent or otherwise on behalf of the Seller shall be deemed included under this
warranty.
3.17 Environment.
Except as set forth in Schedule 3.17 attached hereto, (a) no Hazardous
Material (as defined below) is located on, at, in, under or about any real
property, including any buildings, structures, fixtures, improvements,
interests, privileges, easements and appurtenances related thereto, owned,
leased or operated by the Seller ("Premises") in a manner which violates any
Environmental Requirement (as defined below), or for which clean-up or
corrective action of any kind could be required or is otherwise authorized under
any Environmental Requirement; (b) no risk to human health or the environment
exists as a result of any Hazardous Material previously or currently located on,
at, in, under or about the Premises; (c) no releasing, emitting, discharging,
leaching, dumping, disposing of any Hazardous Material from the Premises onto or
into any other property or from any other property onto or into the Premises has
occurred or is occurring in violation of any Environmental Requirement, or for
which clean-up or corrective action of any kind could be required or is
otherwise authorized under any Environmental Requirement, or which could pose a
risk to human health or the environment; (d) no notice of violation, lien,
complaint, suit, order or other notice with respect to the environmental
condition of the Premises or regarding the disposal or release of Hazardous
Materials from the Premises onto any other property is outstanding, threatened
or otherwise anticipated, nor has any such notice been issued which has not been
fully satisfied and complied with in a timely manner so as to bring the Premises
into full compliance with every Environmental Requirement; (e) the Seller does
not currently own or operate, nor in the past has owned or operated, any
property that is on the "National Priorities List" or the CERCLA list of the
U.S. Environmental Protection Agency ("EPA"), or any similar state list, or is
the subject of any federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous Material into
the environment; (f) the Seller or any of its predecessors has filed or
otherwise provided any notice under any federal, state or local law indicating
past or present treatment, storage or disposal of a Hazardous Material into the
environment; (g) the Seller has no contingent liability in connection with the
generation, treatment, storage, disposal or any release of any Hazardous
Material into the environment; (h) none of the operations of the Seller involves
or has ever involved the treatment, storage or disposal of a Hazardous Material;
(i) neither the Seller, nor any lessee, prior owner or other person, has
disposed of or arranged for the disposal of any Hazardous Material on any
premises which are currently or have in the past been owned, leased or operated
by the Seller; (j) the Seller has not disposed of, or arranged for the disposal
of, any Hazardous Material on any premises not owned by the Seller that is on
EPA's National Priorities List or the CERCLA list or any similar state list, or
which is or reasonably could be the subject of any clean-up action by a federal
or state agency, or by a third party who could seek reimbursement of clean-up
expenses from the Seller under federal or state law; (k) no underground storage
tanks or surface impoundments are on any Premises; (l) no information exists
indicating that any person (including past or present employees) may have his
health impaired as a result of exposure to any Hazardous Materials located on,
at, in, under or about the Premises; and (m) the Seller and all third parties,
with respect to any conduct of such parties that might result in liability to
the Seller, are currently and have at all times in the past been in full
compliance with all applicable Environmental Requirements. For the purpose
hereof, the following terms shall have the following meanings:
(A) The term "Hazardous Materials" means any material,
substance or constituent, including any PCBs, pollutants,
solid wastes, explosive or regulated radioactive materials or
substances, hazardous or toxic materials, substances, wastes
or chemicals, petroleum (including crude oil or any fraction
thereof) or petroleum distillates, asbestos or asbestos
containing materials, materials listed in 49 C.F.R. Section
172.101 and materials defined as hazardous substances pursuant
to Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C.
ss.ss. 9601 et seq.), as amended ("CERCLA"), that, whether by
its nature or its use, is subject to regulation under, or
forms the basis for liability under, any Environmental
Requirement.
(B) The term "Environmental Requirement" means current or
future obligations, duties or requirements arising out of or
related to any laws, ordinances, statutes, codes, rules,
regulations, orders, judicial decisions, judgments, decrees,
governmental restrictions, directives, policies, guidelines,
permits or licenses addressing environmental, health or safety
issues or requirements of or by any federal, state or local
government agency, including but not limited to, CERCLA, the
Hazardous Materials Transportation Act (49 U.S.C. ss.ss. 1801
et seq.), the Resource Conservation and Recovery Act (42
U.S.C. ss.ss. 6901 et seq.), the Toxic Substances Control Act
(15 U.S.C. Sss. 2601 et she.) the Clean Air Act (42 U.S.C.
ss.ss. 7401 et seq.), the Federal Water Pollution Control Act
(32 U.S.C. ss.ss. 1251 et seq.) and the Safe Drinking Water
Act (32 U.S.C. ss.ss. 300f et seq.), in each care as may be
amended from time to time, any regulation pursuant to any of
the above laws, and including, but not limited to, any
obligations, duties or requirements arising out of or related
to Hazardous Materials under common law or foreign law.
3.18 Employee Benefit Plans: Termination and Severance Agreements.
(a) (i) Schedule 3.18 attached hereto sets forth a complete and
accurate list of each pension, retirement, savings, profit sharing, deferred
compensation, medical, dental or health plan, or life insurance plan, bonus,
incentive and special compensation or other plan or other employee benefit plan,
program, contract, arrangement, agreement or understanding (hereinafter referred
to individually as a "Plan" and collectively as the "Plans") to which the Seller
is required to contribute, or which the Seller sponsors or which is otherwise
applicable to employees or retirees or categories of employees or retirees of
the Seller generally; (ii) Schedule 3.18 correctly identifies each Plan that is
an "employee benefit plan" ("ERISA Plan") as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
categorizes each ERISA Plan as an "employee welfare benefit plan" ("ERISA
Welfare Plan") as defined in Section 3(1) of ERISA or an "employee pension
benefit plan" ("ERISA Pension Plan") as defined in Section 3(2) of ERISA; (iii)
except as otherwise described in Schedule 3.18, no "prohibited transaction"
within the meaning of Section 406 of BRISA or Section 4975 of the Code has
occurred with respect to any Plan sponsored or administered by the Seller; (iv)
all ERISA Plans sponsored or administered by the Seller comply currently, and
have complied in the past in form and in operation, with the provisions of
ERISA, the Code, the rules and regulations promulgated under these statutes, all
other applicable federal, state or local laws and with their respective plans of
benefits and trust agreements; (a) there are no actions, suits or claims pending
(other than routine claims for benefits) or any actions, suits or claims (other
than routine claims For benefits) which could reasonably be expected to be
asserted, against any Plan or the assets or fiduciaries of any Plan sponsored or
maintained by the Seller or any ERISA Plan established or maintained by (A) a
corporation which is a member of a controlled group of corporations with the
Seller within the meaning of Section 414(b) of the Code, (B) a trade or business
(including a sole proprietorship which is under common control with the Seller
within the meaning of Section 414(c) (C) a member of an affiliated service group
with the Seller within the meaning of Section 414(m) of the Code, or (D) an
entity or arrangement described in Section 414(o) of the Code (each entity
described in (A), (B), (C)) and (D) is referred to as an "ERISA Affiliate"),
which would have a material adverse effect on the Seller or any of its or their
assets; (vi) no civil or criminal action under Title I, Subtitle B. Part 5 of
ERISA is pending or threatened against any fiduciary of any Plan sponsored or
maintained by the Seller; (vii) no Plan nor any fiduciary of a Plan sponsored or
maintained by the Seller has been the direct or indirect subject of an audit,
investigation or examination by any governmental or quasi-governmental agency;
(viii) each ERISA Pension Plan and its respective trust sponsored or maintained
by the Seller which is intended to be a qualified plan and an exempt trust under
the Code and any applicable regulations has received a current determination
letter from the IRS indicating that such plan and trust are so qualified and
exempt, in form, under the Code, and nothing has occurred since the date of such
determination letter that would affect adversely such qualification or exemption
and the IRS has not taken any action to revoke any favorable determination with
respect to the qualified status of each such ERISA Pension Plan; (ix) neither
the Seller nor any ERISA Affiliate has maintained or contributed to (or had an
obligation to maintain or contribute to) any ERISA Pension Plan that is a
"defined benefit pension plan" within the meaning of Section 3(35) of ERISA, and
with respect to which the Seller has no liability, whether direct or indirect,
current or contingent; (x) neither the Seller nor any ERISA Affiliate has
participated in, made contributions to, or has had an obligation to contribute
to, a "multiemployer plan" within the meaning of Section 3(37) or 4001 of ERISA;
(xi) Schedule 3.18 lists and categorizes every ERISA Pension Plan terminated by
the Seller within the six years immediately before the date of this agreement
and each such ERISA Pension Plan so listed and categorized was terminated in
compliance with the Internal Revenue Code of 1954 as amended (if applicable),
the Code (if applicable), and ERISA, (xii) except for ERISA Pension Plans listed
and categorized in Schedule 3.18 as having been merged, no ERISA Pension Plan of
the Seller or any ERISA Affiliate has been merged during the six years
immediately before the date of this Agreement; (xiii) each ERISA Pension Plan
listed and categorized in Schedule 3.18 was merged in compliance with the
Internal Revenue Code of 1954, as amended (if applicable), the Code (if
applicable) and ERISA; (xiv) every ERISA Welfare Plan of the Seller or any ERISA
Affiliate that is a "group health plan" within the meaning of Section
4980B(g)(2) of the Code has been administered in accordance with Title I,
Subtitle B. Part 6 of ERISA and has met the requirements of Section 4980B of the
Code; and (xv) apart from benefits from ERISA Pension Plans, benefits described
under Section 4980B of the Code and health benefits provided to retirees under
ERISA Welfare Plans listed and categorized in Schedule 3.18 as plans providing
retiree health benefits, the Seller has no any obligation to provide benefits
under any Plan except to its active employees.
(b) Schedule 3.18 also accurately lists each employment, termination
and severance agreement, contract, arrangement and understanding (whether
written or oral) with employees of the Seller. Except as set forth in Schedule
3.18, the Seller is not a party to any employment, termination or severance
agreement, contract, arrangement or understanding with any employee or former
employee of the Seller that is not terminable by its terms at will by the
applicable employer without cost or penalty. Except as set forth in Schedule
3.18, the Closing will not result in any obligation to pay any employee of the
Seller severance pay or termination benefits so long as such employee remains
employed by the Seller or Purchaser after the Closing.
(c) The Seller has heretofore delivered to Purchaser correct and
complete copies of each of the following:
(i) All written, and descriptions of all oral, employment,
termination and severance agreements,contracts, arrangements and understandings
listed in Schedule 3.18.
(ii) Each Plan and all amendments thereto; the trust instrument
and/or insurance contracts, if any, forming a part of such Plan and all
amendments thereto; and the resolutions and agreements, if any, by which the
Seller adopted such Plan.
(iii) The most recent IRS Form 5500 and all schedules thereto, if
any.
(iv) The most recent determination letter issued by the IRS
regarding the qualified status of each such Plan that it is an ERISA Pension
Plan.
(v) The most recent accountant's report, if any.
(vi) The most recent summary plan description, if any.
(vii) The bond required by Section 412 of ERISA, if any.
3.19 Employee and Labor Matters.
(a) Except as set forth in Schedule 3.19 attached hereto, the Seller
is not a party to any collective bargaining agreement or other contract with or
commitment to any labor union or association representing any employee of the
Seller, nor does any labor union or collective bargaining agent represent any
employees of the Seller. No such agreement, contract or other commitment has
been requested by, or is under discussion by management of the Seller (or any
management group or association of which the Seller is a member or otherwise a
participant) with, any group of employees or others, nor are there any other
current activities known to the Seller to organize any employees of the Seller
into a collective bargaining unit. There are no pending, or to the knowledge of
the Seller, threatened, union grievances against the Seller as to which there is
a reasonable possibility of a material adverse determination. The Seller is not
engaged in any unfair labor practice. There is no unfair labor practice
complaint pending or, to the knowledge of the Seller, threatened against the
Seller. Except as disclosed in Schedule 3.19, there is, and during the past two
years there has been, no labor strike, dispute, slow-down or work stoppage
pending, or, to the knowledge of the Seller, threatened against the Seller.
Except as set forth in Schedule 3.19, there are no pending, or, to the knowledge
of the Seller, threatened, charges against the Seller, or any current or former
employee, officer or director of the Seller before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices.
(b) All employees working in the United States hired by the Seller on
or after November 7, 1986 are authorized for employment by the Seller in the
United States in accordance with the Immigration and Naturalization Act, as
amended, and regulations promulgated under that statute. No allegations of
immigration-related unfair employment practices have been made with the Equal
Employment Opportunity Commission or the Special Counsel for Immigration-Related
Unfair Employment Practices. The Seller has completed and retained in accordance
with the Immigration and Naturalization Service regulations a Form I-9 for all
employees working in the United States hired on or after November 7, 1986,
except those employees whose employment terminated on or before June 1, 1987.
None of the employees currently employed by the Seller is authorized for
employment in the United States pursuant to a nonimmigrant visa which authorizes
the employee to be employed by the Seller.
(c) Schedule 3.19 sets forth a complete list of all the Seller's
officers, directors and employees together with the monthly salary of each.
3.20 Capital Expenditures.
The aggregate contractual commitments of the Seller for new capital
expenditures shall not exceed $2,500 on the Closing Date.
3.21 Powers of Attorney.
Schedule 3.21 attached hereto contains a complete and accurate list of all
outstanding powers of attorney or similar authorizations given by the Seller.
3.22 Customer Accounts Receivable; Inventories.
(a) All customer accounts receivable of the Seller, whether reflected
on the Balance Sheet or subsequently created, have arisen from bona fide
transactions in the ordinary course of business and are good and collectible
upon the terms agreed upon at delivery of the goods and at the aggregate
recorded amounts thereof, net of any applicable reserves or allowances for
doubtful accounts which are reflected on the Balance Sheet or accrued after the
date of the Balance Sheet in the ordinary course of business consistent with
past practice. Except as set forth in Schedule 3.22, the Seller has good and
marketable title to its accounts receivable, free and clear of all liens. During
the two year period prior to the date hereof, the Seller has not sold, pledged
or otherwise disposed of any of its accounts receivable in connection with any
receivable-type financing or factoring-type financing or similar transaction.
(b) The inventories of the Seller, whether reflected on the Balance
Sheet or subsequently acquired and except for any reserves for obsolete
inventory which are reflected on the Balance Sheet or accrued after the date of
the Balance Sheet in the ordinary course of business consistent with past
practice, are not obsolete and are of a quality and quantity usable and/or
salable at customary gross margins in the ordinary course of business. The
inventories of the Seller are reflected on the Balance Sheet and in its books
and records applied on a basis consistent with past practice (except as
described in the notes to the Balance Sheet). Except as set forth in Schedule
3.22, the Seller has good and valid title to its inventories, free and clear of
all liens.
(c) Schedule 3.23 accurately identifies all consigned inventory of the
Seller and the consignee thereof. To the knowledge of the Seller, each consignee
maintains adequate insurance coverage against losses with respect to the
consigned inventory of the Seller.
3.23 No Material Misstatement or Omission.
No representation or warranty of the Seller in this Asset Purchase
Agreement nor any information contained in any Schedule, certificate or other
writing delivered pursuant to this Agreement or at the Closing, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading. There is no fact relating to the Seller which the Seller has not
disclosed to Purchaser in writing which has resulted in, or would reasonably be
expected to result in, a Material Adverse Change.
3.24 No Undisclosed Material Liabilities.
There are no liabilities of the Seller of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such liability, other than:
(a) liabilities provided for in the Balance Sheet or disclosed
in the notes thereto;
(b) liabilities disclosed on Schedule 3.24 attached hereto; and
(c) other undisclosed liabilities which, individually or in the
aggregate, are not material to the Seller.
3.25 Authorization.
The execution and delivery by the Seller of this Agreement, the Bill of
Sale (defined in Section 6.6), and the Pledge and Security Agreement (defined in
Section 6.8) (the Bill of Sale and the Pledge and Security Agreement are
hereinafter sometimes collectively referred to as the "Related Agreements"), and
the consummation of the transaction contemplated hereby and thereby, will, on
the Closing Date, have been, duly and validly authorized by all necessary
corporate action on the Seller's part, and this Agreement and the Related
Agreements and all other such instruments and agreements delivered or to be
delivered by the Seller and the Shareholder in connection herewith will be, on
the closing Date, the valid and binding obligations of the Seller and the
Shareholder, enforceable against it or him in accordance with their respective
terms.
3.26 Title to Assets.
Except as set forth in Schedule 3.9, Seller has good and marketable title
to all the Transferred Assets. All these assets are free and clear of
restrictions on or conditions to transfer or assignment, and free and clear of
mortgages, liens, pledges, charges, encumbrances, equities, claims, covenants,
conditions, or restrictions, except for (i) the disclosures contained in the
Schedules hereto; and (ii) possible minor matters that, in the aggregate, are
not substantial in amount and do not materially detract from or interfere with
the present or intended use of any of these assets or materially impair business
operations. The Seller is not in default or in arrears in any material respect
under any lease.
3.27 Condition of Assets.
The Transferred Assets have been properly maintained and are in good
operating condition and there exists no outstanding notice of any violation of
any statute or regulation relating to the Transferred Assets. Except with
respect to the Retained Assets, the Transferred Assets include all assets and
properties and all rights reasonably necessary to permit the Purchaser to carry
on the Seller's business as presently conducted by the Seller.
3.28 Investment Representations.
(a) Purchaser and Parent have given Seller and Shareholder the
opportunity to have answered all of Seller's and Shareholder's questions
concerning Parent and its business and has made available to Seller and
Shareholder all information requested by Seller and Shareholder which is
reasonably necessary to verify the accuracy of other information furnished by
Purchaser and Parent. Seller and Shareholder have received and evaluated all
information about Parent and its business which Seller and Shareholder deem
necessary to formulate an investment decision and do not desire any further
information. Seller and Shareholder understand that no federal or state agency
has passed on or made any recommendation or endorsement of the Warrants or the
shares of Parent's Common Stock issuable upon exercise or exchange. Seller and
Shareholder have the knowledge and experience in financial and business matters
to evaluate the merits and risks of the proposed investment.
(b) Seller and Shareholder understand that the Warrants are being
offered and sold to it in reliance on specific exemptions from or
non-application of the registration requirements of federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments, and understandings of
Seller and Shareholder set forth herein in order to determine the applicability
of such exemptions or non-applications and the suitability of Seller and
Shareholder to acquire the Warrants.
(c) Seller and Shareholder are aware that the Warrants have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) and Regulation D thereof, and that they
must be held by Seller and Shareholder for an indeterminate period and Seller
and Shareholder must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from registration.
(d) Each instrument representing the Warrants may be endorsed with the
following legends:
(i) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
(ii) Any other legend required by California or other state
securities laws.
(e) The Company need not register a transfer of legended Warrants and
may instruct its transfer agent not to register the transfer of the Warrants,
unless one of the conditions specified in the foregoing legends is satisfied.
(f) Any legend endorsed on an instrument pursuant to Section 3.28(f)
hereof and the stop transfer instructions with respect to such Warrants shall be
removed, and the Company shall issue an instrument without such legend to the
holder of such Warrants if such Warrants are registered under the Securities Act
and a prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder provides the Company with an opinion of counsel for
such holder of the Warrants, reasonably satisfactory to the Company, to the
effect that a sale, transfer or assignment of such Warrants may be made without
registration.
(g) Seller and Shareholder is acquiring the Warrants for Seller and
Shareholder's own account, for investment, and without any present intention to
engage in a distribution thereof, except that Parent understands that Seller
intends to wind up and dissolve and distribute the Warrants to its shareholders
each of whom will execute, as a condition to the transfer of the Warrants, an
investment representation in substantially the form of this Section 3.28.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
4.1 Corporate Organization.
The Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of California with full corporate power and
authority to consummate the transactions contemplated hereby.
4.2 Authorization.
The execution and delivery by the Purchaser of this Agreement and each of
the other instruments and agreements of the Purchaser provided for herein, and
the performance of its obligations hereunder and thereunder, have been duly and
validly authorized by all necessary corporate action on the part of the
Purchaser and this Agreement, and any other instruments and agreements delivered
to or to be delivered in connection herewith are or will be the valid and
binding obligations of the Purchaser enforceable against it in accordance with
their respective terms.
4.3 Brokers.
No agent, broker, person or firm acting on behalf of the Purchaser or under
its authority is or will be entitled to a financial advisory fee, brokerage
commission, finder's fee or like payment in connection with any of the
transactions contemplated hereby.
4.4 Litigation.
There are no suits, actions, or administrative, arbitration or other
proceedings or governmental investigations pending or, to the knowledge of the
Purchaser, threatened against the Purchaser with respect to any of the
transactions contemplated hereby.
4.5 Conflicts With Other Agreements.
The execution and delivery by the Purchaser of this Agreement and each of
the Related Agreements to which the Purchaser is a party and the performance by
the Purchaser of its respective obligations hereunder or thereunder will not, or
with the giving of notice or the lapse of time or both, would not
(a) conflict with or result in a breach of or constitute a default
under any provision of the Articles of Incorporation or By-laws of the Purchaser
or any contract, indenture, lease, sublease, loan agreement, restriction, lien,
encumbrance or other obligation or liability to which the Purchaser is a party
or by which it is affected or bound or result in or create in any party the
right to accelerate, terminate, modify or cancel any contract, license,
indenture, lease, sublease or loan agreement to which the Purchaser is a party
or by which it is affected or bound; or
(b) violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Purchaser.
4.6 Consents.
No consent, approval or agreement of any person, party, court, government
or entity is required to be obtained by the Purchaser in connection with the
execution and delivery of this Agreement or the Related Agreements, or the
consummation of the transactions contemplated hereby and thereby.
ARTICLE 5
SELLER'S AND PURCHASER'S OBLIGATIONS PRIOR TO THE CLOSING
The Seller covenants and agrees with the Purchaser and the Purchaser
covenants and agrees with the Seller, as follows:
5.1 Conduct of Business.
From the date hereof until the Closing Date, except as the Purchaser may
otherwise consent in writing, the Seller shall conduct the Seller's business
only in the ordinary and usual course, and use all reasonable efforts to
preserve intact the Seller's business organization and good will, including,
without limitation, the following:
(a) using all reasonable efforts to retain the services of its
management and employees;
(b) using all reasonable efforts to maintain its relationships with
its suppliers and others having business relationships with it;
(c) paying when due all taxes, assessments, fees or charges applicable
to it except if being diligently contested in good faith by appropriate
proceedings;
(d) not purchasing, selling or disposing of any of the Transferred
Assets other than in the ordinary course of business or mortgaging, pledging,
subjecting of a lien or security interest or otherwise encumbering any of the
Transferred Assets;
(e) not incurring any indebtedness or liability, contingent or
otherwise, other than in the ordinary course of business consistent with past
practice;
(f) except as may be required under any employment or other agreements
currently in effect, all of which are listed on Schedule 3.18, not changing the
compensation payable or to become payable to any of its officers, employees or
agents or entering into any new employment contract with respect to the Seller's
business unless it is terminable at will and without penalty;
(g) not modifying or terminating any contract or agreement listed on
Schedule 1.1(e) or entering into any other contract or agreement or modifying or
terminating any such contract or agreement, other than in the ordinary course of
business; and
(h) maintaining at all times the insurance listed on Schedule 1.2(e)
hereto, or equivalent insurance with substitute insurers reasonably satisfactory
to the Purchaser.
5.2 Breach of Representations and Warranties.
From the date hereof until the Closing Date, promptly upon either party
becoming aware of the occurrence of, or the impending or threatened occurrence
of, any event which would cause or constitute a breach, or would have caused or
constituted a breach had such event occurred or been known to such party prior
to the date hereof, of any of the representations and warranties of such party
contained in this Agreement or in any schedule attached hereto, such party shall
give the other party notice thereof in reasonable detail and such party shall
use its best efforts to prevent or promptly remedy the same.
5.3 Exclusive Dealing.
From the date hereof until the Closing Date, the Seller shall not, directly
or indirectly, encourage or initiate discussions or negotiations with, or
provide any information to or cooperate with, or participate in any discussions
or negotiations relating to any offers by, any corporation, partnership, person,
or other entity or group, other than the Purchaser, concerning the purchase of
all or substantially all of the assets of, or similar transaction involving, the
Seller's business or the sale of all or substantially all of the capital stock
of the Seller, or any merger or other business combination of the Seller with
any such other entity or group.
5.4 Access.
Purchaser or Affiliates and its employees, agents, attorneys, accountants
and other representatives have been given full access to the Seller's
properties, assets, facilities, and books and records and have been furnished
with such additional information with respect to the business and properties of
the Sellers business or the Seller as the Purchaser or such representative has
requested. The Seller shall provide to the Purchaser such additional information
with respect to the Transferred Assets between the date hereof and the Closing
Date as the Purchaser or its representatives may reasonably request. The
Purchaser and Parent shall hold, and shall cause its representatives to hold, in
strict confidence, and shall not disclose, and shall cause its representatives
not to disclose, any information given to it or its representatives regarding
the Seller or the Seller's business, except that the Purchaser may disclose such
information (i) to employees, representatives, attorneys or accountants in order
to complete the Purchaser's due diligence investigation, (ii) if such
information is in the public domain, or comes into the public domain through no
fault of the Purchaser or its representatives, or (iii) if such information is
required to be disclosed by the Purchaser in order to comply with law, but only
upon prior notice to the Seller. In the event of termination of this Agreement,
the Purchaser, Parent and their representatives shall return to the Seller all
copies of statements, documents, schedules or other written information obtained
in connection therewith and shall promptly turn over or destroy all reports or
analyses prepared by the Purchaser, Parent or their representatives based
thereon.
5.5 Violations of Law.
If, prior to the Closing Date, the Seller receives an administrative or
other order relating to any violation of any law, rule or regulation of any
federal, state, local or other regulatory or administrative body, including
rules regarding the employment of labor and equal employment opportunity, the
Seller may elect to remove or correct all such violations and to be responsible
for the costs of removing or correcting the same, including the payment of any
fines or back pay that may be assessed for any such violation.
5.6 Public Announcements.
No party hereto shall make, or permit any of its affiliates or
representatives to make, any news release or other public disclosure of this
Agreement or the transactions contemplated hereby without the prior approval of
the other parties hereto, which approval shall not be unreasonably withheld.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING BY THE PURCHASER
The obligation of the Purchaser to purchase the Transferred Assets and to
consummate the transactions contemplated hereby, is subject to the fulfillment
and satisfaction by the Seller or waiver in writing by the Purchaser prior to or
at the Closing Date of each of the following conditions:
6.1 Accuracy of Representations and Warranties.
The representations and warranties of the Seller contained in this
Agreement and in any Schedule attached hereto shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date and the
Purchaser shall have received a certificate, executed by the President and the
Secretary of the Seller, dated the closing Date, to such effect.
6.2 Performance Agreements.
Each and all of the agreements of the Seller to be performed on or before
the Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and the Purchaser shall have received a certificate,
executed by the President and the Secretary of the Seller, dated the Closing
Date, to such effect.
6.3 Authorization.
All corporate and shareholder action necessary to authorize the execution,
delivery and performance by the Seller of this Agreement and the transactions
contemplated hereby shall have been duly and validly taken.
6.4 No Material Adverse Change.
There shall not have occurred any Material Adverse Change taken as a whole
since the date of this Agreement.
6.5 Restructuring of Debt.
Effective upon the Closing under the Asset Purchase Agreement, the Seller
shall have restructured its long and short term obligations, including but not
limited to those obligations to Dole Food Company, Inc. and Global Walk, Inc.
(Takanashi)) on terms and conditions acceptable to the Purchaser in its sole
discretion.
6.6 Bill of Sale.
The Seller shall have executed and delivered to the Purchaser a bill of
sale conveying to the Purchaser all of the tangible and intangible personal
assets to be acquired by the Purchaser, substantially in the form attached
hereto as Exhibit C (the "Bill of Sale").
6.7 Employment Agreement.
The Shareholder shall have executed and delivered to the Purchaser an
Employment Agreement, substantially in the form attached hereto as Exhibit D
(the "Employment Agreement").
6.8 Pledge and Security Agreement.
The Seller shall have executed and delivered to the Purchaser a Pledge and
Security Agreement, substantially in the form attached hereto as Exhibit E (the
"Pledge and Security Agreement").
6.9 Opinion of Counsel.
The Purchaser shall have received opinions from Morrison & Foerster LLP,
counsel to the Seller dated the Closing Date, substantially in the form attached
hereto as Exhibit F.
6.10 Third Party Consents and Governmental Authorizations.
All consents and approvals of third parties required to permit the Seller
to consummate the transactions contemplated hereby, shall have been obtained by
the Seller.
6.11 Compliance with Bulk Sales Law.
The parties shall have complied with all requirements of the California
Bulk Sales Law (Commercial Code ss.ss.6000 et seq.).
6.12 Release of Lien.
Any lien upon the Transferred Assets, including but not limited to the
liens securing the Seller's obligations under its existing credit agreements,
shall have been released.
6.13 Certificates; Assignments.
(a) The Purchaser shall have received from the Seller certificates,
(i) as of the most recent practicable date, as to the legal existence of the
Seller issued by the Secretary of State of the State of California and the tax
status of the Seller issued by the California Franchise Tax Board and (ii) dated
the Closing Date by the Secretary of the Seller, as to the incumbency and
signatures of those officers of the Seller authorized to execute this Agreement
and the Related Agreements and resolutions of the Board of Directors and
Shareholders of the Seller authorizing this Agreement and the transactions
contemplated hereby.
(b) The Purchaser shall have received written certificates of
assignment, notarized and otherwise in form and content acceptable to the
Purchaser, confirming the assignment to the Purchaser of the copyrights and
trademarks which are included within the Transferred Assets.
6.14 Other Matters.
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Purchaser and its counsel,
and the Purchaser shall have received copies of all such documents and other
evidences as it or its counsel may reasonably request.
ARTICLE 7
CONDITIONS PRECEDENT TO CLOSING BY THE SELLER
The obligation of the Seller to sell the Transferred Assets and to
consummate the transactions contemplated hereby, is subject to the fulfillment
and satisfaction by the Purchaser or waiver in writing by the Seller prior to or
at the Closing Date of each of the following conditions:
7.1 Accuracy of Representations and Warranties.
The representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date, and the Seller shall have received a certificate,
executed by an Executive Officer of the Purchaser, dated the Closing Date to
such effect.
7.2 Performance of Agreements.
Each and all of the agreements of the Purchaser to be performed on or
before the Closing Date pursuant to the terms hereof shall have been duly
performed in all material respects, and the Seller shall have received a
certificate, executed by an Executive Officer of the Purchaser, dated the
Closing Date, to such effect.
7.3 Employment Agreement.
The Purchaser shall have executed and delivered to the Shareholder the
Employment Agreement.
7.4 Opinion of Counsel.
The Seller shall have received an opinion from Severson & Werson, a
Professional Corporation, counsel to the Purchaser, dated the Closing Date,
addressed to the Seller, substantially in the form attached hereto as Exhibit G.
7.5 Authorization.
All corporate and shareholder action necessary to authorize the execution,
delivery and performance by the Purchaser of this Agreement and the transactions
contemplated hereby shall have been duly and validly taken, and Seller shall
have received a certificate executed by an executive officer of the Purchaser,
dated the Closing Date, to such effect.
7.6 Other Matters.
All proceedings to be taken in connection with the transactions by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Seller and its counsel, and the Seller shall have
received copies of all such documents and other evidences as it or its counsel
may reasonably request.
ARTICLE 8
FURTHER ASSURANCES
8.1 Execution of Other Instruments.
From time to time after the Closing, at the Purchaser's request and without
further consideration or additional cost to Seller, the Seller will execute and
deliver such other and further instruments of conveyance, assignment, transfer
and consent, and take such other action, as the Purchaser may reasonably request
for the more effective conveyance and transfer of ownership of the Transferred
Assets.
8.2 Assignment of Contracts.
Notwithstanding anything in this agreement to the contrary, if the Closing
occurs, no properties, assets or rights, including without limitation, any
contract, lease, license or commitment, shall be transferred or assigned hereby
if any attempt to transfer or make an assignment thereof without the consent of
a third party would constitute a breach thereof or in any way adversely affect
the rights of the Purchaser thereunder and the consent of such third party has
not been obtained, or if any attempt to transfer or make an assignment would be
ineffective or would affect any of the Seller's rights thereunder so that the
Purchaser would not in fact receive the same. The Seller, at its reasonable
expense, will use its best efforts and take any and all action the Purchaser
deems reasonably necessary to make any non-assignable property assignable or
otherwise to provide the Purchaser with the benefits thereof. Notwithstanding
such efforts, the Seller covenants and agrees that in any such case where a
consent has not been obtained or a transfer would be ineffective or affect the
Seller's rights, the Seller will, at the Purchaser's option, hold the same in
trust for the Purchaser in all respects subject to the Purchaser's direction and
control and will transfer and assign the same to the Purchaser or the
Purchaser's designee only on demand by the Purchaser.
8.3 Power of Attorney.
The Seller hereby appoints the Purchaser, effective upon the Closing, its
agent and attorney to receive, collect, enforce and sue for any and all the
Transferred Assets and to endorse any check or other instrument payable to the
Seller or to the order of the Seller received in payment therefor, either in the
name of the Purchaser or in the name of the Seller in connection with the
Transferred Assets, all as the Seller's agent and attorney thereunto duly
authorized, but, in any event, for the use and benefit of the Purchaser, the
powers set forth herein being irrevocable and powers given for security. The
foregoing powers are coupled with an interest and are and shall be irrevocable
whether by the Seller or by reason of the Seller's dissolution or in any manner
or for any reason whatsoever. Subsequent to the Closing, Seller will not use any
of the Transferred Assets for its own use or benefit or that of anyone else or
make any effort to receive, collect, enforce or sue for any of the Transferred
Assets at any time after the Closing, other than for the benefit of the
Purchaser. If any proceeds of any of the Transferred Assets or any payments
thereon are for any reason received by the Seller subsequent to the Closing, the
Seller will remit the same to the Purchaser immediately and in the form in which
received together with all necessary assignments and endorsements.
ARTICLE 9
EMPLOYEE RELATIONS AND BENEFITS
9.1 Offer of Employment.
Purchaser will offer employment, commencing on the Closing Date, at such
salary levels as are in effect on the Closing Date, to all salaried and hourly
employees who are employed by Seller on the last business day preceding the
Closing Date except as set forth on Schedule 9.1 hereto. Those employees to whom
offers of employment are made shall be collectively referred to as the
"Transferred Employees".
9.2 Benefits.
From and after the Closing, the Purchaser shall offer each Transferred
Employee the same benefits as from time to time are made available to the
Purchaser's United States employees generally, subject to the Purchaser's right
at any time or from time to time to alter the terms of or terminate the
provision of such benefits in whole or in part.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties.
A claim for any loss, liability, cost, damage or expense relating to the
representations and warranties set forth in this Agreement shall survive the
Closing and the consummation of the transactions contemplated hereby for a
period of one (1) year after the Closing Date, except for those claims that do
not involve third parties of which the survival period shall be six (6) months;
provided, however, that all such representations and warranties shall survive
after the applicable survival period with respect to any claim made by Purchaser
or Affiliates prior to the expiration thereof until, and shall expire when, such
claim is finally resolved. The parties hereto shall be entitled to rely upon
such representations and warranties whether or not either party relied on the
representations and warranties or had knowledge, acquired before or after the
date hereof, from its own investigation or otherwise, of any fact at variance
with or any breach of any such representation or warranty.
The liability of Shareholder is limited to the value of the collateral
pledged pursuant to the Pledge and Security Agreement defined in Section 6.8.
10.2 Obligation of the Seller to Indemnify.
The Seller will indemnify and hold the Purchaser and Affiliates harmless
from and against any liability, loss, cost, damage or expense sustained by the
Purchaser or an Affiliate based upon, arising out of or resulting from any of
the following; provided, however, that such indemnification shall not be
effective until the aggregate dollar amount of all such liabilities, losses,
costs, damages and expenses (including reasonable attorneys' fees) exceeds
$25,000:
(a) any misrepresentation, breach of warranty or non-fulfillment of
any agreement on the part of the Seller under this Agreement or any of the
Related Agreements or any misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished to the Purchaser
hereunder or thereunder;
(b) liabilities of the Seller not specifically assumed by the
Purchaser, including, without limiting the foregoing, any claim for payment of
any kind from an employee of the Seller made as a result of or in connection
with the transactions contemplated herein;
(c) any bodily injury or property damage or other damages resulting
from the production, sale or use of products of the Seller shipped by or on
behalf of the Seller prior to the Closing Date or that are not covered by the
Seller's insurance; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including attorneys' fees, incident
to any of the foregoing.
10.3 Obligation of the Purchaser to Indemnify.
The Purchaser will indemnify and hold the Seller and the Shareholder
harmless from and against any liability, loss, cost, damage or expense sustained
by the Seller based upon, arising out of, or resulting from any of the
following:
(a) any misrepresentation, breach of warranty or non-fulfillment of
any agreement on the part of the Purchaser under this Agreement or any of the
Related Agreements or from any misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished to Seller hereunder
or thereunder;
(b) any liability of the Seller specifically assumed by the Purchaser
in connection with the transactions contemplated herein;
(c) any bodily injury or property damage or other damages resulting
from the production, sale or use of products of the Seller included as part of,
or produced from inventory forming a portion of, the Transferred Assets shipped
by or on behalf of the Purchaser on or after the Closing Date; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including attorneys' fees, incident
to any of the foregoing.
10.4 Procedure for Indemnification.
Each party hereto agrees to give the other party prompt written notice of
any claim, assertion, event or proceeding by or in respect to a third party of
which it has knowledge concerning any liability or damage as to which it may
request indemnification hereunder; provided, however, that failure to give such
notice shall not affect a party's right to be indemnified hereunder.
10.5 Other Rights.
The rights of each party under this Article 10 shall be in addition to any
other rights or remedies that might otherwise be available to such party.
ARTICLE 11
TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
abandoned at any time prior to the Closing Date as follows:
(a) by mutual consent of the Seller and the Purchaser;
(b) by the Purchaser if any of the conditions set forth in Article 6
hereof shall have become impossible of fulfillment and shall not have been
waived by the Purchaser;
(c) by the Seller if any of the conditions set forth in Article 7
hereof shall have become impossible of fulfillment and shall not have been
waived by the Seller;
(d) by either the Seller or the Purchaser if any action, suit or
proceeding before any court or other governmental body or agency shall have been
instituted to restrain, modify or prohibit the transactions contemplated hereby,
unless contested in good faith or unless the party against whom the action, suit
or proceeding is commenced agrees to indemnify the other party against all
liability arising therefrom, and the other party agrees to accept such
indemnification; and
(e) by either the Purchaser or the Seller if the transactions
contemplated hereby are not consummated on or before June 30, 1998 for any
reason other than the failure of the party seeking termination to fulfill the
conditions set forth in Article 6 hereof, if the Seller, or Article 7 hereof, if
the Purchaser.
If this Agreement is terminated pursuant hereto, this Agreement shall
become void and of no further force and effect except that such termination
shall be without prejudice to the rights of any party because of the
non-satisfaction of conditions set forth in Articles 6 and 7 hereof resulting
from the intentional or willful breach or violation of the representations,
warranties, covenants or agreements of another party under this Agreement.
ARTICLE 12
CLOSING
12.1 Closing Date.
The closing of the purchase and sale of the Transferred Assets hereunder
shall be held at the offices of Severson & Werson, One Embarcadero Center, 26th
Floor, San Francisco, California at 10:00 a.m., local time, on June 11, 1998
(the "Anticipated Closing Date") or at such other time and place as shall be
mutually agreed upon by the Purchaser and the Seller. Provided such party is not
in default of any of its obligations pursuant to this Agreement, either party
upon notice to the other party given in the manner provided for herein may
extend the closing for a period or for periods up to and including June 30,
1998. The time and place of closing is herein referred to as the "Closing" and
the date of the Closing is herein referred to as the "Closing Date".
12.2 Possession.
Simultaneously with the consummation of the transfer, Seller, through its
officers, agents, and employees, will put Purchaser into full possession and
enjoyment of all properties and assets to be conveyed and transferred by this
Agreement.
ARTICLE 13
REMEDIES
13.1 Remedies.
The Seller agrees that the Transferred Assets are unique and that the
Purchaser will be irreparably harmed in the event this Agreement is not
specifically enforced. The parties further agree that it is impossible to
measure in money the damage that will accrue by reason of a refusal by the
Seller to perform its obligations under this Agreement. Therefore, the Seller
hereby acknowledges that, in the event that the Purchaser shall institute any
action to enforce the provisions of this Agreement, the Purchaser will not have
an adequate remedy at law and that injunctive or other equitable relief will not
constitute any hardship upon the Seller.
ARTICLE 14
COVENANTS OF THE SELLER AND THE PURCHASER AFTER THE CLOSING
The Seller covenants and agrees with the Purchaser and the Purchaser
covenants and agrees with the Seller provided the Closing occurs hereunder:
14.1 Payment of Obligations.
On the Closing Date and thereafter, as promptly after becoming due as
practicable, the Seller will pay and discharge all debts, liabilities and
obligations not expressly assumed hereby by the Purchaser except any liability
being (for so long as being) contested in good faith.
14.2 Non-Competition.
For a period ending five (5) years after the Closing Date, the Seller will
not, directly or indirectly, (i) engage or become interested in, as owner,
partner, through stock ownership, investment of capital, lending of money or
property, rendering of services or otherwise, either alone or in association
with others, in the operation of any business which competes in, or is connected
with, the business of developing and marketing of organic foods and beverages,
(ii) induce or attempt to induce any customer of the Purchaser or the Seller's
business to reduce such customer's purchases of products from the Purchaser or
the Seller's business, (iii) use for its own benefit or disclose to any other
person or persons, natural or corporate, the name and/or requirements of any
such customer to any other person or persons, natural or corporate, or (iv)
solicit any employee or sales representative of the Purchaser or the Seller's
business to leave the employ of the Purchaser. The obligations of the Seller
under this Section 14.2 shall extend to those countries of the world, states of
the United States and those counties in the State of California set forth in
Exhibit H hereto (the "Territory"). After the Closing Date, the Seller shall
refer to the Purchaser all inquiries which it may receive, whether from
customers or otherwise, relating to Seller's business and shall forward to the
Purchaser any written orders which it may receive for Seller's products.
For a period ending three (3) years after the Closing Date, the Shareholder
shall be bound by the non-competition provisions of that that certain Employment
Agreement defined in Section 6.7, which provisions are herein incorporated by
reference.
14.3 Change of Name.
The Seller agrees that on or before the Closing Date it will take such
action and sign, seal, acknowledge, deliver, file and record such instruments as
shall be necessary to change its name to a name not including the words "Made In
Nature" or any variation or derivative thereof or any name confusingly similar
thereto.
14.4 Payment by the Purchaser of Current Liabilities.
Within ninety (90) days after becoming due, the Purchaser shall satisfy in
full all of the Assumed Liabilities of the Seller assumed by it hereunder except
any liability being (for so long as being) contested in good faith.
14.5 Uniform Tax Treatment.
The parties agree that the allocation of consideration set forth herein
shall be used by them for all federal and state income tax purposes, including,
but not limited to, reporting pursuant to Section 1060 of the Internal Revenue
Code of 1986, as amended. In preparing and filing IRS Form 8594 ("Asset
Acquisition Statement Under Section 1060"), the parties shall report that the
allocation of consideration set forth herein and the fair market value of the
assets to which such consideration is allocated is the same. Prior to filing
Form 8594 with respect to the transactions described herein, the parties shall
provide to each other a true and correct copy of the Form 8594 which each
intends to file with respect to these transactions.
ARTICLE 15
RIGHT OF SET-OFF
15.1 Right of Set-Off.
Subject to the limitations on Seller's liability as set forth in Section
10.2 above, with respect to any amounts that may be due to any party from any
other party hereunder or otherwise, such party shall have the right to set-off
such amounts against and to apply them to any amount otherwise payable by such
party to the other party pursuant to this Agreement or otherwise. The right of
set-off provided for in this Section shall be in addition to any other rights or
remedies that may be otherwise available to such party and the exercise of such
right of set-off shall not operate as a waiver of any such other rights.
ARTICLE 16
EXPENSES OF THE PARTIES
16.1 Expenses of the Parties.
Each party will pay its respective expenses incurred in connection with the
negotiation, execution and performance of this Agreement, and in the case of the
Seller, such expenses shall be paid out of the proceeds of the Purchase Price
paid hereunder.
ARTICLE 17
NOTICES
17.1 Notices.
Any notice to any party hereto given pursuant to this Agreement shall be in
writing addressed as follows:
if to the Seller and Shareholder: Made In Nature, Inc.
4340 Redwood Highway
San Rafael, California 94903
Attn: Gerald E. Prolman, President
Telephone: (415) 499-3309
Telecopier: (415) 499-3347
with a copy to: Morrison & Foerster LLP
425 Market Street
San Francisco, California 94105
Attn: John W. Campbell, III, Esq.
Telephone: (415) 268-7000
Telecopier: (415) 268-7522
if to the Purchaser and Parent: Vacu-dry Company
7765 Healdsburg Avenue
Sebastopol, California 95437
Attn: Gary L. Hess, President
Telephone: (707) 829-4600
Telecopier: (707) 829-4610
with a copy to: Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, California 94111
Attn: Roger S. Mertz, Esq.
Telephone: (415) 398-3344
Telecopier: (415) 956-0439
Any such address may be changed by any party by written notice to the other
party. Any notice shall be deemed delivered (i) if transmitted by electronic
facsimile transmission, when the appropriate number and answerback are
transmitted, (ii) if delivered personally, when received, or (iii) if mailed by
registered or certified mail, postage prepaid, return receipt requested, when
received.
ARTICLE 18
DISPUTE RESOLUTION
18.1 Mandatory Arbitration.
Any controversy or claim between or among the parties, their agents,
employees and affiliates, including but not limited to those arising out of or
relating to this Agreement or the Related Agreements, including without
limitation any claim based on or arising from an alleged tort, shall, at the
option of any party, be resolved through mandatory arbitration in accordance
with the rules then in effect of the American Arbitration Association ("AAA")
and Title 9 of the U. S. Code, notwithstanding any other choice of law provision
in the Agreement or the Related Agreements. All statutes of limitations or any
waivers contained herein which would otherwise be applicable shall apply to any
arbitration proceeding under this Section 18.1. The parties agree that related
arbitration proceedings may be consolidated. The arbitrator shall prepare
written reasons for the award. The location of the arbitration shall be in San
Francisco, California. The arbitrator or arbitrators shall be generally skilled
in the legal and business aspects of the subject matter at issue. If the parties
so agree, a single arbitrator shall be selected jointly by the Purchaser and the
Seller to settle the dispute. If the parties cannot agree upon the selection of
an arbitrator within fifteen (15) days after the receipt by one party from the
other of a notice of arbitration, then each party shall within fifteen (15) days
after the expiration of said fifteen (15) day period select one arbitrator. If
either party fails to appoint an arbitrator within that fifteen (15) days
period, the other party may designate an arbitrator for the party who failed to
make such appointment. The two arbitrators shall select a third arbitrator
within fifteen (15) days after their appointment; if the two arbitrators
selected by the parties cannot agree upon a third arbitrator, the third
arbitrator shall be appointed by the AAA. The arbitrators shall promptly
determine whether and in what amount a payment should be made to the prevailing
party and shall submit a written report of their decision to the Purchaser and
the Seller. The decision of the majority of the arbitrators shall be binding
upon all parties. The arbitrators shall not be entitled to award punitive
damages. Judgment upon the award rendered may be entered in any court having
jurisdiction.
18.2 Provisional Remedies and Self Help.
No provision of, or the exercise of any rights under, Section 18.1 shall
limit the right of any party to exercise self help remedies such as set-off, or
to obtain provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before, during or
after the pendency of any arbitration.
ARTICLE 19
MISCELLANEOUS
19.1 Entire Agreement; Waivers.
This Agreement (including all attachments hereto) comprises the entire
agreement between the parties hereto as to the subject matter hereof and
supersedes all prior agreements and understandings between them relating
thereto. Each party may extend the time for, or waive the performance of, any of
the obligations of the other, waive any inaccuracies in the representations or
warranties of the other, or waive compliance by the other with any of the
covenants or conditions contained in this Agreement, but only by an instrument
in writing signed by the party granting such extension or waiver.
19.2 Attorneys Fees.
If any legal action, arbitration, mediation or other proceeding is brought
for the enforcement of this Agreement or the Related Agreements, or because of
an alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Agreement or the Related Agreements, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
19.3 Governing Law.
This Agreement is made and shall be construed in accordance with the laws
of the State of California.
19.4 Successors and Assigns.
This Agreement shall inure to the benefit of, and be binding upon and
enforceable against, the respective successors and assigns of the parties hereto
but may not be assigned by any party without the prior written consent of the
other parties.
19.5 Captions.
Captions are supplied herein for convenience only and shall not be deemed a
part of this Agreement for any purpose.
19.6 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original for all purposes.
19.7 Severability.
If any term or provision of this Agreement or the application thereof to
any person or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Agreement or the application of such terms or provisions to
persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby and each term and provision of this
Agreement shall be valid and enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written by their duly authorized officers.
Seller:
MADE IN NATURE, INC.
By: /S/ Gerald E. Prolman
----------------------------------
Gerald E. Prolman, President
Attest:
/s/ Demetrios Koston
- -------------------------------
- ------------------------, Secretary
Shareholder:
GERALD E. PROLMAN
/s/ Gerald E. Prolman
--------------------------------------
Gerald E. Prolman
Purchaser:
MIN ACQUISITION CORP.
By: /s/ Gary L. Hess
------------------------------------
Gary L. Hess, President
Attest:
/s/ Roger S. Mertz
- ---------------------------------
Assistant Secretary
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule 1.1(b) Tangible Personal Property and Assets
Schedule 1.1(c) Patents, Trademarks, Tradenames, Etc.
Schedule 1.1(e) Contracts
Schedule 1.2(e) Insurance Policies
Schedule 2.3(a) Seller's Liabilities to be Assumed
Schedule 3.2 Qualifications, etc.
Schedule 3.3 Non-Contravention
Schedule 3.6 Transactions with Affiliates
Schedule 3.7 Financial Statements
Schedule 3.8 Absence of Changes - Exceptions
Schedule 3.9 Liens and Encumbrances
Schedule 3.10 Real Property
Schedule 3.11 Patents, Trademarks, etc.
Schedule 3.12 Insurance
Schedule 3.13 Commitments
Schedule 3.14 Legal Proceedings
Schedule 3.15 Taxes
Schedule 3.16 Compliance with Laws - Exceptions
Schedule 3.17 Environmental Matters
Schedule 3.18 Employee Benefit Plans, etc.
Schedule 3.19 Employee and Labor Matters; Directors,
Officers and Employees
Schedule 3.21 Powers of Attorney
Schedule 3.22 Accounts Receivable and Accounts Payable
- Exceptions
Schedule 3.23 Permits, Licenses, etc.
Schedule 3.25 Other Liabilities
Schedule 9.1 Offer of Employment
EXHIBITS
Exhibit A Common Stock Warrant
Exhibit B Allocation of Purchase Price
Exhibit C Bill of Sale
Exhibit D Employment Agreement
Exhibit E Pledge and Security Agreement
Exhibit F Form of Opinion of Seller's and
Shareholder's Counsel
Exhibit G Form of Opinion of Purchaser's Counsel
Exhibit H Territory
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
VACU-DRY COMPANY
WARRANT TO PURCHASE COMMON STOCK
This Warrant Expires June 11, 2003
Warrant No.: 98-1
Date of Issuance: June 11, 1998 Number of Shares: 100,000
Vacu-Dry Company, a California corporation (the "Company"), hereby
certifies that, for value received, Made In Nature, Inc., the registered holder
hereof or its assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 5:00 P.M. Pacific Standard Time on
the Expiration Date (as defined herein) fully paid nonassessable shares of
Common Stock (as defined herein) of the Company (the "Warrant Shares") at the
purchase price per share provided in Section 1(b) below (the "Warrant Exercise
Price").
Section 1. Definitions.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "Warrants") issued pursuant to that certain Asset Purchase
Agreement dated as of June 11, 1998, among the Company, MIN Acquisition
Corp., Made In Nature, Inc. and Gerald E. Prolman.
(b) Definitions. The following words and terms as used in this Warrant
shall have the following meanings:
"Common Stock" means (i) the Company's common stock, no par value,
and (ii) any capital stock into which such Common Stock shall have been changed
or any capital stock resulting from a reclassification of such Common Stock.
"Expiration Date" means the date five (5) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the State of California (a
"Holiday"), the next preceding date that is not a Holiday.
"Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant" shall mean this warrant and all warrants issued in
exchange, transfer or replacement of any thereof.
"Warrant Exercise Price" shall be equal to $8.00 per share,
subject to adjustment as hereinafter provided.
(c) Other Definitions.
(i) Except as otherwise specified herein, (A) all references to
the Company shall be deemed to include the Company's successors, and (B) all
references to any applicable law defined or referred to herein shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "herein," "hereof," and
"hereunder," and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant, and the words "Section," "Schedule,"
and "Exhibit" shall refer to Sections of, and Schedules and Exhibits to, this
Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company as
follows: 33,333 shares at any time after the Date of Issuance and before the
Expiration Date; 33,333 shares at any time after one year from the Date of
Issuance and before the Expiration Date; and 33,334 shares at any time after two
years from the Date of Issuance and before the Expiration Date. Subject to the
foregoing, the Warrant may be exercised, in whole or in part, at any time during
normal business hours on any business day on or after the opening of business on
the date hereof and prior to 5:00 P.M. Pacific Time on the Expiration Date by
(i) delivery of a written notice, in the form of the subscription notice
attached as Exhibit A hereto, of such holder's election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii) payment to the Company of an amount equal to the Warrant
Exercise Price multiplied by the number of Warrant Shares as to which the
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the
surrender of this Warrant, at the principal office of the Company; provided,
that if such Warrant Shares are to be issued in any name other than that of the
registered holder of this Warrant, such issuance shall be deemed a transfer and
the provisions of Section 7 shall be applicable. In the event of any exercise of
the rights represented by this Warrant in compliance with this Section 2(a), a
certificate or certificates for the Warrant Shares so purchased, in such
denominations as may be requested by the holder hereof and registered in the
name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable after such
rights shall have been so exercised, and in any event no later than fifteen (15)
business days after such exercise.
(b) In addition to and without limiting the rights of the holder
hereof under the terms hereof, this Warrant may be exercised by being exchanged
in whole or in part and, subject to the vesting provisions of Section 2(a)
above, at any time or from time to time prior to its expiration, for a number of
shares of Common Stock having an aggregate fair market value on the date of such
exercise equal to the difference between (x) the fair market value of the number
of shares of Common Stock subject to this Warrant designated by the holder
hereof on the date of the exercise and (y) the aggregate Warrant Price as
adjusted by Section 8 for such number of designated shares. Upon any such
exercise, the number of shares of Common Stock purchasable upon exercise of this
Warrant shall be reduced by such designated number of shares of Common Stock
and, if a balance of purchasable shares of Common Stock remains after such
exercise, whether or not it is exercisable as to such shares the Company shall
execute and deliver to the holder hereof a new Warrant for such balance of
shares of Common Stock. No payment of any cash or other consideration shall be
required from the holder of this Warrant in connection with any exercise of this
Warrant by exchange pursuant to this section. Such exchange shall be effective
upon the date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the holder hereof that the exchange
pursuant to this section be made, or at such later date as may be specified in
such request. Any tax liability related to such transaction that is attributable
to the holder shall be paid by the holder. For the purposes of this Section, the
"fair market value" of any number of shares of Common Stock shall be calculated
on the basis of (i) if the Common Stock is then traded on a securities exchange,
the average of the closing prices of the Common Stock on such exchange over the
30-day period ending three (3) days prior to the date of exercise, (ii) if the
Common Stock is then actively traded over the counter, the average of the
closing bid or sale prices (whichever is applicable) of the Common Stock over
the 30-day period ending three (3) days prior to the date of exercise, and (iii)
if there is no active public market for the Common Stock, the fair market value
thereof as determined in good faith by the Board of Directors of the Company.
(c) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in any event no later than five (5) business days after any exercise and at
its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the holder thereof shall be deemed for all corporate
purposes to have become the holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open.
(d) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
Section 3. Covenants as to Common Stock. The Company hereby
covenants and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant.
(d) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall not be required to pay any tax or taxes
attributable to the initial issuance of the Warrant Shares or any permitted
transfer involved in the issue or delivery of any certificates for Warrant
Shares in a name other than that of the registered holder hereof or upon any
permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of any of the shares of Common Stock
or other securities issuable upon the exercise thereof, and not with any present
intention of distributing any of the same. Upon exercise of this Warrant, the
holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale. If
such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of the Warrant that
the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of the Warrant shall not violate any United States or state
securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (i) subsequently registered thereunder, or (ii) such holder shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration;
(d) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and
(e) neither the Company nor any other person is under any obligation
to register the Warrants under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
Section 8. Adjustment of Warrant Exercise Price. In order to prevent
dilution of the rights granted under this Warrant, the Warrant Exercise Price
shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person (as
defined below) or other similar transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any Organic Change, the Company will make appropriate
provision to insure that each of the holders of the Warrants will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrants, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrants had such Organic Change
not taken place.
(c) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation, except that in no event shall
such notice be provided to such holder prior to such information being made
known to the public.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
Vacu-Dry Company
7765 Healdsburg Avenue
Sebastopol, California 95472
Attention: President
If to a holder of this Warrant, to it at the address set forth below
such holder's signature on the signature page hereof.
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
Section 12. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without regard to the
principles of conflict of laws.
Section 13. Date. The date of this Warrant is June 11, 1998. This Warrant,
in all events, shall be wholly void and of no effect after the close of business
on the Expiration Date, except that notwithstanding any other provisions hereof,
the provisions of Section 7 shall continue in full force and effect after such
date as to any Warrant Shares or other securities issued upon the exercise of
this Warrant.
VACU-DRY COMPANY
By: /S/ Gary L. Hess
--------------------------------------
Its: President
By: /s/ Tom Eakin
--------------------------------------
Its: VP Finance
ACCEPTED:
Made In Nature, Inc.
By: /s/ Gerald E. Prolman
--------------------------------
Name: GERALD E. PROLMAN
Title: President
Address:4340 Redwood Highway
San Rafael, California 94903
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
VACU-DRY COMPANY
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by this Warrant specified below according to the
conditions thereof and herewith makes payment therefor in the amount of
$____________________, the Aggregate Exercise Price of such Warrant Shares in
full, and requests that such Warrant Shares be issued in the name of:
Made In Nature, Inc
Dated:
---------------------
By:
--------------------------------------
Name:
---------------------------------
Title:
---------------------------------
Number of Warrant Shares
Being Purchased:
-----------------------
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
- ---------------------, Federal Identification No. -------------------------, a
warrant to purchase ------------ shares of the capital stock of VACU-DRY
COMPANY, a California corporation, represented by warrant certificate No.
- ------, standing in the name of the undersigned on the books of said
corporation. The undersigned does hereby irrevocably constitute and appoint
- ------------------------------------------, attorney to transfer the warrants of
said corporation, with full power of substitution in the premises.
Dated:
-------------------
MADE IN NATURE
By: /S/ Gerald E. Prolman
---------------------------------------
Its: President
---------------------------------------
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
VACU-DRY COMPANY
WARRANT TO PURCHASE COMMON STOCK
This Warrant Expires June 11, 2003
Warrant No.: 98-2
Date of Issuance: June 11, 1998 Number of Shares: 12,000
Vacu-Dry Company, a California corporation (the "Company"), hereby
certifies that, for value received, Gerald E. Prolman., the registered holder
hereof or its assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 5:00 P.M. Pacific Standard Time on
the Expiration Date (as defined herein) fully paid nonassessable shares of
Common Stock (as defined herein) of the Company (the "Warrant Shares") at the
purchase price per share provided in Section 1(b) below (the "Warrant Exercise
Price").
Section 1. Definitions.
(a) Securities Purchase Agreement. This Warrant is one of the warrants
(the "Warrants") issued pursuant to that certain Asset Purchase Agreement dated
as of June 11, 1998, among the Company, MIN Acquisition Corp., Made In Nature,
Inc. and Gerald E. Prolman.
(b) Definitions. The following words and terms as used in this Warrant
shall have the following meanings:
"Common Stock" means (i) the Company's common stock, no par
value, and (ii) any capital stock into which such Common Stock shall have been
changed or any capital stock resulting from a reclassification of such Common
Stock.
"Expiration Date" means the date five (5) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the State of California (a
"Holiday"), the next preceding date that is not a Holiday.
"Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant" shall mean this warrant and all warrants issued in
exchange, transfer or replacement of any thereof.
"Warrant Exercise Price" shall be equal to $8.00 per share,
subject to adjustment as hereinafter provided.
(c) Other Definitions.
(i) Except as otherwise specified herein, (A) all references to
the Company shall be deemed to include the Company's successors, and (B) all
references to any applicable law defined or referred to herein shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "herein," "hereof," and
"hereunder," and words of similar import, shall refer to this Warrant as a whole
and not to any provision of this Warrant, and the words "Section," "Schedule,"
and "Exhibit" shall refer to Sections of, and Schedules and Exhibits to, this
Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plura
and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company as
follows: 4,000 shares at any time after the Date of Issuance and before the
Expiration Date; 4,000 shares at any time after one year from the Date of
Issuance and before the Expiration Date; and 4,000 shares at any time after two
years from the Date of Issuance and before the Expiration Date. Subject to the
foregoing, the Warrant may be exercised, in whole or in part, at any time during
normal business hours on any business day on or after the opening of business on
the date hereof and prior to 5:00 P.M. Pacific Time on the Expiration Date by
(i) delivery of a written notice, in the form of the subscription notice
attached as Exhibit A hereto, of such holder's election to exercise this
Warrant, which notice shall specify the number of Warrant Shares to be
purchased, (ii) payment to the Company of an amount equal to the Warrant
Exercise Price multiplied by the number of Warrant Shares as to which the
Warrant is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the
surrender of this Warrant, at the principal office of the Company; provided,
that if such Warrant Shares are to be issued in any name other than that of the
registered holder of this Warrant, such issuance shall be deemed a transfer and
the provisions of Section 7 shall be applicable. In the event of any exercise of
the rights represented by this Warrant in compliance with this Section 2(a), a
certificate or certificates for the Warrant Shares so purchased, in such
denominations as may be requested by the holder hereof and registered in the
name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable after such
rights shall have been so exercised, and in any event no later than fifteen (15)
business days after such exercise.
(b) In addition to and without limiting the rights of the holder
hereof under the terms hereof, this Warrant may be exercised by being exchanged
in whole or in part and, subject to the vesting provisions of Section 2(a)
above, at any time or from time to time prior to its expiration, for a number of
shares of Common Stock having an aggregate fair market value on the date of such
exercise equal to the difference between (x) the fair market value of the number
of shares of Common Stock subject to this Warrant designated by the holder
hereof on the date of the exercise and (y) the aggregate Warrant Price as
adjusted by Section 8 for such number of designated shares. Upon any such
exercise, the number of shares of Common Stock purchasable upon exercise of this
Warrant shall be reduced by such designated number of shares of Common Stock
and, if a balance of purchasable shares of Common Stock remains after such
exercise, whether or not it is exercisable as to such shares the Company shall
execute and deliver to the holder hereof a new Warrant for such balance of
shares of Common Stock. No payment of any cash or other consideration shall be
required from the holder of this Warrant in connection with any exercise of this
Warrant by exchange pursuant to this section. Such exchange shall be effective
upon the date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the holder hereof that the exchange
pursuant to this section be made, or at such later date as may be specified in
such request. Any tax liability related to such transaction that is attributable
to the holder shall be paid by the holder. For the purposes of this Section, the
"fair market value" of any number of shares of Common Stock shall be calculated
on the basis of (i) if the Common Stock is then traded on a securities exchange,
the average of the closing prices of the Common Stock on such exchange over the
30-day period ending three (3) days prior to the date of exercise, (ii) if the
Common Stock is then actively traded over the counter, the average of the
closing bid or sale prices (whichever is applicable) of the Common Stock over
the 30-day period ending three (3) days prior to the date of exercise, and (iii)
if there is no active public market for the Common Stock, the fair market value
thereof as determined in good faith by the Board of Directors of the Company.
(c) Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in any event no later than five (5) business days after any exercise and at
its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the holder thereof shall be deemed for all corporate
purposes to have become the holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open.
(d) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
Section 3. Covenants as to Common Stock. The Company hereby
covenants and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
(b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least the number of shares of Common Stock needed to provide for the
exercise of the rights then represented by this Warrant.
(d) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
Section 4. Taxes. The Company shall not be required to pay any tax or taxes
attributable to the initial issuance of the Warrant Shares or any permitted
transfer involved in the issue or delivery of any certificates for Warrant
Shares in a name other than that of the registered holder hereof or upon any
permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.
Section 6. Representations of Holder. The holder of this Warrant, by the
acceptance hereof, represents that he is acquiring this Warrant and the Warrant
Shares for his own account for investment and not with a view to, or for sale in
connection with, any distribution hereof or of any of the shares of Common Stock
or other securities issuable upon the exercise thereof, and not with any present
intention of distributing any of the same. Upon exercise of this Warrant, the
holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale. If
such holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of the Warrant that
the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of the Warrant shall not violate any United States or state
securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (i) subsequently registered thereunder, or (ii) such holder shall have
delivered to the Company an opinion of counsel, reasonably satisfactory in form,
scope and substance to the Company, to the effect that the securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration;
(d) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and
(e) neither the Company nor any other person is under any obligation
to register the Warrants under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
Section 8. Adjustment of Warrant Exercise Price. In order to prevent
dilution of the rights granted under this Warrant, the Warrant Exercise Price
shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets to another Person (as
defined below) or other similar transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any Organic Change, the Company will make appropriate
provision to insure that each of the holders of the Warrants will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrants, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrants had such Organic Change
not taken place.
(c) Notices.
(i) Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation, except that in no event shall
such notice be provided to such holder prior to such information being made
known to the public.
(iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (a) upon receipt, when
delivered personally; (b) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (c) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (d) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:
If to the Company:
Vacu-Dry Company
7765 Healdsburg Avenue
Sebastopol, California 95472
Attention: President
If to a holder of this Warrant, to it at the address set forth
below such holder's signature on the signature page hereof.
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
Section 12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without regard to the
principles of conflict of laws.
Section 13. Date. The date of this Warrant is June 11, 1998. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
VACU-DRY COMPANY
By:/s/ Gary L. Hess
---------------------------------
Its: President
By:/s/ Tom Eakin
---------------------------------
Its: VP Finance
ACCEPTED:
/s/ Gerald E. Prolman
- ----------------------------------
Gerald E. Prolman
Address:
4 Quail Court
San Rafael, California 94903
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
VACU-DRY COMPANY
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by this Warrant specified below according to the
conditions thereof and herewith makes payment therefor in the amount of
$_________________, the Aggregate Exercise Price of such Warrant Shares in full,
and requests that such Warrant Shares be issued in the name of:
Dated: ________________ __________________________
Gerald E. Prolman
Number of Warrant Shares
Being Purchased: ____________
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
______________________________, Federal Identification No. __________________, a
warrant to purchase ______________ shares of the capital stock of VACU-DRY
COMPANY, a California corporation, represented by warrant certificate No.
________, standing in the name of the undersigned on the books of said
corporation. The undersigned does hereby irrevocably constitute and appoint
______________________________________________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: ___________________ __________________________________
By:_______________________________
Its:______________________________
VACU-DRY COMPANY
COMMISSION FILE NUMBER 01912
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1998 1997 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
NET EARNINGS APPLICABLE TO
COMMON STOCK $899 $517 $434
=== === ===
AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
AVERAGE COMMON SHARES OUTSTANDING
1,581 1,648 1,704
DILUTIVE EFFECT OF STOCK OPTIONS 19 0 0
----- ----- -----
1,600 1,648 1,704
===== ===== =====
EARNINGS PER COMMON SHARE
Basic $.57 $.31 $.25
===== ===== =====
Diluted $.56 -- --
===== ===== =====
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-70870.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
- ---------------------------------
San Francisco, California
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-K
FOR THE YEAR ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 385,000
<SECURITIES> 0
<RECEIVABLES> 2,356,000
<ALLOWANCES> 58,000
<INVENTORY> 7,926,000<F1>
<CURRENT-ASSETS> 11,430,000
<PP&E> 18,587,000
<DEPRECIATION> 11,803,000
<TOTAL-ASSETS> 20,776,000
<CURRENT-LIABILITIES> 5,516,000
<BONDS> 0
0
0
<COMMON> 2,837,000<F3>
<OTHER-SE> 6,093,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 20,776,000
<SALES> 26,094,000
<TOTAL-REVENUES> 26,680,000
<CGS> 21,565,000
<TOTAL-COSTS> 21,565,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 310,000
<INCOME-PRETAX> 1,421,000<F4>
<INCOME-TAX> 530,000
<INCOME-CONTINUING> 899,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 899,000
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
<FN>
<F1> NET OF LIFO RESERVE OF $1,114,000
<F2> RETAINED EARNINGS
<F3> 1,511,079 TOTAL COMMON SHARES OUTSTANDING
<F4> BEFORE MINORITY INTEREST OF $8,000
</FN>
</TABLE>
